=================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[check] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 0-20968
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3166348
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
46 Jonspin Road
Wilmington, Massachusetts 01887
------------------------- -----
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (508) 657-8876
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.01 per share
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [check] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock,
$.01 par value, held by non-affiliates computed by reference to
the average of the closing bid and asked prices as reported by
NASDAQ on December 31, 1996 (based upon the assumption that each
officer, director and person who is known by the Registrant to
own more than five percent of the outstanding Common Stock of the
Registrant is an affiliate of the Registrant for purposes of this
computation): $13,563,453.
Number of shares of the Registrant's Common Stock, $.01 par
value, outstanding as of December 31,1996: 8,346,740.
=================================================================
<PAGE>
INDEX
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business. . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . 13
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . 14
Item 6. Selected Financial Data. . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . 17
Item 8. Financial Statements and Supplementary Data . 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . 19
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . 29
Item 13. Certain Relationships and Related Transactions 30
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Item 14. Exhibits, Financial Statements and Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . 32
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 34
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Advanced Mammography Systems, Inc. ("AMS" or the
"Company") is a development stage company which was organized in
Delaware in July 1992 to acquire and develop proprietary
technology from Advanced NMR Systems, Inc. ("ANMR") in order to
design, manufacture and commercialize a dedicated (or partial
body) magnetic resonance imaging ("MRI") system for breast
imaging which can be used to detect and characterize breast
tissue abnormalities.
In February 1996, the U.S. Food and Drug Administration
(the "FDA") cleared the commercial use of the Company's Aurora
dedicated MR Breast Imaging System. In order to fully
commercialize the Aurora System and to demonstrate diagnostic
effectiveness as an accepted tool for the diagnosis and
management of breast disease and permit reimbursement for
dedicated breast MRI by third parties such as Medicare, private
insurance and managed care consortiums, the Company must develop
maximum clinical utility. The Company has launched a clinical
study which includes a scientific investigation of the improved
breast imaging device in a large patient population to provide
objective evidence of its clinical utility. The System has been
placed at the University of Texas Medical Branch at Galveston and
the Company expects to install a second System at the Faulkner-
Sagoff Centre for Breast Health Care in Boston, MA for research
testing. It is anticipated that the breast imaging technology
should gain clinical acceptance over the next two years and
continue to evolve as further information is obtained from the
clinical studies concerning additional applications.
In July 1992, ANMR licensed (the "ANMR License
Agreement") to AMS the right to use ANMR's technology in the
development of a dedicated breast imaging system. As
consideration for the ANMR License Agreement, AMS paid to ANMR
$1,680,000 and issued 4,000,000 shares of its Common Stock, of
which 2,750,000 shares (the "Escrow Shares") are subject to an
escrow arrangement for release which was based upon AMS achieving
certain future minimum pre-tax income, or the market price of
the AMS Common Stock reaching certain levels. The conditions for
the release of the Escrow Shares have not been met and it is
expected that the Escrow Shares will be returned to AMS as of May
1997. (See "Item 12. Security Ownership of Certain Beneficial
Owners and Management Escrow Shares.") ANMR, which was then
solely engaged in the manufacture and sale of MRI-based products,
decided it was more feasible to establish the Company to obtain
the financing necessary to develop an MRI scanner for breast
imaging than to continue to finance and develop the product
independently. The Company uses a portion of ANMR's facilities
and ANMR's executives and employees pursuant to a Shared Services
Agreement entered into in January 1993 and as subsequently
modified. (See "Item 13. Certain Relationships and Related
Transactions.")
In January 1993, the Company completed a public
offering of 1,483,500 shares of Common Stock at $6.00 per share,
prior to underwriting discounts, commissions and expenses,
including 193,500 shares underlying an over-allotment option
exercised by the underwriter in March 1993. The offering
proceeds were used for the repayment of debt, for research and
development and for working capital.
In May 1996, the Company closed a Regulation S private
placement (the "Placement") of $3 million principal amount 4%
Convertible Debentures of the Company (the "Debentures") due
December 1, 1998 (the "Maturity Date"). The Debentures accrue
interest at the rate of 4% per annum from the date of issuance to
the Maturity Date, or earlier either upon conversion or
prepayment. Upon conversion, the Company has the option to pay
the accrued interest on the Debentures being converted in shares
of its Common Stock at the then conversion rate. At November 30,
1996, approximately $1,472,000 of debentures was still
outstanding after certain conversions. The net proceeds of the
Placement of approximately $2,750,000, after payment of fees and
related expenses, is being used for completion of product
development of the Company's Aurora System, the commercialization
and marketing of the Aurora System and working capital.
Upon the closing of the Placement, the Company and ANMR
terminated a previously announced Agreement and Plan of Merger,
dated as of February 4, 1996, which provided for the merger of
AMS Merger Corporation, a wholly owned subsidiary of ANMR, with
and into the Company.
MRI TECHNOLOGY
MRI systems provide medical images for the diagnosis
and detection of disease. The systems use magnets, digital
computers and controlled radio waves to derive cross-sectional
(two-dimensional) and volume (three-dimensional) pictures of
human anatomy and to provide information, which can be displayed
either on film or a video monitor, about the concentration and
the physical and chemical environment of atomic nuclei within the
body, without the need for invasive surgery. Current mammography
techniques generally utilize conventional x-ray and ultrasound
equipment.
Magnetic resonance imaging has become a well
established technique over the past ten years that should
continue to grow in acceptance with increased application. Other
diagnostic imaging techniques include Computerized Axial
Tomography ("CAT"), nuclear medicine, radiography/fluoroscopy,
ultrasound, x-ray mammography and thermography. Except for
thermography and ultrasound, these other methods use ionizing
radiation. MRI does not use ionizing radiation and is thought by
the medical community to be low risk-for most patients. In
addition, MRI provides superior soft-tissue contrast compared to
CAT scans; therefore, for brain and spine imaging, MRI has become
the standard for diagnostic radiology.
Current commercially available MRI systems are whole
body systems which are very large and expensive for discrete
uses, such as breast imaging. The Company has developed a
dedicated MRI system for breast imaging based on research and
development activities first conducted by ANMR and subsequently
by AMS. In February 1996, the Company was granted 510(k)
clearance by the FDA for commercial use of its Aurora System.
BREAST DISEASE INCIDENCE AND DIAGNOSIS
According to the American Cancer Society, except for
skin cancer, which has a low mortality rate, breast cancer is the
most common cancer among women, accounting for one out of every
three cancer diagnoses. In 1996, approximately 184,300 new cases
of invasive breast cancer are expected to be diagnosed, and
44,300 women are expected to die from this disease. Only lung
cancer causes more cancer deaths in women The procedure
generally employed to diagnose breast cancer involves several
steps. First, x-ray mammography is used to screen for breast
tissue abnormalities or existence of a lesion. If an abnormality
in breast tissue is discovered and determined to be possibly
indicative of a lesion, confirming ultrasound is generally
performed. Then a biopsy procedure must be performed to
determine whether or not a malignancy is present. There is also
a subset of patients who have a palpable mass that cannot be seen
on x-ray. Biopsy in these patients is presently being done by
ultrasound or by excision by a surgeon.
In the U.S., National Cancer Institute guidelines
recommend women over 50 undergo an annual screening for breast
cancer using x-ray mammography. Approximately 25 million
screening procedures were performed in 1996 generally utilizing
conventional x-ray and ultrasound equipment. Screening exams
with x-ray mammography are generally credited with the earlier
detection of lesions and, thus, increased survival rates among
breast cancer patients. Despite this improvement, however,
screening x-ray mammography results in ambiguous or indeterminate
finding in 15-20% of patients tested. It is in these cases where
AMS believes its Aurora System will provide important diagnostic
information not now available.
Over the last several years there has been increased
activity in the field of breast cancer: detection, diagnosis,
treatment, and overall management. The National Institutes of
Health is currently sponsoring a major initiative in breast
cancer research. In addition, there has been generally an
increased application of magnetic resonance breast imaging. Two
investigators in Europe have now performed several thousand exams
using a whole body scanner with a breast surface coil and have,
as a result, reshaped their clinical practice. In the U.S., the
National Cancer Institute is sponsoring a multi-center trial that
began in 1994 and at least one participating center has developed
complementary data to the European research. The increase in
application is evident by the increase of focus on imaging of
diagnosis of breast cancer at the Annual Meeting of the
Radiologic Society of North America ("RSNA") in 1996.
THE AURORA BREAST IMAGING SYSTEM
The Company believes its Aurora breast imaging system
has the potential to become an important adjunct in the
evaluation of the 15-20% of x-ray mammograms that are ambiguous
or indeterminate, for imaging dense breast tissue using a patent
pending technique that can suppress fat in breast images, for
earlier diagnostic intervention among high risk individuals, for
characterizing breast lesions, for staging cancer treatment and
for post surgery and post radiation follow-up. The Company is
initiating studies among its clinical partners to accelerate the
expansion of MRI's potential in breast imaging. The study's goal
is to establish breast MRI as an integral tool in the diagnosis
and treatment of breast disease. These studies will be performed
applying American College of Radiology (ACR) lexicon or decision
making criteria. As broader diagnostic applications are
established, the next Company goal will be to demonstrate
clinical utility beyond diagnosis to include screening. This
expansion of breast MRI's clinical utility should alter medical
practices to include MR on a more routine basis which will derive
patient demand that should exceed the capacity of currently
available whole body MRI systems. The Aurora MRI solution is a
technology optimized for and dedicated to breast imaging to
address this future demand and meet patient needs that are
distinct from and not adequately served by whole body MRI
systems. Also, the Aurora will be offered at about 1/3 of the
cost of a whole body system, or approximately $550,000. With
future expanded applications and the System's market pricing
strategy, the Company expects sales of the Aurora System and its
diffusion in the women's healthcare marketplace to develop
commensurate with new applications. The Company plans to market
the Aurora System to mammography clinics and practices where
patient volume is sufficient to justify the cost of adding MR
breast imaging to the diagnostic workup of certain breast
patients. The Company has been notified that tests utilizing its
Aurora breast imaging technology are eligible for reimbursement
to their patient members by certain Massachusetts managed health
care providers.
Technological Aspects. The Aurora System for breast
imaging utilizes a .5T magnet that maintains an imaging field of
view and image quality comparable to a 1.5T whole body system,
dramatically reducing the customer purchase price and siting
costs. The Company installed the first Aurora System at the
Breast Imaging Center at the University of Texas Medical Branch
at Galveston, Texas in February 1996. The second installation of
the Aurora System will be at the world renowned Sagoff Centre at
Faulkner Hospital, Boston, MA in early 1997.
AGREEMENTS WITH ADVANCED NMR SYSTEMS, INC.
In June 1992, the Company entered into the ANMR License
Agreement with ANMR pursuant to which the Company was granted a
perpetual, worldwide exclusive, royalty-free license to all
proprietary technology and related know-how, including patents
owned and/or licensed by ANMR and patent applications filed or to
be filed by ANMR (the "Licensed Technology"), to the extent, if
any, useful in connection with developing a dedicated MRI system
for mammography (the "Field of Use"). See "Patents and
Proprietary Rights" herein, and "Item 13. Certain Relationships
and Related Transactions."
The Company believes other dedicated use (or partial
body) MRI scanners might be developed for fields of use in
addition to breast imaging. The Company has not been granted the
right to use any technology now or hereafter obtained by the
Company from ANMR in connection with any other dedicated use MRI
scanners. However, the Company has been granted a 50% interest
in any entity which may be organized by ANMR to develop dedicated
use MRI scanners outside of the Field of Use ("ANMR Entity") and
a 50% interest in any net profits, as defined in the ANMR License
Agreement (after allocation of development expenses), derived by
ANMR from the sale or license of dedicated use MRI scanners
utilizing or based upon the Licensed Technology outside of the
Field of Use. The ANMR License Agreement provides that (i) any
inventions outside the Field of Use developed solely by ANMR or
an ANMR entity shall be owned by ANMR or such ANMR entity and
automatically licensed to the Company on an exclusive, worldwide
basis, within the Field of Use, (ii) any inventions developed
solely by the Company shall be automatically licensed to ANMR on
an exclusive, worldwide basis for use solely outside the Field of
Use, and (iii) any inventions outside the Field of Use jointly
developed by the Company and ANMR or an ANMR entity shall be
jointly owned in equal shares by the Company, on the one hand,
and ANMR or an ANMR Entity, on the other hand, and AMS or an ANMR
Entity shall automatically license its interest to ANMR on an
exclusive, worldwide basis. Accordingly, ANMR shall obtain the
right to future technology developed by AMS for use in connection
with breast imaging, and the Company shall obtain the right to
further technology developed by the Company for use outside of
the Field of Use.
Neither party may assign its rights under the ANMR
License Agreement without the prior written consent of the other
party, except that either party may transfer, assign or
sublicense its rights under the ANMR License Agreement in
connection with disposing of an entire product line,
subcontracting to a third party the development, manufacture or
sale of a particular product, granting to a third party the right
to manufacture, develop or sell a particular product in any
territory within or without the United States, or, in the case of
the Company, a transfer of all of its rights to the Licensed
Technology to a single entity.
To optimize the Company's and ANMR's operating
efficiency, the Company and ANMR entered into a Shared Services
Agreement as of January 25, 1993 whereby the companies share
common expenses and functions, for example, executive officers,
marketing, field service, administration, regulatory approvals
and outside services. On August 29, 1996, the original Agreement
was terminated and the Company and ANMR entered into a new
agreement which outlines a more accurate method of allocating the
services that are shared by the companies. The new agreement has
developed as a result of two significant factors: (a) the
changes in the company profile of ANMR which is modifying its
technology operations related to the manufacture of its InstaScan
retrofit system and is attending to its service division, and (b)
the growing independence of both companies as each company
pursues divergent objectives. Vendors for parts and services
have been instructed to provide separate invoices directly to the
Company or ANMR, as the case may be. The Company's expenses
related to the use of the facilities, such as rent, utilities and
insurance, will be apportioned based on the number of square feet
occupied by the Company or ANMR, respectively. The remaining
expenses, including senior management, administration and
miscellaneous supplies and resources, will be allocated equitably
between the companies.
RESEARCH AND DEVELOPMENT
The Company has developed and installed its first
Aurora unit at The University of Texas Medical Branch at
Galveston in early 1996. AMS continues to enhance the product's
software capabilities and is in full prototype development of a
biopsy accessory for the product.
For the twelve months ended September 30, 1996, the
Company expended $1,007,000 for research and development costs as
compared to $940,000 for the twelve months ended September 30,
1995, and has budgeted $1,568,000 for research and development
costs for fiscal 1997. As of December 31, 1996, the Company had
13 scientists, engineers and technical support personnel involved
on a full-time basis in developing its MRI scanner for breast
imaging.
MARKETING
The Company intends to market its MRI breast imaging
products or components thereof, either directly to hospitals and
clinics or through a marketing or joint venture arrangement with
one or more distributors.
In February 1996, the Company was granted a 510(k)
clearance by the FDA for the purpose of commercial distribution
of the Aurora System. To accelerate the establishment of MR's
clinical efficacy and cost effectiveness in the diagnosis of
breast diseases, in addition to its arrangements with its two
current institutions, the Company is partnering under terms
currently in negotiations with other leading institutions to
conduct rigorous and scientifically sound clinical and economic
outcome comparisons between MR breast imaging and mammography.
This marketing effort will fuel a comprehensive sales campaign,
including advertising, trade shows, application training and
other activities as appropriate.
COMPETITION
The health care industry in general, and the market for
diagnostic imaging equipment in particular, is highly competitive
and virtually all of the other entities known to management of
the Company to be engaged in the manufacture of MRI systems
possess substantially greater resources than the Company. At the
present time, manufacturers of whole body scanners include the
General Electric Company; Toshiba; Bruker Medical Imaging Inc.;
Elscint; Siemens Corporation; Philips Medical Systems, a division
of Philips Industries, N.V.; Picker International Corporation;
Shimadzu; and Hitachi. Although the Company is not aware of any
other entities involved in developing dedicated use MRI scanners
for breast imaging, the Company may experience competition from
either entities developing other dedicated use MRI scanners to
image other parts of the body seeking to expand into the area of
mammography or manufacturers of whole body scanners designed to
utilize breast coils to image the breast area. In addition to
competition on price, the principal elements of competition which
will affect the ability of the Company to engage in the marketing
of MRI systems will include product performance, service and
support capability, financing terms and brand name recognition.
To some extent, competition will also come from the manufacturers
of other types of diagnostic imaging systems, such as ultrasound
or thermography.
The Company will also experience competition from the
use of x-ray mammography machines, which machines are widely
established and clinically accepted. The cost of x-ray
mammography equipment is typically $60,000 which is significantly
less than the expected cost to the user of the Company's breast
imaging MRI system. Today, the charge for a typical mammogram is
about $130 and a typical MR is about $1,000. Since the Company's
cost to the purchaser is expected to be about one-half to one-
third of a whole body MRI system, the Company believes that a
proportionate savings might be passed to the patient, which
should make MR scans more economically viable and competitive.
Although the Company believes that an MRI scanner for
breast imaging will represent a safer and more effective
diagnostic imaging device, there can be no assurance that any
products developed by the Company will be commercially accepted,
especially in light of the cost savings involved in purchasing x-
ray mammography machines and the familiarity of current
practitioners in operating such devices. However, the Company
also believes that MR breast imaging would provide additional
information, especially in patients with mammographically dense
breast, and will make it an important diagnostic tool without
having to displace x-ray mammography.
PATENTS AND PROPRIETARY RIGHTS
The Company currently owns 2 patents but intends to
file at least one imaging technique patent application this year.
Pursuant to the terms of the ANMR License Agreement, the Company
has rights to 20 issued U.S. patents and related technology
relating to MRI imaging owned by ANMR, and additional patent
applications in various stages of submission by ANMR, to the
extent, if any, such patents and/or patent applications are
useful in connection with developing a dedicated MRI scanner for
breast imaging. All major ANMR patents are protected in Japan,
Canada and the European Market countries.
The Company may need to obtain licenses to additional
technology prior to completing an MRI scanner for breast imaging.
Additionally, the Company intends to seek patent protection for
any products it develops, or components thereof.
GOVERNMENTAL REGULATION
The health care operations of the Company are subject
to extensive federal and state regulation. Magnetic Resonance
Diagnostic Devices ("MRDD") generally, and any products the
Company may develop, in particular, are subject to regulation by
the FDA, certain state and federal agencies that regulate the
provision of health care, particularly the Health Care Financing
Administration ("HCFA"), and the Environmental Protection Agency
("EPA").
A. FDA Regulation
The MRI scanner for breast imaging and other MRI
technology devices which the Company intends to develop will be
regulated as medical devices by the FDA and as such require
regulatory clearance prior to commercialization. The level of
its classification as a medical device would determine the extent
and the scope of the FDA approval process for the MRI scanner.
Various states and foreign countries in which the Company's
products may be sold in the future may impose additional
regulatory requirements.
The Company submitted a Pre-market Notification of
intent to market the Aurora under section 510(k) of the Federal
Food, Drug, and Cosmetic Act in February of 1995. Clearance to
market the Aurora System was granted by the FDA in February of
1996.
Any products distributed by the Company pursuant to the
above described clearances will be subject to continuous
regulation by the FDA, such as performance standards or special
controls promulgated by the FDA. Labeling and promotional
activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The export of
medical devices is also subject to regulation in certain
instances. In addition, the use of the Company's products may be
regulated by various state agencies. Moreover, future changes in
regulations or enforcement policies could impose more stringent
requirements on the Company, compliance with which could
adversely affect the Company's business. Failure to comply with
applicable regulatory requirements could result in enforcement
action, including withdrawal of marketing authorization,
injunction, seizure of products, and liability for civil and/or
criminal penalties.
B. Third Party Coverage, Reimbursement and Related
Health Care Regulations
The market for MRI systems, including the Company's
proposed products, is likely to be affected significantly by the
amount which Medicare, Medicaid or other third party payers,
including private insurance companies, will reimburse hospitals
and other providers for diagnostic procedures using MRI systems.
Recent proposals to reduce reimbursement for certain diagnostic
procedures coupled with studies questioning the need for custom
testing for breast cancer could result in limitations on or
reductions for reimbursements to providers of MRI for breast
imaging.
MRI diagnostic services provided on an outpatient basis
are reimbursable under Part B of the Medicare program. The
professional and technical components of radiological procedures
which are performed in a physician's office or freestanding
diagnostic imaging center, and the professional component of
radiological procedures performed in a hospital setting, are
currently reimbursed on the basis of a recently adopted relative
value scale which phased in, beginning January 1, 1992. Prior to
January 1, 1992, screening mammography was not a covered benefit
under Medicare. Payment for the professional and technical
component is limited by statute.
The market for the Company's proposed products could
also be adversely affected by the amount of reimbursement
provided by third party payers to hospitals for procedures
performed using such products. Reimbursement rates from private
insurance companies vary depending upon the procedure performed,
the third-party payor, the insurance plan, and other factors.
Medicare generally reimburses hospitals that are expected to
purchase the Company's proposed products for their operating
costs for in-patients on a prospectively-determined fixed amount
for the costs associated with an inpatient hospital stay based on
the patient's discharge diagnosis, regardless of the actual costs
incurred by the hospital in furnishing care. The willingness of
these hospitals ("PUS hospitals") to purchase the Company's
proposed products could be adversely affected if they determined
that the prospective payment amount to be received for the
procedures for which the Company's proposed products are used
would be inadequate to cover the hospitals' costs associated with
performing the procedures using the Company's proposed products,
or to be less profitable than using an alternative procedure for
the same condition.
The Mammography Quality Standards Act of 1992 ("MQSA")
authorizes the U.S. Department of Health and Human Services
("DHHS") to regulate facilities that provide mammography services
and utilize radiological equipment. Under the MQSA, no facility
may provide mammographies (as defined therein to mean a
radiography (i.e., an x-ray) of the breast), unless it has
obtained a certificate from DHHS to do so. The MQSA also
requires that the Secretary of DHHS develop quality standards to
assure the safety and accuracy of mammography carried out by such
facilities. The Company's MRI products currently under
development do not provide radiography of the breast. Instead,
they rely upon magnetic resonance imaging technology, which does
not currently fall within the scope of the MQSA. The Company is
aware of the high MQSA standard and endeavors to develop the
Aurora System to meet the MQSA guidelines. Nonetheless, the
Company cannot predict whether the MQSA will be amended or
interpreted to regulate the use of any of the Company's proposed
MRI products. As such, there can be no assurance that the MQSA
and the standards promulgated thereunder will not have an adverse
effect on the Company's future ability to market its Aurora MRI
product.
A number of states, through Certificate of Need ("CON")
laws, limit the establishment of a new facility or service or the
purchase of major medical equipment to situations where it has
been determined that the need for such facility, service or
equipment exists. While many states exempt non institutional
providers from CON coverage, a number of states have extended CON
coverage to physicians' offices or medical groups by restricting
the purchase of major medical equipment wherever located. There
can be no assurance that such CONs can be obtained if needed.
The Health Care Financing Administration ("HCFA"), a
federal agency that regulates national standards for charges for
all medical examinations, currently has Customary Procedure Time
("CPT") codes for MR imaging of the breast. The use of MRI to
diagnose implant leaks is approved as a reimbursable procedure by
third party payers. However, this does not assure that breast
imaging for other clinical applications will become a
reimbursable procedure by third party payers.
Furthermore, laws, rules and regulations pertaining to
health care benefits have been subject to change in the past and
the current administration is seeking changes in the cost and
delivery of health care benefits. At this time the Company
cannot predict how any such changes would affect the Company.
C. EPA Regulation
The Company, and any research facility which it
operates, will also be required to comply with any applicable
federal and state environmental regulations and other regulations
related to hazardous materials used, generated, and/or disposed
of in the course of its operations. Although the Company does
not expect to have to incur substantial costs in order to comply
with such regulations, no assessment can be made as to the impact
of future regulations upon operations of the Company.
EMPLOYEES
As of December 31, 1996, the Company had 14 full-time
personnel. Pursuant to the Shared Services Agreement with ANMR,
the Company utilizes the services of ANMR's personnel and
research scientists on an as-needed basis. The Company's or
ANMR's employees are not represented by any labor organizations,
and the Company is not aware of any activity seeking such
organization. The Company considers its relationships with such
employees to be good. (See "Item 13, Certain Relationships and
Related Transactions.")
ITEM 2. PROPERTIES.
The Company does not lease or own any facilities. The
Company occupies space at ANMR's facility in Wilmington,
Massachusetts (the "Shared Facility"). The Shared Facility
consists of approximately 61,000 square feet of office, research
and development, manufacturing and warehouse space which is
leased by ANMR pursuant to a lease expiring in May 2001, at a
base monthly rental of approximately $37,000. As of December 31,
1996, the activities of the Company utilized approximately 17% of
the Shared Facility. The Company believes that the space it
currently occupies is adequate for the Company's needs for the
foreseeable future.
ANMR also leases office spaces in Fort Lee, New Jersey
for its administrative and investor relations personnel. The
approximate 1,290 square feet of space is leased by ANMR pursuant
to a lease expiring March 31, 1999, at a base monthly rent of
approximately $2,300. The personnel located in the New Jersey
office also perform services on behalf of the Company.
Approximately 28% of the costs of maintaining these offices are
allocated to the Company.
ITEM 3. LEGAL PROCEEDINGS.
In February and in March 1996, class action complaints,
all of which were consolidated in a matter styled In Re: Advanced
Mammography Systems, Inc. Shareholders Litigation (consolidated
C.A. No. 14821), were filed in the Court of Chancery in the
State of Delaware, in and for New Castle County, on behalf of all
the public stockholders of both the Company and ANMR against the
Company and ANMR and their directors seeking to (a) enjoin the
previously announced merger of the two companies, or (b) if the
merger is consummated, to award rescissory damages to the
proposed class of plaintiffs. The plaintiffs and the Company
entered into a stipulation of settlement which is pending before
the court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on August
22, 1996. The following seven directors, consisting of all the
directors of the Company, were elected to serve until the next
Annual Meeting of Stockholders and thereafter, until their
successors are elected and qualified.
Name Votes "FOR" Votes "WITHHELD"
------ ----------- -------------
Jack Nelson 5,939,629 81,584
George Aaron 5,939,629 81,584
Alison Estabrook 5,939,629 81,584
Enrique Levy 5,939,629 81,584
Robert Spira 5,939,629 81,584
Sol Triebwasser 5,939,629 81,584
Bernard Weiner 5,939,629 81,584
The stockholders also approved an amendment to the Company's 1992
Stock Option Plan increasing the number of shares available from
750,000 shares to 1,250,000 shares and effecting certain other
modifications relating to recent changes in the federal
securities laws by the following vote:
FOR: 4,364,847
AGAINST: 284,683
ABSTAIN: 17,550
BROKER NON-VOTE: 577,163
The stockholders also approved an amendment to the Company's 1992
Non-Employee Directors' Stock Option Plan increasing the number
of shares available from 100,000 shares to 350,000 shares and
effecting certain other modifications relating to recent changes
in the federal securities laws by the following vote:
FOR: 4,413,342
AGAINST: 228,668
ABSTAIN: 25,050
BROKER NON-VOTE: 577,163
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock was included on the NASDAQ
System since February 1, 1993, under the symbol MAMO. As of
November 30, 1996, there were 64 holders of record of the
Company's Common Stock. Since certain of the shares are held in
street name, it is believed that there are substantial additional
beneficial holders of the Common Stock.
The following table sets forth the quarterly high and
low bid prices for the Common Stock as reported by NASDAQ for the
periods indicated. These prices are based on quotations between
dealers, and do not reflect retail mark-up, mark-down or
commissions.
COMMON STOCK
1996 High Low
January 1 through March 31 4 1/8 1 1/2
April 1 through June 30 4 5/8 1 13/16
July 1 through September 30 2 1/16 5/8
1995
January 1 through March 31 13 7/8 8 3/4
April 1 through June 30 15 1/4 10
July 1 through September 30 14 4 3/4
October 1 through December 31 5 15/16 1
1994
October 1 through December 31 11 3/4 7 3/8
No dividends on the Common Stock have been declared since
the incorporation of the Company in July 1992. The Company does
not anticipate declaring dividends in the foreseeable future and
any earnings would be retained for use in the business.
ITEM 6. SELECTED FINANCIAL DATA.
Statement of Operations Data:
The selected financial information for the twelve
months ended September 30, 1996 and September 30, 1995, the nine
months ended September 30, 1995 and September 30, 1994, and each
of the years ended December 31, 1994 and 1993, for the period
from July 2, 1992 (Inception) to December 31, 1992 and for the
period from July 2, 1992 (Inception) to September 30, 1996, is
derived from the financial statements of the Company.
This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and notes
thereto included elsewhere in this Form 10-K.
<PAGE>
STATEMENT OF OPERATIONS DATA:
-----------------------------
TWELVE MONTHS TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1995
---- ---- ----
COSTS & EXPENSES
Acquired
Technology Rights
$ $ $
Research &
Development . . . 1,007,294 940,141 664,786
General & 2,209,736 1,571,007 1,107,326
Administrative . ------------ ------------ ------------
LOSS FROM
OPERATIONS (3,217,030) (2,511,148) (1,772,112)
Interest Income . 70,248 96,819 88,064
Interest Expense
Amortization of
Debt Issuance (30,857)
Costs . . . . . ------------ ------------ ------------
NET LOSS $(3,177,639) $(2,414,329) $(1,684,048)
============ ============ ============
NET LOSS PER $(.79) $(.73) $(.44)
SHARE === === ===
Balance Sheet
Data:
Working Capital
(Deficit) . . . . $2,239,089 $2,605,522 $2,605,522
Total Assets . . 3,984,351 3,440,367 3,440,367
Total Liabilities
2,380,346 197,020 197,020
Stockholders'
Equity (Deficit)
1,604,005 3,243,347 3,243,347
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1994 1993
---- ---- ----
COSTS &
EXPENSES
Acquired
Technology
Rights . . . . $ $ $
Research &
Development . . 717,010 992,365 822,994
General & 1,119,138 1,582,820 870,414
Administrative
------------ ------------ ------------
LOSS FROM
OPERATIONS (1,836,148) (2,575,185) (1,693,408)
Interest Income
63,268 72,023 80,636
Interest
Expense . . . . (99,999)
Amortization of
Debt Issuance (51,825)
Costs . . . . ------------ ------------ ------------
NET LOSS $(1,772,880) $(2,503,162) $(1,764,596)
============ ============ ============
NET LOSS PER $(.64) $(.89) $(.68)
SHARE === === ===
Balance Sheet
Data:
Working Capital
(Deficit) . . . $1,594,561 $1,097,761 $3,308,814
Total Assets . 2,677,964 2,146,632 3,647,055
Total
Liabilities . . 460,429 419,123 125,699
Stockholders'
Equity
(Deficit) . . . 2,217,535 1,727,509 3,521,356
CUMULATIVE
JULY 2, 1992 FROM JULY 2, 1992
(INCEPTION) TO (INCEPTION) TO
DECEMBER 31, SEPTEMBER 30,
1992 1996
---- ----
COSTS & EXPENSES
Acquired Technology
Rights . . . . . . . . $ 1,720,000 $ 1,720,000
Research & Development
239,423 3,726,862
General & 5,770,296
Administrative . . . . ------------ -------------
LOSS FROM OPERATIONS (1,959,423) (11,217,158)
Interest Income . . . . 310,971
Interest Expense . . . (500,000) (599,999)
Amortization of Debt
Issuance (259,137) 341,819
Costs . . . . . . . . ------------ -------------
NET LOSS $(2,718,560) $(11,848,005)
============ =============
NET LOSS PER SHARE $(1.17)
=====
Balance Sheet Data:
Working Capital
(Deficit) . . . . . . . $(2,347,861)
Total Assets . . . . . 211,339
Total Liabilities . . . 2,389,899
Stockholders' Equity
(Deficit) . . . . . . . (2,178,560)
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended September 30, 1996 Compared to the Year Ended
September 30, 1995 (unaudited)
The Company's only source of revenue was interest
income of $70,000 in fiscal year 1996 as compared with $97,000 in
fiscal year 1995. The Company anticipates that sales revenues
resulting from the sale of its Aurora System at the University of
Texas will commence in the second quarter of fiscal 1997.
Research and development costs were $1,007,000 during
the twelve months ended September 30, 1996 and $940,000 in the
comparable 1995 period. The Company is focusing its research
activity in evolving the clinical platform to enhance future
system performance including an integrated biopsy capability.
General and administrative expenses in the year ended
September 30, 1996 of $2,210,000 increased from $1,571,000 in the
comparable fiscal 1995 period. The increase of approximately
$640,000 is primarily due to legal and investment banking fees
incurred in the aborted merger between the Company and ANMR,
public relations fees, certain costs associated with the private
placement of the convertible debentures and recruiting fees for
additional technical personnel.
Nine Month Period Ended September 30, 1995 Compared to the
Nine Month Period Ended September 30, 1994 (unaudited)
The Company's only source of revenue was interest
income of $88,000 in the nine months ended September 30, 1995 as
compared with $63,000 in the comparable 1994 period.
Research and development costs were $665,000 in the
nine months ended September 30, 1995 and $717,000 in the
comparable 1994 period.
General and administrative expenses in the nine months
ended September 30, 1995 of $1,107,000 decreased from $1,119,000
in the comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital
of $2,239,000. The Company's cash portfolio (cash and cash
equivalents) increased by $164,000 from $1,833,000 at September
30, 1995 to $1,997,000 at September 30, 1996. The increase was
due to proceeds received from the issuance of the Debentures in a
Regulation S private placement totaling approximately $2,750,000
and offset by costs incurred in the normal operations of the
business.
In May 1996, the Company closed the Placement of $3
million principal amount 4% Convertible Debentures of the Company
due December 1, 1998. The Debentures accrue interest at the rate
of 4% per annum from the date of issuance to the Maturity Date of
the Debentures, or earlier either upon conversion or prepayment.
Upon conversion, the Company has the option to pay the accrued
interest on the Debentures being converted in shares of its
Common Stock at the then conversion rate. The Company is using
the $2.75 million proceeds from the Placement for continuing
research and development and for general working capital
purposes.
The Company currently has no sources of recurring
revenues and has incurred operating losses since its inception
and has financed its operations with public and private offerings
of securities. Management believes that existing cash and cash
equivalents combined with additional cash inflows from investment
income, grants and advances will be sufficient to support
operations through the second quarter of 1997. Management
believes that additional funding will be required to fund
operations until, if ever, profitable operations can be achieved.
Therefore, the Company is continuing to actively pursue various
funding options, including additional equity offerings,
commercial and other borrowings, strategic corporate alliances
and business combination transactions, or a combination of these
methods for obtaining the additional financing that would be
required to continue the research and development necessary to
complete the development of its product and bring it to
commercial markets. However, there can be no assurance that such
funding initiatives will be successful.
The Company is including the following cautionary
statement in this Annual Report on Form 10-K to make applicable
and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. Forward-
looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than
statements of historical facts. Certain statements contained
herein are forward-looking statements and accordingly involve
risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the
forward-looking statements. The Company's expectations, beliefs
and projects are expressed in good faith and are believed by the
Company to have a reasonable basis, including without
limitations, management's examination of historical operating
trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or
be achieved or accomplished. In addition to other factors and
matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual
results to differ materially from those discussed in the forward-
looking statements: technological advances by the Company's
competitors, changes in health care reform, including
reimbursement programs, capital needs to fund any delays or
extensions of research programs, delays in product development,
lack of market acceptance of technology and the availability of
capital on terms satisfactory to the Company. The Company
disclaims any obligation to update any forward-looking statements
to reflect events or circumstances after the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 and the Index therein for a listing of the
financial statements and supplementary data as a part of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No change in the Registrant's accountants occurred
during the 24 months prior to the date of the Registrants most
recent financial statements, nor did any disagreements occur on
any matter of accounting principles or practices or financial
statement disclosure that would be required to be reported on a
Form 8-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company
are:
Name Age Position
---- --- --------
Jack Nelson(1) 46 Chairman of the Board,
Chief Executive Officer
and Acting Treasurer
Robert Spira, M.D.(1)(3) 48 Vice Chairman of the Board
Enrique Levy(1) 59 President, Chief
Operating Officer
and Director
Charles Moche 47 Chief Financial Officer
Peter B. Roemer, Ph.D. 41 Vice President, Research
and Technology
George Aaron (2) 44 Director
Alison Estabrook, M.D. 45 Director
Sol Triebwasser, Ph.D. (2) 75 Director
Bernard Weiner, M.D.(3) 48 Director
__________________
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Jack Nelson. Mr. Nelson has been Chairman of the Board
-----------
of the Company since its formation in July 1992. Mr. Nelson also
serves as Chairman of the Board and Treasurer of ANMR, having
been in such capacities since June 1991 and November 1990,
respectively, and has been a director of ANMR from September
1990. Mr. Nelson had been engaged in the private practice of law
as a senior partner with the law firm of Zaslowsky, Marx & Nelson
in New York, New York, for more than five years prior to December
31, 1993. Since January 1994, he has been employed full-time
with ANMR and the Company. Mr. Nelson holds a B.A. degree from
Yeshiva University and J.D. degree from Hofstra University School
of Law. Mr. Nelson serves on the Board of Directors of ARC
Capital, a publicly traded company (NASDAQ: ARCCA).
Robert Spira, M.D. Dr. Spira has been a director of
------------------
the Company since August 1992. Since October 1992, he has been
the Director of the Department of Gastroenterology at St.
Michael's Medical Center in Newark, New Jersey, and for more than
five years prior thereto, he served as Chief of Gastrointestinal
Endoscopy at St. Michael's Medical Center. Dr. Spira is a past
president of the New Jersey Society for Gastrointestinal
Endoscopy and President-elect of the New Jersey Society of
Gastroenterology. Dr. Spira is a graduate of New York University
School of Medicine.
Enrique Levy. Mr. Levy has been President and Chief
------------
Operating Officer of ANMR and AMS since October 1995 and a
Director of both companies since August 31, 1995. From May 1994
to October 1995 he was Manager, Manufacturing for Xerox Graphic
Systems, the manufacturer of Verde Digital Recording Film,
Purchase, New York, a venture of Xerox Corporation. From April
1989 to May 1994, he was Executive Vice President of Worldwide
Process Technologies, Allendale, New Jersey, a manufacturer of
machinery and equipment for the web handling and film and paper
coating industries. He holds a B.S. in Chemical Engineering from
the Louisiana State University.
Charles Moche has been Chief Financial Officer of the
-------------
Company and ANMR since January 1, 1994. He has practiced
accounting in New York with a concentration on tax planning and
auditing from 1987 to 1993. Mr. Moche holds an MBA in
Accountancy from the Bernard M. Baruch Graduate School of
Business, and a BA in Economics from Yeshiva University. He
received an Advanced Certificate degree in Taxation from the New
York University Graduate School of Business. He is a member of
the American Institute of Certified Public Accountants, the New
York State Society of CPA's, and the Board of Accountancy of the
State of New Jersey Consumer Affairs Division.
Peter B. Roemer, Ph.D. has been Executive Vice
----------------------
President, Research and Technology since October 1995 and was
Corporate Engineering Managing Director since June 1994. From
1990 to June 1994, Dr. Roemer was employed by General Electric
where he managed the Magnetic Resonance Imaging and Image Guided
Therapy Programs for GE's Corporate Research and Development
Group. Dr. Roemer has authored or co-authored 25 U.S. MRI
patents. Dr. Roemer is author or co-author of 17 journal
articles and 39 published proceedings. He holds a pd. in Nuclear
Engineering and a B.S. in Electrical Engineering from
Massachusetts Institute of Technology and is a member of the
American Physical Society and the External Advisory Board of the
National High Field Magnetic Laboratory (University of Florida at
Tallahassee).
George Aaron has been a director of both the Company
------------
and ANMR since August 1992. He is the President of Portman
Group, Inc., in Fort Lee, New Jersey, an investment and
consulting firm primarily in the health care and consumer goods
industries, which he founded in 1981. He is a founder, President
and Chief Operating Officer of Portman Pharmaceuticals, Inc.,
which is engaged in the research and development of therapeutic
and diagnostic products for autoimmune diseases and
immunomodulation. He serves in various capacities with other
private health care companies. He is a graduate of the
University of Maryland.
Alison Estabrook, M.D. has been a director of the
----------------------
Company since August 29, 1996. Since 1992, she has been an
Associate Attending Physician at Columbia Presbyterian Hospital
and Associate Professor of Clinical Surgery at Columbia
University. From 1985 through 1995, Dr. Estabrook served as
Director of the Breast Clinic and since 1991 she has been the
Chief of Breast Service at Columbia University. Dr. Estabrook
serves on the quality assurance committee of the Division of
Breast Surgery at Columbia Presbyterian Hospital. She has
received the Outstanding Woman Doctor of the Year Award in 1989.
Dr. Estabrook holds a B.A. degree from Barnard College and is a
graduate of New York University School of Medicine.
Sol Triebwasser, Ph.D. has been a director of the
----------------------
Company since August 1992, and has been a director of ANMR since
July 1984. Until recently, he was the Director of Technical
Journals and Professional Relations for the IBM Corporation in
Thornwood, New York. Since receiving a Ph.D. in physics from
Columbia in 1952, he had managed various projects in device
research and applications at IBM. Dr. Triebwasser is a member of
the Board of Directors of Banner Aerospace, Inc., a publicly
traded company, a Fellow of the Institute for Electrical and
Electronic Engineers, the American Physical Society and the
American Association for the Advancement of Science.
Bernard Weiner, M.D. has been a director of the Company
--------------------
since June 29, 1995. Since 1985, Dr. Weiner has been the
Director of Nephrology and Hemodialysis at Westchester Square
Medical Center. Since 1980 Dr. Weiner has been Assistant
Clinical Professor in the Department of Medicine at Albert
Einstein College of Medicine. Dr. Weiner has written articles in
several medical publications and is a member of American College
of Physicians, the National Kidney Foundation, the American
Society of Internal Medicine and the International Society of
Nephrology.
All directors hold office until the next annual meeting
of stockholders of the Company or until their successors are
elected and qualified. Executive officers hold office until
their successors are chosen and qualify, subject to earlier
removal by the Board of Directors.
The Board of Directors met eight times during the
fiscal year ended September 30, 1996. Each director attended at
least 75% of the meetings.
All directors receive cash compensation of $10,000 for
their services to the Company as directors and are reimbursed for
expenses incurred in connection with attending meetings of the
Board of Directors. Those directors serving on both the Boards
of the Company and ANMR receive cash compensation in the amount
specified above only from ANMR.
The Executive Committee exercises all the powers and
authority of the Board of Directors in the management and affairs
of the Company between meetings of the Board of Directors, to the
extent permitted by law.
Non-employee directors receive no cash compensation for
their services to the Company as directors, but are reimbursed
for expenses incurred in connection with attending meetings of
the Board of Directors.
The Audit Committee reviews with the Company's
independent accountants the scope and timing of the accountants'
audit services and any other services they are asked to perform,
their report on the Company's financial statements following
completion of their audit and the Company's policies and
procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee reviews the
independence of the independent public accountants and makes
annual recommendations to the Board of Directors for the
appointment of independent public accountants for the ensuing
year. The Audit Committee met once during fiscal 1996.
The Compensation Committee reviews and recommends to
the Board of Directors the compensation and benefits of all
officers of the Company, reviews general policy matters relating
to compensation and benefits of employees of the Company and
administers the Company's 1992 Stock Option Plan. The
Compensation/Option Committee met once during fiscal 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash
compensation paid by the Company to its most highly compensated
executive officers whose cash compensation exceeded $100,000 (on
a combined basis with cash compensation paid to such officers by
ANMR) for services performed during the year ended September 30,
1996. Pursuant to the Shared Services Agreement, the Company and
ANMR each pay 50 percent of such executive officers aggregate
cash compensation.
<PAGE>
Annual Compensation
-------------------------------------------
Other Annual
Name and Principal Salary Bonus Compensation
Position Year ($) ($) ($)
------------------ ----- --------- ------- ---------------
Jack Nelson 1996 -- -- --
Enrique Levy 1996 -- -- --
Charles Moche 1996 -- -- --
Peter Roemer 1996 -- -- --
(1) Stock options awards are for the year ended September 30,
1996.
Long-Term Compensation
----------------------------------
Awards Payouts
------------- -------
Restricted Stock
Stock Options LTIP All Other
Name and Principal Award(s) Award(s) Payouts Compensation
Position ($) (#) ($) ($)
------------------ ------------- ---------- ------- ------------
Jack Nelson -- 90,000 --
Enrique Levy -- 50,000 -- 12,150(3)
Charles Moche -- 20,000 -- 18,900(3)
Peter Roemer -- 20,000 -- 8,400(3)
<PAGE>
EMPLOYMENT AGREEMENTS
The executive officers of the Company and ANMR are Jack
Nelson, CEO, Enrique Levy, President and COO, and Charles Moche,
CFO. Neither Mr. Nelson nor any of the other executive officers
received any separate compensation from the Company for 1996.
Mr. Nelson's salary as the Chairman of the Board and CEO of the
Company and ANMR for the year ended September 30, 1996 was
$284,999. Mr. Levy's salary as President and Chief Operating
Office of the Company and ANMR was $246,346 for the year ended
September 30, 1996. Mr. Moche's salary as CFO of the Company and
ANMR was $180,000 for the year ended September 30, 1996. The
Company and ANMR entered into two separate five year employment
agreements with Mr. Nelson effective as of December 20, 1995.
Mr. Levy's employment agreement with the Company and ANMR
commenced in October 1995. Mr. Moche's contract has expired and
he is currently employed on a monthly basis with the Company.
(See "Item 13. Certain Relationships and Related Transactions.")
As of December 20, 1995, both the Company and ANMR
entered into employment agreements with Jack Nelson (the "Nelson
Employment Agreements"), employing him as Chairman of the Board,
Chief Executive Officer and Treasurer of the Company and ANMR,
respectively through December 31, 2000 at an aggregate base
salary of $235,000, with a 10% increase in base salary effective
during the second year and with any additional increases in base
salary from both companies thereafter being instituted by the
Board of Directors subject to the Company meeting revenue and net
income budget projections.
The Company did not grant any stock options as part of
Mr. Nelson's employment agreement. The Nelson Employment
Agreements further provide that if Mr. Nelson terminates his
employment "for cause" or the Company or ANMR, as the case may
be, terminates his employment "without cause" (as each such term
is defined in the Nelson Employment Agreements), or upon Mr.
Nelson's death or disability, Mr. Nelson or his representative
shall receive his annual base salary as paid by the Company or
ANMR, as the case may be, for two full years from the date of his
termination, less any amounts received under the Company's or
ANMR's insurance policies as the case may be. In the event that
the Company or ANMR, as the case may be, without the consent of
Mr. Nelson, assigns its rights and obligations under either of
the Nelson Employment Agreements to any company with or into
which the Company or ANMR may merge or consolidate, or to which
the Company or ANMR may sell or transfer all or substantially all
of its assets or of which 50% or more of the equity investment
and of the voting control is owned, directly or indirectly, by
the Company or ANMR, and if the assignee was not previously part
of a consolidated group with the Company or ANMR, then Mr. Nelson
may terminate the applicable Nelson Employment Agreement within
thirty days after notice of assignment, and he shall receive 2.99
times his full annual base salary plus any bonuses, but not to
exceed such amount which would result in an excise tax.
The Company pays 50% of all compensation paid to Mr.
Levy under his agreement with ANMR. As of September 1995, ANMR
entered into an Employment Agreement with Enrique Levy (the "Levy
Employment Agreement"), employing him as President and Chief
Operating Officer of ANMR and the Company commencing October 1,
1995, through December 31, 2000, at a base salary of $225,000 per
annum with a 10% increase in base salary effective during the
second year, with any additional increases during the third,
fourth and fifth years to be based upon increasing net income of
the Company and ANMR in excess of the annual budgeted net income
of the respective companies. Mr. Levy also received a $30,000
"signing" bonus from ANMR and is entitled to receive annual cash
bonuses based upon Mr. Levy's overall performance including a
comparison of the actual annual financial results of each of the
Company and ANMR as compared to budgets for the year. Mr. Levy
was also granted options to purchase (i) 250,000 shares of the
Common Stock of ANMR to vest over a three year period and (ii)
100,000 shares of Common Stock of the Company to vest over a
three year period. The Levy Employment Agreement further
provides that if Mr. Levy terminates his employment "for cause"
or the Company or ANMR, as the case may be, terminates his
employment "without cause" (as such term is defined in the Levy
Employment Agreement), or upon Mr. Levy's death or disability,
Mr. Levy or his representative shall receive his annual base
salary for two full years from the date of his termination, less
any amounts received under the Company's or ANMR's insurance
policies. In the event that the Company or ANMR, without the
consent of Mr. Levy, assigns its rights and obligations under the
Levy Employment Agreement to any company with or into which the
Company or ANMR may merge or consolidate, or to which the Company
or ANMR may sell or transfer all or substantially all of its
assets or of which 50% or more of the equity investment and of
the voting control is owned, directly or indirectly, by the
Company or ANMR, and if the assignee was not previously part of a
consolidated group with the Company or ANMR, then Mr. Levy may
terminate the Levy Employment Agreement within thirty days after
notice of assignment, and he shall receive 2.99 times his full
annual base salary plus any bonuses, but not to exceed such
amount which would result in an excise tax.
As of September 1, 1995, the Company entered into an
employment agreement with Peter Roemer (the "Roemer Employment
Agreement"), employing him as Executive Vice President Research
and Technology of the Company through August 31, 2000 at a base
salary of $140,000 with annual increments up to 10% of initial
base salary being subject to criteria to be established by the
Executive Committee. Dr. Roemer is also entitled to receive an
annual bonus as determined by the Compensation Committee of the
Board of Directors.
Dr. Roemer also was granted options to purchase (i)
25,000 shares of the Company's Common Stock, and (ii) 120,000
shares of common stock of ANMR. The Roemer Employment Agreement
further provides that if Dr. Roemer terminates his employment
"for cause" or the Company terminates his employment "without
cause" (as each such term is defined in the Roemer Employment
Agreement), or upon Dr. Roemer's death or disability, Dr. Roemer
or his representative shall receive his annual base salary for
one full year from the date of his termination, less any amounts
received under the Company's insurance policies. In the event
that the Company, without the consent of Dr. Roemer, assigns its
rights and obligations under the Roemer Employment Agreement to
any company with or into which the Company may merge or
consolidate, or to which the Company may sell or transfer all or
substantially all of its assets or of which 50% of more of the
equity investment and of the voting control is owned, directly or
indirectly, by the Company, and if the assignee was not
previously part of a consolidated group with the Company, then
Dr. Roemer may terminate the Roemer Employment Agreement within
thirty days after notice of assignment, and he shall receive 2.99
times his full annual base salary plus any bonuses, but not to
exceed such amount which would result in an excise tax. The
Roemer Employment Agreement superseded Dr. Roemer's May 1994
Employment Agreement.
Each member of senior management was given the
opportunity to have the exercise price of all outstanding stock
options held by them repriced to the market price of the
Company's common stock as of August 22, 1996 ($1.17) if, in
exchange for such repricing, such member of senior management
agreed to defer 17% of his salary for one year, at which time the
Compensation Committee would determine whether additional
deferrals were necessary. Messrs. Nelson, Levy and Moche agreed
to the repricing of options held by them on such terms. See
"Report of the Compensation Committee of the Board of Directors
on Executive Compensation and Repricing of Options", below.
STOCK OPTIONS
1992 Stock Option Plan. In October 1992, the Company
adopted the 1992 Stock Option Plan (the "Employee Plan") which
was amended effective August 22, 1996. The Employee Plan
provides for the issuance of options, either incentive (as
defined in the Internal Revenue Code of 1986, as amended (the
"Code")), or non-qualified, covering up to 1,250,000 shares of
Common Stock (subject to appropriate adjustments in the event of
stock splits, stock dividends and similar dilutive events).
Options may be granted under the Employee Plan to employees,
officers, consultants and advisors to the Company. The Employee
Plan is administered by the Board of Directors who are not
corporate officers. As of September 30, 1996, options for
950,000 shares of Common Stock were outstanding under this Plan
at exercise prices ranging from $1.17 to $8.00 per share and
expiring from 1998 to 2005.
Incentive stock options ("ISOs") and non-qualified
stock options ("NQSOs") may be granted under the Employee Plan.
The option price per share under an option is determined on the
date the option is granted, except the exercise price of an ISOS
must be equal to or greater than the fair market value on the
date of grant, or in the case of an ISO granted to a holder of
more than 10% of the voting power of all classes of stock of the
Company (a "10% Stockholder"), 110% of such fair market value.
In any year an eligible employee may not receive ISOs that permit
him to first exercise an option in any calendar year for Common
Stock with a fair market value on the date the ISO is granted of
more than $100,000. Options granted under the Employee Plan
become exercisable at such time or times as may be determined by
the Compensation/Option Committee and as set forth in an
employee's stock option agreement.
An option terminates on the date established in the
option agreement, which may not be more than 10 years after
issuance or, in the case of ISOs granted to a 10% Stockholder,
five years, subject to earlier termination.
1992 Non-Employee Directors' Stock Option Plan. In
December 1992, the Company adopted the 1992 Non-Employee
Directors" Stock Option Plan (the "Directors Plan"), which was
amended effective August 22, 1996. The Directors Plan provides
for the grant by the Company of options to purchase up to an
aggregate of 350,000 shares of the Company's Common Stock
(subject to adjustment, in certain cases, including stock splits,
recapitalizations and reorganizations). The purpose of the
Directors Plan is to attract, retain and motivate the Company's
non-employee directors. As of September 30, 1996, options for
175,000 shares of Common Stock were outstanding under this plan
at exercise price of $1.17 per share and expiring from 2003 to
2006.
Each member of the Board of Directors of the Company
who is not an employee of the Company qualifies as a non-employee
directions (a "qualified director"). Under the Directors Plan,
qualified directors receive automatic grants of options without
further action or authorization required by the Board of
Directors. Qualified directors are to receive an initial grant
of options to purchase [25,000] shares of Common Stock upon their
election to the Board, at an exercise price equal to the fair
market value on the trading day immediately preceding the date of
grant and vesting after one year, except by practice some of
these options have vested as to 2,500 shares after one year, and
1,250 shares each six months thereafter. In addition, on the
first anniversary of such previous grant, and for each successive
one year anniversary thereafter, each qualified director will
automatically receive options to purchase 10,000 shares of Common
Stock exercisable commencing one year from the date of grant at
the fair market value of the Common Stock on the trading day
immediately preceding the date of grant. Options granted under
the Directors Plan have a term of ten years, subject to earlier
termination.
Effective August 22, 1996, the Company's stockholders
approved amendments (the "Amendments") to both of its Option
Plans. The Amendments increased the number of shares of Common
Stock offered under each Plan, permitted transfer of options to
members of the optionee's immediate family, revised the
continuation of an option upon the cessation of the optionee's
association with the Company and effected certain conforming
changes.
In addition to the above plans, at December 31, 1996,
there were outstanding options and warrants to purchase 395,000
shares of Common Stock at prices ranging from $2.20 to $2.50 per
share exercisable through May 2001.
Option/SAR Grants in Last Fiscal Year
----------------------------------------------------------------
-----
Individual
Grants
----------------------------------------------------------------
-----
(a) (b) (c) (d)
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/ Employees in Exercise
SARs on Base
Name Granted (#) Fiscal Period Price
------------------- ---------------- ------------- ------------
- - - -
Jack Nelson 90,000 16% $1.17
Enrique Levy 50,000 9% $1.17
Charles Moche 20,000 4% $1.17
Peter Roemer 20,000 4% $1.17
Option/SAR Grants in Last Fiscal Year
----------------------------------------------------------------
-----
Potential Realizable Alternative
Value at to (f) and
Assumed Rates of Stock (g)
Price Appreciation for Grant Date
Option Term Value
----------------------------------------------------------------
-----
(a) (e) (f) (g) (h)
Grant
Date
Expiration Present
Name Date 5% ($) 10% ($) Value $
-------------- ---------- ---------- ---------- -------------
- - - - -
Jack Nelson 8/22/2001 $29,000 $64,200
Enrique Levy 8/22/2001 $16,100 $35,700
Charles Moche 8/22/2001 $ 6,400 $14,200
Peter Roemer 8/22/2001 $ 6,400 $14,200
*Excludes Options for 50,000 which were granted in 1994 and were
forfeited as of September 30, 1995.
Fiscal Year End Option Value
--------------------------------------------------------------------
--------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Sept. 30, 1996 at September 30, 1996
Name Exercisable/Unexercisable Exercisable
--------------- --------------------------- ----------------------
Jack Nelson 128,750/91,250 0
Enrique Levy 33,333/116,667 0
Charles Moche 80,000/20,000 0
Peter Roemer 15,625/29,375 0
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION AND THE REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors
(the "Committee") establishes the general compensation policies
of the Company, establishes the compensation plans and specific
compensation levels for executive officers, and administers the
Employee and Directors Plans. The Committee is composed of two
independent, non-employee Directors.
The Committee believes that the chief executive
officer's ("CEO") compensation and the compensation of the
officers of the Company should be heavily influenced by Company
performance. Stock options are granted to the CEO and other
executives, primarily based upon the executive's ability to
influence the Company's long term growth. In addition, the
Committee considers factors such as relative Company performance,
the individual's past performance and future potential in
establishing the compensation levels and stock option awards.
During 1996 the Committee considered that fact that the
exercise price for existing stock options for executive officers,
employees, current directors and consultants of the Company
granted in prior years had become considerably in excess of
market prices for the Company's Common Stock and that as a result
such options did not provide the holders with the desired
incentive of linking their long term compensation with the
performance goals of the Company's stockholders. This
consideration along with the Committee's consideration of certain
cash pressures experienced by the Company which prohibit
increases in cash compensation of executive officers lead to the
Committee's recommendation that previously issued options be
canceled and reissued at exercise prices close to the market
value of the Company's Common Stock.
As a result, in August 1996 the Committee and the
Board approved the cancellation and reissuance of certain
previously issued options held by current executive officers and
directors on the following terms. Each member of senior
management was given the opportunity to have the exercise price
of all outstanding stock options held by them repriced to the
market price of the Company's Common Stock as of August 22, 1996
($1.17) if, in exchange for such repricing, such member of senior
management agreed to defer 3.33% of his salary for one year, at
which time the Compensation Committee would determine whether
additional deferrals were necessary. Messrs. Nelson, Levy and
Moche agreed to the repricing of the options held by them on such
terms and Dr. Roemer did not accept such offer. Each director of
the Company was also given the opportunity to have the exercise
price of options presently held by him repriced to the market
price of the Company's Common Stock as of August 22, 1996 if, in
exchange for such repricing, such director agreed to forego the
$10,000 board fee. All incumbent directors agreed to the
repricing of their options on such terms.
The Committee and the Board felt that the deferral in
the salaries of the executive officers and the elimination of the
board fee in exchange for repricing of options held by executive
officers and directors, respectively, was the best way for the
Company to continue to provide incentive to its executive
officers and directors while simultaneously addressing the
Company's cash pressures by reducing payroll expenses.
Respectfully submitted,
THE COMPENSATION COMMITTEE
Robert Spira
Bernard Weiner
<PAGE>
10-YEAR OPTION/SAR REPRICINGS
--------------------------------------------------------------------
Number Of Securities Market Price Of
Underlying Stock At Time Of
Options/SARs Repricing Or
Repriced Or Amended Amendment
Name Date (#) ($)
(a) (b) (c) (d)
------------------- -------- -------------------- ----------------
Jack Nelson, CEO 8/22/96 120,000 1.17
8/22/96 10,000 1.17
Enrique Levy, 8/22/96 100,000 1.17
President
Charles Moche, 8/22/96 80,000 1.17
CFO
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as
of December 31, 1996 concerning ownership by (i) all persons who
own beneficially 5% or more of the outstanding shares of the
Company's Common Stock, (ii) each director, and (iii) all
officers and directors of the Company as a group:
PERCENTAGE
NAME AND ADDRESS AMOUNT AND NATURE OF OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, MA 01887(1) 4,000,000 (1) 47.9%
Jack Nelson 4,128,750 (2)(1) 48.7%
Enrique Levy 4,033,333 (3)(1) 48.1%
George Aaron 13,750 (4) 0.2%
Alison Estabrook -0- 0%
Robert Spira, M.D. 13,750 (4) 0.2%
Sol Triebwasser, Ph.D. 13,750 (4) 0.2%
Bernard Weiner, M.D. 2,500 (5) 0%
All officers and directors
as a group (10 persons) 4,205,833 (2)(3)(4)(5) 49.3%
________________
(1) Includes 2,750,000 shares subject to an escrow arrangement
described in Item 13. Certain Relationships and Related
---------------------------------
Transactions.
------------
(2) Includes (i) 128,750 shares underlying options currently
exercisable under the 1992 Employees Stock Option Plan (ii)
4,000,000 shares beneficially owned by ANMR, of which Mr.
Nelson is an executive officer and director, and excludes
91,250 shares underlying options granted in 1994 under the
1992 Stock Option Plan which are subject to vesting
thereunder.
(3) Includes (i) 33,333 shares underlying options currently
exercisable outside the 1992 Employees Stock Option Plan and
(ii) 4,000,000 shares beneficially owned by ANMR, of which
Mr. Levy is an executive officer and director, and excludes
66,667 options granted after September 30, 1995, outside the
1992 Stock Option Plan which are subject to vesting
thereunder and 50,000 options granted in 1996 under the 1992
Stock Option Plan which are subject to vesting thereunder.
(4) Includes 13,750 underlying options immediately exercisable
under the 1992 Directors Plan and excludes 21,250 shares
underlying options under the 1992 Directors Plan which are
not presently exercisable.
(5) Includes 2,500 underlying options immediately exercisable
under the 1992 Directors Plan and excludes 32,500 shares
underlying options under the 1992 Directors Plan which are
not presently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1992, ANMR, in forming the Company as a
subsidiary for the purpose of financing the development of MRI
scanners for breast imaging, entered into the ANMR License
Agreement, licensing to the Company the right to use ANMR's
technology in the development of a dedicated breast imaging
system. In consideration, the Company paid $1,680,000 and issued
to ANMR 4,000,000 shares of the Company's Common Stock, of which
2,750,000 shares are subject to an escrow agreement described
below.
On August 29, 1996, the Company's shared services
agreement with ANMR, dated January 25, 1992, was terminated and
the Company and ANMR entered into a new agreement which outlines
a more accurate method of allocating the services that are shared
by the companies. The new agreement has developed as a result of
two significant factors: (a) the changes in the company profile
of ANMR which is modifying its technology operations related to
the manufacture of its InstaScan retrofit system and is attending
to its service division, and (b) the growing independence of both
companies as each company pursues divergent objectives. Vendors
for parts and services have been instructed to provide separate
invoices directly to the Company and ANMR, as the case may be.
Expenses related to the use of the facilities, such as rent,
utilities and insurance, will be apportioned based on the number
of square feet occupied by the Company or ANMR, respectively.
The remaining expenses, including senior management,
administration and miscellaneous supplies and resources, will be
allocated evenly between the companies, but will be modified as
circumstances dictate.
Five of the seven officers and directors of the Company
are also officers and directors of ANMR. Any conflicts will be
resolved by Jack Nelson, Chairman of the Board of both ANMR and
the Company, and by the Board of Directors of each company,
consistent with their fiduciary duties.
As of September 30, 1996, ANMR had made advances and
been reimbursed for expenses incurred on behalf of the Company
for research and development and other activities relating to the
development of the Company's MRI scanner for breast imaging
aggregating approximately $1,600,000.
Also, in connection with the public offering, ANMR
placed 2,750,000 of its 4,000,000 shares of the Company's Common
Stock into escrow. On May 1, 1997, all escrow shares not
released from escrow will be forfeited and contributed to the
capital of the Company as a result of the Company's failure to
achieve certain financial milestones, which if achieved would
have resulted in the release of the escrowed shares. Upon the
forfeiture of the escrowed shares the Company will incur an
expense based on the fair market value of the Company's Common
Stock and ANMR's interest in the Company will be reduced to
approximately 20%.
The Company believes that its transactions with ANMR
described above were on terms not less favorable to the Company
than the terms that would have been available from unaffiliated
parties under similar circumstances. Actual comparisons with
other transactions are not possible, however.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND
REPORTS ON FORM 8-K.
(a)(1) The following Financial Statements are filed
herewith:
Report of Independent Auditors
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(a)(2) The following Financial Statement Schedules are
filed herewith:
None. All schedules have been omitted because
they are inapplicable or not required, or the
information is included in the financial
statements or notes thereto.
(a)(3) Exhibits, including those incorporated by reference.
Exhibit Number
--------------
3.1 -- Certificate of Incorporation of the Company, as
amended (filed as Exhibit 3.1 to the
Registration Statement on Form S-1, File No.
33-54198 (the "Registration Statement") and
incorporated herein by reference).
3.2 -- By-Laws of the Company (filed as Exhibit 3.2 to
the Registration Statement and incorporated
herein by reference).
4. -- Form of 4% Convertible Debenture due December
1, 1998 (filed as Exhibit 4 to the Company's
Current Report on Form 8-K, dated May 15, 1996,
File No. 0-20968 (the "8-K"), and incorporated
herein by reference).
10.1 -- License Agreement between the Company and
Advanced NMR Systems, Inc. ("ANMR") (filed as
Exhibit 10.1 to the Registration Statement, and
incorporated herein by reference).
10.1 -- Form of Amendment No. 1 to License Agreement
(filed as Exhibit 10.1(a) to the Registration
Statement, and incorporated herein by
reference).
10.2* -- Shared Services Agreement dated as of August
29, 1996 between the Company and ANMR.
10.3 -- Escrow Agreement among the Company, ANMR and
American Stock Transfer & Trust Company (filed
as Exhibit 10.3 to the Registration Statement,
and incorporated herein by reference).
10.4 -- Lease for ANMR's facility (filed as Exhibit
10.4 to the Registration Statement, and
incorporated herein by reference).
10.5 -- Form of License Agreement between ANMR and Yuli
Pulyer (filed as Exhibit 10.5 to the
Registration Statement, and incorporated herein
by reference).
10.6 1992 Stock Option Plan, effective October 21,
1992, as amended, effective August 22,1996
(filed as Attachment No. 1 to the Company's
Proxy Statement, dated July 29, 1996, File No.
0-20968 (the "Proxy Statement"), and
incorporated herein by reference).
10.7 -- 1992 Non-Employee Directors' Stock Option Plan,
effective December 22, 1992, as amended,
effective August 22, 1996 (filed as Attachment
no. 2 to the Proxy Statement, and incorporated
herein by reference).
10.8 -- Form of Offshore Securities Subscription
Agreement, without exhibits (filed as Exhibit
10 to the 8-K, and incorporated herein by
reference).
10.9* -- Employment Agreement, dated as of December 20,
1995, between the Company and Jack Nelson.
21* -- List of subsidiaries of the Company.
23* -- Consent of Richard A. Eisner & Company, LLP
independent public accountants for the Company.
(b) Reports on Form 8-K
None
(c) None
(d) Separate Financial Statements and Schedules
None
------------------
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: January 10, 1997
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Jack Nelson
--------------------------------------
Jack Nelson, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- -----
/s/ Jack Nelson
------------------- Chairman of the Board January 10, 1997
Jack Nelson
/s/ Robert Spira
------------------- Vice Chairman of the Board January 10, 1997
Robert Spira, M.D.
/s/ Enrique Levy President and Chief
------------------- Operating Officer January 10, 1997
Enrique Levy
/s/ Charles Moche
------------------- Chief Financial and
Charles Moche Accounting Officer January 10, 1997
------------------- Director
George Aaron
/s/ Alison Estabrook
------------------- Director January 10, 1997
Alison Estabrook, M.D.
/s/ Sol Triebwasser
------------------- Director January 10, 1997
Sol Triebwasser PhD
/s/ Bernard Weiner
----------------- Director January 10, 1997
Bernard Weiner, M.D.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
-I N D E X -
------------
PAGE
NUMBER
------
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . F-2
BALANCE SHEETS AS AT
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 . . . . . . . . . . F-3
STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED SEPTEMBER 30, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND THE
YEAR ENDED DECEMBER 31, 1994 AND FOR THE
PERIOD FROM JULY 2, 1992 (INCEPTION)
TO SEPTEMBER 30, 1996 . . . . . . . . . . . . . . . . . . . . F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED SEPTEMBER 30,
1996, THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1995, THE YEAR ENDED
DECEMBER 31, 1994 AND FOR THE PERIOD
FROM JULY 2, 1992 (INCEPTION) TO
SEPTEMBER 30, 1996 . . . . . . .. . . . . . . . . . . . . . F-5
STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED SEPTEMBER 30, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND THE
YEAR ENDED DECEMBER 31, 1994 AND FOR THE
PERIOD FROM JULY 2, 1992 (INCEPTION)
TO SEPTEMBER 30, 1996 . . . . . . . . . . . . . . . . . . . . F-6
NOTES TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Advanced Mammography Systems, Inc.
We have audited the accompanying balance sheets of
Advanced Mammography Systems, Inc. (a development stage company)
as at September 30, 1996 and September 30, 1995, and the related
statements of operations, stockholders' equity, and cash flows
for the year ended September 30, 1996, the nine months ended
September 30, 1995, the year ended December 31, 1994 and for the
period July 2, 1992 (Inception) to September 30, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated
above present fairly, in all material respects, the financial
position of Advanced Mammography Systems, Inc. at September 30,
1996 and September 30, 1995, and the results of its operations
and its cash flows for the year ended September 30, 1996, the
nine months ended September 30, 1995, the year ended December 31,
1994 and the period from July 2, 1992 (Inception) to September
30, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. However, the Company has experienced recurring losses
and based on current estimates of cash flow, management does not
believe that it will have sufficient cash to satisfy its
obligations as they become due during fiscal 1997. This matter
raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are described in Note A to the financial statements. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
--------------------------------------
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 22, 1996
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
--------------
September 30, September 30,
ASSETS 1996 1995
------ ------------- -------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . $ 1,997,076 $ 1,832,563
Inventory (Note B) . . . . . . . . 1,123,404 969,979
Other current assets . . . . . . . 27,204 0
------------ ------------
TOTAL CURRENT ASSETS . . . . . 3,147,684 2,802,542
Equipment at cost, net of 611,432 603,797
accumulated depreciation of
$335,277 and $190,942 at
September 30, 1996 and
September 30, 1995,
respectively (Note B)
Patent at cost, net of amortization 24,661 24,028
of $7,060 and $1,091 at
September 30, 1996 and
September 30, 1995,
respectively (Note B) . . .
Other . . . . . . . . . . . . . . . 0 10,000
Debt issue cost (Note C) . . . . . 200,574 0
------------ ------------
TOTAL ASSETS $ 3,984,351 $ 3,440,367
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable & accrued expenses $ 184,785 $ 25,083
Compensation payable . . . . . . . 52,259 38,509
Accounts payable to related party 671,551 133,428
(Note E) . . . . . . . . . . ------------ ------------
TOTAL CURRENT LIABILITIES . . . . . 908,595 197,020
------------
Notes Payable (Note C) . . . . . . 1,471,751 0
------------
TOTAL LIABILITIES . . . . . . 2,380,346 197,020
STOCKHOLDERS' EQUITY (Notes A and C)
Preferred stock, $.01 par value; -- --
5,000,000 shares authorized,
none issued . . . . . . . .
Common stock, $.01 par value; 83,468 65,984
25,000,000 shares authorized,
8,346,740 shares issued at
September 30, 1996, and
6,598,376 shares issued at
September 30, 1995 . . . . .
Additional paid-in capital . . . . 13,368,542 11,847,729
Deficit accumulated during the (11,848,005) (8,670,366)
development stage . . . . . ------------ ============
TOTAL STOCKHOLDERS' EQUITY . . 1,604,005 3,243,347
------------
TOTAL LIABILITIES & STOCKHOLDERS' $ 3,984,351 $ 3,440,367
EQUITY . . . . . . . . . . . ============ ============
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
Nine Months Nine Months
Year Ended Ended Ended
September 30, September 30, September 30,
1996 1995 1994
------------- ------------- -------------
(unaudited)
COSTS & EXPENSES:
Acquired Technology
Rights (Note D) $ -- $ -- $ --
Research & Development
(Note D) 1,007,294 664,786 717,010
General &
Administrative 2,209,736 1,107,326 1,119,138
(Note E) ------------ ------------ ------------
LOSS FROM OPERATIONS (3,217,030) (1,772,112) (1,836,148)
Amortization of Debt
Issuance Costs
(Note C) (30,857) -- --
Interest Expense
(Note C) -- -- --
Interest and Other 70,248 88,064 63,268
Income ------------ ------------ ------------
NET LOSS AND DEFICIT
ACCUMULATED
DURING DEVELOPMENT $(3,177,639) $(1,684,048) $(1,772,880)
STAGE ============ ============ ============
NET LOSS PER SHARE $(.79) $(.44) $(.64)
(Note B) === === ===
Weighted average
number of
Common Shares 4,046,160 3,830,092 2,765,975
Outstanding ============ ============ ============
<PAGE>
Cumulative
from July 2, 1992
Year Ended (inception) to
December 31, 1994 September 30, 1996
----------------- ------------------
COSTS & EXPENSES:
Acquired Technology Rights
(Note D) $ -- $ 1,720,000
Research & Development
(Note D) 992,365 3,726,862
General & Administrative 1,582,820 5,770,296
(Note E) ------------ -------------
LOSS FROM OPERATIONS (2,575,185) (11,217,158)
Amortization of Debt Issuance
Costs (Note C) -- (341,819)
Interest Expense (Note C) -- (599,999)
Interest and Other Income 72,023 310,971
------------ -------------
NET LOSS AND DEFICIT
ACCUMULATED DURING $(2,503,162) $(11,848,005)
DEVELOPMENT STAGE ============ =============
NET LOSS PER SHARE (Note B) $(.89)
===
Weighted average number of 2,801,946
Common Shares Outstanding ============
The accompanying notes to financial statements are an integral
part hereof.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Additional During the
--------------------- Paid-in Development
Shares Amount Capital Stage
------ ------ ------- -----------
Common stock
issued in
connection
with the
acquisition of
technology
rights
(Note D) 4,000,000 $40,000 $ -- $ --
Common stock
warrants issued
in connection
with notes
payable
(Note C[3]) -- -- 500,000 --
Net loss July 2,
1992
(inception)
to December 31, -- -- -- (2,718,560)
1992 --------- ------- ----------- -------------
Balance
December 31,
1992 4,000,000 40,000 500,000 (2,718,560)
Initial public
offering of
stock, net of
offering costs 1,483,500 14,835 7,449,677 --
Net loss for the
year ended
December 31, -- -- -- (1,764,596)
1993 --------- ------- ----------- -------------
Balance
December 31,
1993 5,483,500 54,835 7,949,677 (4,483,156)
Warrants
exercised 223,105 2,231 667,084 --
Stock options
exercised 5,000 50 39,950 --
Net loss for the
year ended
December 31, -- -- -- (2,503,162)
1994 --------- ------- ----------- -------------
Balance
December 31,
1994 5,711,605 57,116 8,656,711 (6,986,318)
Stock options
exercised 114,286 1,143 881,288 --
Warrants
exercised 772,485 7,725 2,309,730 --
Net loss for the
nine months
ended
September 30, -- -- -- (1,684,048)
1995 --------- ------- ----------- -------------
Balance
September 30,
1995 6,598,376 $65,984 $11,847,729 $(8,670,366)
Common stock
warrants issued
in connection
with notes
payable
(Note C[3]) -- -- 200,000 --
Cost of warrants
issuance -- -- (16,619) --
Conversion of
Notes Payable
into Common
Stock
(Note C[3]) 1,748,364 17,484 1,337,432 --
Net loss for the
year ended
September 30, -- -- -- (3,177,639)
1996 --------- ------- ----------- -------------
Balance
September 30, 8,346,740 $83,468 $13,368,542 $(11,848,005)
1996 ======== ======= =========== =============
The accompanying notes to financial statements are an integral part
hereof.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Year Ended Ended Ended
September 30, September 30, September 30,
1996 1995 1994
------------- ------------- -------------
(unaudited)
Cash flows from
operating
activities: $(3,177,639) $(1,684,048) $(1,772,880)
Net Loss ------------ ------------ ------------
Adjustments to
reconcile net loss to
net cash flows from
operating activities:
Depreciation and
amortization 148,920 81,485 49,381
Amortization of debt
issuance cost 30,857 -- --
Common stock issued for
technology rights -- -- --
Changes in assets and
liabilities:
Inventories (153,425) (702,641) (58,720)
Prepaid expenses & other
assets (17,204) 58,720 (15,000)
Accounts payable and
other current 711,575 (217,103) 334,730
liabilities ------------ ----------- ------------
Total adjustments 720,723 (779,539) 310,391
------------ ----------- ------------
Net cash used for operating (2,456,916) (2,463,587) (1,462,489)
activities ------------ ----------- ------------
Cash flows from investing
activities: (158,571) (94,562) (444,814)
Capital expenditures ------------ ---------- ------------
Net cash used for investing (158,571) (94,562) (444,814)
activities ------------ ---------- ------------
Cash flows from financing
activities:
Proceeds from notes payable
and warrants 3,000,000 -- --
Debt issuance costs (220,000) -- --
Payment of notes payable -- -- --
Public offering of stock,
net -- -- --
Costs of Public Offering -- -- --
Sale of option to purchase
units -- -- --
Proceeds from sale of stock
and exercise of warrants -- 3,199,886 469,060
Net cash provided by
financing 2,780,000 3,199,886 469,060
activities ------------ ---------- ------------
Cash and cash equivalents:
Net increase (decrease) 164,513 641,737 (1,438,243)
Balance, beginning of period 1,832,563 1,190,826 3,434,513
------------ ---------- ------------
Balance, end of period $(1,997,076 $1,832,563 $ 1,996,270
============ ========== ============
Cumulative
from July 2, 1992
Year Ended (inception) to
December 31, 1994 September 30, 1996
----------------- -------------------
Cash flows from operating
activities: $(2,503,162) $(11,848,005)
Net Loss ------------ -------------
Adjustments to reconcile net
loss to net cash flows from
operating activities:
Depreciation and
amortization 76,889 1,100,090
Amortization of debt issuance
cost -- 82,682
Common stock issued for
technology rights -- 40,000
Changes in assets and
liabilities:
Inventories (267,338) (1,123,404)
Prepaid expenses & other
assets (73,720) (27,204)
Accounts payable and other 293,424 908,595
current liabilities ------------ ------------
Total adjustments 29,255 980,759
------------ ------------
Net cash used for operating (2,473,907) (10,867,246)
activities ------------ ------------
Cash flows from investing
activities: (479,095) (978,429)
Capital expenditures ------------ -------------
Net cash used for investing (479,095) (978,429)
activities ------------ -------------
Cash flows from financing
activities:
Proceeds from notes payable
and warrants -- 5,000,000
Debt issuance costs -- (530,962)
Payment of notes payable -- (2,000,000)
Public offering of stock,
net -- 8,901,000
Costs of Public Offering -- (1,436,617)
Sale of option to purchase
units -- 129
Proceeds from sale of stock 709,315 3,909,201
and exercise of warrants ------------ -------------
Net cash provided by financing 709,315 13,842,751
activities ------------ -------------
Cash and cash equivalents:
Net increase (decrease) (2,243,687) 1,997,076
Balance, beginning of period 3,434,513 $ --
------------ -------------
Balance, end of period $ 1,190,826 $ 1,997,076
============ =============
The accompanying notes to financial statements are an integral part hereof.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
(A DEVELOPMENT STATE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(NOTE A) The Company:
--------------------
Advanced Mammography Systems, Inc. (the "Company") was
incorporated on July 2, 1992 as a wholly owned subsidiary of
Advanced NMR Systems, Inc. ("ANMR"). At September 30, 1996, ANMR
owns approximately 48% of the outstanding common stock of the
Company. The Company was formed to develop a dedicated magnetic
resonance imaging system for mammography. The Company obtained
its mammography technology and certain rights to other technology
from ANMR (Note D). The Company also intends to pursue other
dedicated imaging systems in the future.
The Company is in the development stage and its efforts
through September 30, 1996 have been principally devoted to
organizational activities, raising capital and research and
development efforts. Management anticipates incurring
substantial additional losses as it pursues its research and
development efforts and production and marketing activities.
The Company shares facilities and certain other
resources with ANMR and costs are allocated between the companies
based on estimated usage. Certain of ANMR's officers serve as
officers of the Company and the Company obtains management and
administrative support from ANMR's staff.
In August 1996, ANMR's Board of Directors adopted a
formal plan to discontinue its Imaging Systems Business Segment.
The Company is renegotiating its Shared Services agreement based
upon this discontinuance of operations for the upcoming year.
The Company currently has no sources of recurring
revenues and has incurred operating losses since its inception.
At September 30, 1996, the Company has an accumulated deficit of
$11,848,005. Such losses have resulted principally from costs
incurred in research and development and from general and
administrative expenses associated with the Company's operations.
The Company expects that operating losses will continue for at
least the next few years as product development, clinical testing
and other operations continue. The Company currently funds its
operations principally through the use of cash obtained from
third party financing. The Company is continuing to actively
pursue various funding options, including equity offerings,
commercial and other borrowings, strategic corporate alliances
and business combination transactions, or a combination of these
methods for obtaining the additional financing that would be
required to continue the research and development necessary to
complete the development of its product and bring it to
commercial markets. There can be no assurance that these efforts
will be successful.
(NOTE B) Summary of Significant Accounting Policies:
----------------------------------------------------
[1] Fiscal year end
---------------
During 1995, the Company changed its fiscal year from
December 31 to September 30. All references to years in these
notes to financial statements represent fiscal years unless
otherwise noted.
[2] Depreciation and amortization:
------------------------------
Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. When property is
retired or otherwise disposed of, the cost and accumulated
depreciation is removed from the accounts, and any resulting gain
or loss is included in expense.
[3] Loss per share of common stock:
-------------------------------
The loss per share of common stock for the twelve
months ended September 30, 1996 and the nine months ended
September 30, 1995 and the nine months ended September 30, 1994
and the year ended December 31, 1994 is based on the weighted
average number of common shares outstanding during the respective
periods.
Shares held in escrow are not treated as outstanding
because their effect would be antidilutive (Note C[1]).
[4] Cash Equivalents:
-----------------
The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to
be cash equivalents.
[5] Inventories:
------------
Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventory is comprised principally
of components to be used in the production of the mammography
imaging systems.
[6] Use of Estimates:
-----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
[7] Recent pronouncements:
----------------------
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFA 123"). The Company will
adopt the disclosure requirements of SFAS 123 during the
Company's fiscal year ending September 30, 1997, but will account
for its stock option plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" as
permitted under SFAS 123.
In addition, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" ("SFAS 121"): SFAS 121 is also
effective for the Company's fiscal year ending September 30,
1997. The Company believes adoption of SFAS No. 121 will not
have a material impact on its financial statements.
(NOTE C) Capitalization:
------------------------
[1] Common stock:
------------
As discussed in Note D, the Company has issued
4,000,000 shares of common stock to ANMR for a purchase price of
$40,000. In connection with its initial public offering, ANMR
placed 2,750,000 of the 4,000,000 shares outstanding into escrow.
The escrow shares are to be released based upon the Company
attaining certain levels of pretax income for the years ending
December 31, 1995 and/or 1996 and if the market price of the
Company's common stock reaches certain levels during defined
periods ending December 31, 1996. If the shares are released
from escrow the Company will incur an expense related to the
value of the shares at the time they are released. The Company
believes that it is highly unlikely that the escrow shares will
be released.
[2] Preferred stock:
----------------
The Company has authorized the issuance of 5,000,000
shares of preferred stock, par value $.01 per share. The Board
of Directors of the Company has broad discretion to create one or
more series of preferred stock and to determine the rights,
preferences and privileges of any such series.
[3] Notes payable and related warrants:
-----------------------------------
As of July 30, 1992, the Company issued $2,000,000 of
notes, with an annual interest rate of 10%, originally payable on
June 30, 1993. The notes were issued with detachable warrants to
purchase 1,000,000 shares of common stock at a price equal to
one-half the offering price of the initial public offering which
was $6.00 per share. The notes were redeemed, including accrued
interest, on the closing date of the Company's initial public
offering in January 1993. Of the gross proceeds of $2,000,000
from the issuance of the notes, $500,000 was attributed to the
value of the warrants and accounted for as debt discount and
amortized over the term the debt was outstanding. Expenses
incurred in connection with the issuance of the notes, amounting
to $310,962 were amortized on the same basis.
During 1996, pursuant to Regulation S of the Securities
act of 1933, the Company issued $3,000,000 of 4% convertible
notes payable. The notes are due in full on December 1, 1998.
The principal amount of the notes is convertible into shares of
common stock at a conversion price equal to the lesser of 125% of
the market price on the issuance date, or 75% of the market price
on the conversion date. The market price, as defined in the
agreement, equals the average closing bid price of the common
stock for the three trading days immediately preceding the
issuance date or the conversion date, as may be applicable, as
reported by the National Association of Securities Dealers
Automated Quotation system ("NASDAQ"). Through September 30,
1996, a total of $1,438,000 of the principal amount of the notes
payable had been converted into 1,748,364 shares of common stock
of the Company and the principal amount of the notes outstanding
at September 30, 1996, is $1,562,000. In conjunction with these
notes, the Company issued warrants for the purchase of 395,000
shares of its common stock. The warrants are exercisable until
May 15, 2001 at a price of $2.50 per share. The value assigned
to these warrants, amounting to $200,000, is accounted for as
debt discount and is being amortized over the period of time the
notes are expected to be outstanding. The effective interest
rate on the notes, including the debt discount, is approximately
7%.
[4] Stock option plans:
-------------------
The Company has a stock option plan that provides for
the granting of options to purchase up to 1,250,000 shares of
common stock. The Plan provides for the granting of both
incentive stock options and nonstatutory stock options to
employees, directors and consultants.
In addition, the Company has a Nonemployee Directors'
Stock Option plan that provides for the granting of options to
purchase up to 350,000 shares of common stock to nonemployee
directors of the Company.
<PAGE>
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
The Company has had the following option activity
through September 30, 1996:
Number Option Price
of Shares Per Share
--------- -------------
Balance - 12/31/92 0 $-0-
Granted 100,000 $6.00 - $ 9.98
-------
Balance - 12/31/93 100,000 $6.00 - $ 9.98
Granted 187,500 $4.63 - $10.00
Canceled (50,000) $10.00
Exercised (5,000) $8.00
---------
Balance - 12/31/94 232,500 $4.63 - $10.00
Granted 232,500 $4.63 - $12.81
Canceled (20,000) $6.00
Exercised (5,000) $6.00
---------
Balance - 9/30/95 440,000 $4.63 - $12.81
Granted 850,000 $1.17 - $ 8.00
Canceled (165,000) $1.17 - $12.81
--------- --------------
Balance - 9/30/96 1,125,000 $1.17 - $ 8.00
========= ==============
Options for 241,250 shares are exercisable as of September
30, 1996, at various prices ranging from $1.17 to $8.00 per
share. The number of shares available for future options is
300,000 under the Employee Plan and 175,000 under the Directors
Plan.
(NOTE D) Research and Development Activities:
The Company utilized $1,680,000 of the net proceeds from the
issuance of the notes described in the first paragraph of Note
C[3], and issued 4,000,000 shares of common stock, which were
assigned a value of $40,000, to purchase rights to certain
technology owned by ANMR. The purchase price was determined
without independent appraisal. The Company charged the cost of
the rights to operations since the technology acquired is still
in the development stage.
From inception through September 30, 1996, the Company
incurred research and development expenses totaling $3,726,862.
These charges represent costs associated with the ongoing
development of a dedicated mammography system.
(NOTE E) Related Party Transactions:
------------------------------------
As mentioned in Notes A, C and D, the Company has
entered into significant transactions with ANMR, including the
purchase of certain technology rights and an agreement to share
facilities and reimburse ANMR for allocated general and
administrative expenses. The Company incurred allocated expenses
of approximately $1,600,000 for the year ended September 30,
1996. In addition, the Company has been granted a sublicense
from ANMR to certain patent rights which may be useful in its
research and development efforts. The Company has assumed
certain of ANMR's obligations in connection with this patent
license including a payment of a license fee to the patent holder
of $50,000 and royalties on future sales of products
incorporating the technology underlying the patent. The Company
also paid the patent holder a consulting fee of $52,000 in 1994.
(NOTE F) Income Taxes:
----------------------
Pursuant to the provisions of the Internal Revenue Code, the
Company is deferring all start-up costs and research and
development costs until operations, as defined by the Internal
Revenue Code, commence. Accordingly, through September 30, 1996,
only interest income and interest expense have entered into the
determination of taxable income.
At September 30, 1996 and September 30, 1995, the Company
had no current tax liability or deferred tax liability. It had
deferred tax assets due to net temporary differences and net
operating loss carryforwards amounting to approximately
$4,620,000, all of which had been fully reserved because the
likelihood of the realization of the benefits cannot be
established. The temporary differences principally relate to the
deferral of start up and research and development costs noted
above.
At September 30, 1996, the Company's net operating loss
carryover for federal income tax purposes amounts to
approximately $400,000 and expires through 2011.
The following table reconciles the tax benefit per the
accompanying statements of operations with the expected provision
obtained by applying statutory tax rates to the pretax loss:
The Internal Revenue Code contains provisions which may
limit the net operating loss carryforwards available for use in
any given year if significant changes in ownership interest of
the Company occur.
<PAGE>
Year Ended Nine Months Ended
September 30, September 30,
1996 1995 1994
------------ ------------ -------------
Pretax (loss)
per
accompanying
statements
of operations $(3,178,000) $(1,684,000) $(1,773,000)
Expected tax
(benefit) at
39%, including
the net effect
of state
income taxes (1,239,000) (657,000) (691,000)
Adjustments due to:
Increase in
valuation reserve 1,241,000 685,000 691,000
Benefit of net
operating loss
carryover (2,000) (28,000) --
Tax provision per
financial
statements $ - 0 - $ - 0 - $ - 0 -
Year Ended
December 31, 1994
-----------------
Pretax (loss)
per
accompanying
statements
of operations $(2,503,000)
Expected tax
(benefit) at
39%, including
the net effect
of state
income taxes (976,000)
Adjustments due to:
Increase in
valuation reserve 1,000,000
Benefit of net
operating loss
carryover (24,000)
Tax provision per
financial
statements $ - 0 -
<PAGE>
EXHIBIT INDEX
---------------
10.2 Shared Services Agreement, dated as of August 29, 1996,
between the Company and ANMR.
10.9 Employment Agreement, dated as of December 20, 1995,
between the Company and Jack Nelson.
23.1 Consent of Independent Auditors
27 Financial Data Schedule
SHARED SERVICES AGREEMENT
SHARED SERVICES AGREEMENT, dated as of August 29, 1996,
1996, by and between ADVANCED NMR SYSTEMS, INC., a Delaware
corporation ("ANMR"), having offices at 46 Jonspin Road,
Wilmington, Massachusetts 01887, and Advanced Mammography
Systems, Inc., a Delaware corporation ("AMS"), having offices at
46 Jonspin Road, Wilmington, Massachusetts 01887.
WHEREAS, ANMR and AMS are parties to that certain
Shared Services Agreement, dated October 28, 1992 (the "Original
Agreement"), pursuant to which AMS engaged ANMR to provide
certain administrative services;
WHEREAS, ANMR has developed more accurate systems for
allocating expenses among ANMR and AMS and certain other changes
have occurred in the relationship between ANMR and AMS since the
Original Agreement was entered into;
WHEREAS, ANMR and AMS continue to share senior
management, outside services, facilities, administrative
employees and other employees;
WHEREAS, ANMR and AMS desire to terminate the Original
Agreement effective upon the execution of this Agreement; and
WHEREAS, ANMR and AMS desire to set forth in this
Agreement a more accurate method of allocating the services that
are shared between each company to be effective retroactively as
of October 1, 1996.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein set forth the parties hereto
agree as follows:
1. TERMINATION OF ORIGINAL AGREEMENT. The Original
---------------------------------
Agreement shall terminate immediately and automatically upon the
execution of this Agreement by ANMR and AMS.
2. SHARED SERVICES. During the term of this
---------------
Agreement, ANMR and AMS shall provide to each other, as
indicated, the following services:
2.1 Senior Management. The Designated Executive
-----------------
Officers (as hereinafter defined) shall be employed by both ANMR
and AMS and shall be available to perform their respective duties
as executive officers of each company and to devote as much time
as may be reasonably necessary to the business and affairs of
each Company. Each of ANMR and AMS shall pay fifty percent (50%)
of the aggregate annual cash compensation of each of the
Designated Executive Officers in accordance with the respective
employment agreements of each of the Designated Executive
Officers. The percentage amount of the annual cash compensation
payable by either of ANMR or AMS may be adjusted in the event
that the President and Chief Financial Officer of each company
determine that circumstances warrant such an adjustment. As used
in this Agreement, the term "Designated Executive Officers" means
the following persons who act as executive officers of both ANMR
and AMS: Jack Nelson, Enrique Levy and Charles Moche.
2.2 Administrative Services. The Administrative
-----------------------
Personnel (as hereinafter defined) shall be employed by both ANMR
and AMS and shall be available to perform their respective duties
as Administrative Personnel of each company and to devote as much
time as may be reasonably necessary to the business and affairs
of each Company. Each of ANMR and AMS shall pay fifty percent
(50%) of the aggregate annual cash compensation of the
Administrative Personnel. The percentage amount of the annual
cash compensation payable by either of ANMR or AMS may be
adjusted in the event that the President and Chief Financial
Officer of each company determine that circumstances warrant such
an adjustment. As used in this Agreement, the term
"Administrative Personnel" means personnel of ANMR and AMS who
perform secretarial, clerical administrative and in house
accounting services.
2.3 Facilities. ANMR shall permit AMS to share the
----------
Facilities (as hereinafter defined). AMS shall reimburse ANMR
for expenses incurred by ANMR that relate to AMS' use of the
Facilities, including rent, utilities, maintenance charges, and
insurance. The reimbursement amount shall be determined by
dividing the total amount of expenses for the Facilities by a
fraction, the numerator of which is the number square feet of the
Facilities occupied by AMS personnel and the denominator of which
is the total number of square feet of the Facilities. AMS shall
reimburse ANMR for its allocated portion of the expenses of the
Facilities upon the receipt by AMS of an invoice from ANMR for
such expenses. As used in this Agreement, the term "Facilities"
means the offices of ANMR at (i) Two Executive Drive, Fort Lee,
New Jersey 07024 and (ii) 46 Jonspin Road, Wilmington,
Massachusetts 01887.
2.4 Miscellaneous Services and Resources. ANMR shall
------------------------------------
permit AMS to utilize other supplies, resources and equipment of
ANMR as required by AMS and ANMR. The President and the Chief
Financial Officer of each of ANMR and AMS shall use their best
efforts to allocate the cost of such supplies, resources and
equipment to each of ANMR and AMS. AMS shall reimburse ANMR for
its allocated portion of such cost upon the receipt by AMS of an
invoice from ANMR for such costs.
2.5 Outside Services. ANMR and AMS shall request all
----------------
outside consultants and independent contractors to provide each
company with a separate invoice that allocates expenses
associated with services performed by such consultants and
independent contractors on behalf of either ANMR or AMS. To the
extent that any invoices received by either of ANMR or AMS do not
allocate expenses between ANMR and AMS or do not allocate such
expenses appropriately, the President and Chief Financial Officer
of each company shall determine an appropriate allocation. ANMR
and AMS agree to reimburse each other to the extent that any
invoices for outside services do not accurately allocate expenses
for such services. ANMR and AMS agree to reimburse each other
upon the receipt of an invoice for such expenses.
3. TERM.
-----
3.1 The term of this Agreement shall commence
retroactively as of October 1, 1996 and shall continue through
May 31, 2001, unless earlier terminated or extended in accordance
with the provisions of this Section 3.
3.2 The term of this Agreement shall be automatically
extended for two additional one-year periods unless written
notice of termination from either party is given at least 90 days
prior to the scheduled expiration thereof.
3.3 This Agreement may be terminated and any one or
more of the services may be reduced in scope or eliminated in its
entirety, at any time during the term hereof upon 90 days' prior
written notice to the other party.
4. OBLIGATIONS AND RELATIONSHIP. ANMR shall at all
----------------------------
times act as an independent contractor and, notwithstanding
anything contained herein, the relationship established hereunder
between the parties shall not be construed as a partnership,
joint venture or other form of joint enterprise. Except as
expressly authorized by a party hereto, no party shall be
authorized to make any representations or to create or assume any
obligation or liability in respect or on behalf of the other
party, and this Agreement shall not be construed as constituting
either party as the agent of the other party.
5. LIMITED LIABILITY; INDEMNIFICATION
----------------------------------
5.1 ANMR shall not be liable to AMS for any loss,
claim, expense or damage, including indirect, special,
consequential or exemplary damages, for any act or omission
performed or omitted by it hereunder so long as its act or
omission does not constitute fraud, bad faith or gross
negligence. ANMR shall not be liable to AMS for the consequences
of any failure or delay in performing any services provided such
failure shall be caused by labor disputes, strikes or other
events or circumstances beyond ANMR's control and provided
further, ANMR shall have provided prompt notice to AMS of its
inability to perform services and the reason therefor.
5.2 In any action, suit or proceeding (other than an
action by or in the right of ANMR or AMS, as the case may be) to
which either ANMR or AMS or any of their respective agents or
employees performing services hereunder (the "Indemnitee") was or
is a party by reason of his or its performance or non-performance
of services, either ANMR or AMS, as the case may be, shall
indemnify the Indemnitee and hold the Indemnitee harmless from
and against expenses, judgments, fines and amounts paid (with the
consent of the other party) in settlement actually and reasonably
incurred by the Indemnitee in connection therewith if the
Indemnitee acted in good faith and provided that the Indemnitee's
conduct does not constitute gross negligence, fraud or
intentional misconduct.
6. CONFIDENTIALITY. Any and all information obtained
---------------
by either party in connection with the services contemplated by
this Agreement shall be held in the strictest confidence and not
disclosed to any other person without the written consent of the
other party.
7. NOTICES. All notices and other
--------
communications permitted or required hereunder shall be in
writing and shall be deemed given when delivered by hand to an
officer of either party.
8. BINDING EFFECT. This Agreement and all of the
--------------
provisions hereof shall be binding upon and inure to the benefit
of the parties and their respective successors.
9. NO THIRD PARTY BENEFICIARIES. This Agreement is
----------------------------
solely for the benefit of the parties hereto and shall not confer
upon third parties any remedy, claim, cause or action or other
right in addition to those existing without reference to this
Agreement.
10. ENTIRE AGREEMENT. This Agreement constitutes the
-----------------
entire agreement between the parties with respect to the subject
matters covered and hereby and supersedes and prior agreement or
understanding between the parties with respect to those matters.
11. ASSIGNMENT; AMENDMENT; WAIVER. This Agreement is
-----------------------------
not assignable. Neither the rights nor the duties arising
hereunder may be assigned or delegated. This Agreement may not
be amended nor may any rights hereunder be waived except by an
instrument in writing signed by the party sought to be charged
with the amendment or waiver. The failure of a party to insist
upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that
term or any other term of this Agreement.
12. GOVERNING LAW. This Agreement shall be construed
-------------
in accordance with and governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the provisions,
policies or principles thereof relating to choice or conflict of
laws.
13. HEADINGS. The section and other headings
--------
contained in this Agreement are for references purposes only and
shall not effect the meaning or interpretation of this Agreement.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have caused in this
Agreement to be duly executed as of the date and year first above
written.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Enrique Levy
------------------------------
Name:Enrique Levy
Title: President
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Jack Nelson
----------------------------------
Name: Jack Nelson
Title: Chairman
EMPLOYMENT AGREEMENT
-----------------------
AGREEMENT, dated as of December 20, 1995, by and
between ADVANCED MAMMOGRAPHY SYSTEMS, INC., a Delaware
corporation (the "Company"), and JACK NELSON ("the Executive").
WHEREAS, the Executive has been employed by Advanced
NMR Systems, Inc., a Delaware corporation and the holder of a
majority of the Company's Common Stock ("ANMR") pursuant to the
Employment Agreement dated as of December 6, 1993 (the "1993
Agreement") and has provided services to the Company pursuant to
the Company's Shared Services Agreement with ANMR, and the
Company and the Executive wish to enter into an employment
relationship directly with each other in order that the Company
will have the continued benefit of the Executive's services; and
WHEREAS, it has been deemed that the Executive should
have separate employment agreements with the Company and ANMR,
simultaneously with the execution of this Agreement, ANMR and the
Executive are entering into an Employment Agreement (the "ANMR
Agreement") with respect to the services that the Executive is to
render to ANMR;
NOW THEREFORE, in consideration of the foregoing and
the mutual agreements contained herein, the Company and the
Executive agree as follows:
1. Employment. The Company hereby employs the
-----------
Executive as its Chairman of the Board and Chief Executive
Officer, and the Executive accepts such employment and agrees to
perform services for the Company for the period and upon the
other terms and conditions set forth in this Agreement.
2. Term. The term of the Executive's employment
-----
hereunder (the "Term") shall be for a period of five years
commencing as of the date of this Agreement (the "Commencement
Date") and terminating on December 31, 2000, subject to earlier
termination as hereafter specified. This Agreement may be
automatically extended for one (1) year terms unless either the
Company or the Executive gives the other written notice that the
Agreement is terminated prior to December 31, 1999 or thereafter
on the applicable anniversary date.
3. Position and Duties.
-----------------------
3.01 Service with the Company. The Executive agrees
-------------------------
to perform such executive employment duties consistent with the
positions specified in Section 1 hereof and as the Board of
Directors of the Company shall assign to him from time to time.
The Executive also agrees to serve, during the Term hereof, as
requested by the Board, and without any additional compensation,
as a director of the Company and as an officer and/or director of
any subsidiary or affiliate of the Company. It is understood
that the Executive shall divide his full and exclusive business
time between the Company, pursuant to this Agreement, and to
ANMR, pursuant to the ANMR Agreement. Upon the termination or
expiration of the ANMR Agreement, the Executive shall devote his
full and exclusive business time to the Company and its
subsidiaries. The Executive acknowledges that he is familiar
with the License Agreement and the Shared Services Agreement
between the Company and ANMR, and agrees to observe the
obligations thereunder with respect to the Company and ANMR.
3.02 Performance of Duties. The Executive agrees to
----------------------
serve the Company faithfully and to the best of his ability to
advance the business and affairs of the Company, including its
subsidiaries and affiliates, during the Term of this Agreement.
The Executive shall operate primarily out of the executive
offices located in Fort Lee, N.J. (the "Executive Offices"), but
it is understood that the Executive shall also spend considerable
time as business operations require at the Company's office in
Wilmington, Massachusetts and he will undertake such travel as is
necessary to perform his duties under this Agreement. During the
Term hereof, as provided herein, the Executive shall not serve as
a director, employee, consultant or advisor to any other
corporation or business entity not affiliated with the Company
(other than ANMR) without the prior written consent of the
Company's Executive Committee, which consent shall not be
unreasonably withheld.
4. Compensation.
--------------
4.01 Base Salary. As compensation for all services to
-------------
be rendered by the Executive under this Agreement and while the
ANMR Agreement is in effect, the Company shall pay to the
Executive an initial base annual salary (the "Base Salary") of
$117,500. The Base Salary for the second year of this Agreement
shall automatically increase by an amount equal to at least ten
percent (10%) of the initial Base Salary for the first year.
Thereafter, the Base Salary shall be reviewed annually by the
Compensation Committee of the Company's Board of Directors with
any increases to be based upon the Company having achieved both
the revenue and net income budget projections for the immediately
preceding fiscal year. The Base Salary throughout the Term shall
be paid in installments in accordance with the Company's normal
payroll procedures and policies. Upon termination of the ANMR
Agreement, the Base Salary then in effect under this Agreement
shall be increased by one hundred (100%) percent, and such
increased Base Salary shall remain in effect for the balance of
the Term hereof, subject to adjustment as provided for in this
Section 4.01.
4.02 Participation in Benefit Plans. The Executive
--------------------------------
shall be entitled, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him
eligible, to participate in all employee benefit plans or
programs (including medical/dental and life insurance,
retirement, pension, vacation time, sick leave and holidays) of
the Company currently in existence on the date hereof or as may
hereafter be instituted from time to time. The Executive's
participation in any such plan or program shall be subject to the
provisions, rules and regulations applicable thereto. The
Executive shall make himself available for medical examinations
in connection with the Company obtaining any insurance on the
life of the Executive. If necessary, the participation by the
Executive in the foregoing benefit plans may be coordinated
between plans of the Company and ANMR as required under any such
plans to avoid any diminution of the Executive's full
participation therein.
4.03 Expenses. During the Term hereof the Company
---------
shall provide the Executive with a monthly non-accountable
allowance in the amount of $675 to cover expenses that the
Executive will incur in connection with his duties hereunder,
including, among other things, the Executive's life and
disability insurance policies, pension plan and automobile
insurance. The non-accountable amount would increase to $1,350 a
month upon the termination of the ANMR Agreement. Upon the
Executive incurring non-recurring expenses on behalf of the
Company, the Company shall pay or reimburse the Executive for
such expenses, in accordance with the Company's policies
established from time to time, subject to the presentment of
appropriate vouchers and receipts.
5. Protective Covenants.
---------------------
5.01 Confidential Information. Except as permitted or
------------------------
directed by the Company's Board of Directors, the Executive shall
not during the Term of this Agreement or at any time thereafter
divulge, furnish or make accessible to anyone for use in any way
(other than in the ordinary course of the business of the
Company) any confidential or secret knowledge or information of
the Company (for the purposes of this Section the term "Company"
shall be deemed to include any subsidiary or affiliate of the
Company, including ANMR) which the Executive has acquired or
become acquainted with or will acquire or become acquainted with
prior to the termination of the period of his employment by the
Company, whether developed by himself or by others, concerning
any trade secrets, confidential or secret designs, processes,
formulae, plans, devices or material (whether or not patented or
patentable) directly or indirectly useful in any aspect of the
business of the Company, and confidential customer or supplier
lists of the Company, any confidential or secret development or
research work of the Company, or any other confidential or secret
aspects of the business of the Company, except as permitted or
directed by the Company's Board. The Executive acknowledges that
the above-described knowledge or information constitutes a unique
and valuable asset of the Company acquired at great time and
expense by the Company, and that any disclosure or other use of
such knowledge or information other than for the sole benefit of
the Company would be wrongful and would cause irreparable harm to
the Company. Both during and after the Term of this Agreement,
the Executive shall refrain from any acts or omissions that would
reduce the value of the use of such knowledge or information to
the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information which
is now published or which subsequently becomes generally
publicly known, other than as a direct or indirect result of the
breach of this Agreement by the Executive.
5.02 Disclosure and Assignment. The Executive shall
--------------------------
promptly disclose in writing to the Company complete information
concerning each and every invention, discovery, improvement,
device, design, apparatus, practice, process, method or product,
whether patentable or not, made, developed, perfected, devised,
conceived or first reduced to practice by the Executive within
his duties and corporate responsibilities, either solely or in
collaboration with others, during the Term of this Agreement, or
within six (6) months thereafter, whether or not during regular
working hours, relating directly to the business, products or
practices of the Company (hereinafter referred to as
"Inventions"). The Executive, to the extent that he has the
legal right to do so, hereby acknowledges that any and all of
said Inventions are the property of the Company and hereby
assigns and agrees to assign to the Company any and all of the
Executive's right, title and interest in and to any and all of
said Inventions.
5.03 Future Inventions. As to any future Inventions
-------------------
made within his duties and corporate responsibilities by the
Executive which relate to the business, products or practices of
the Company and which are first conceived or reduced to practice
during the Term of this Agreement, but which are claimed for any
reason to belong to an entity or person other than the Company,
the Executive shall promptly disclose the same in writing to the
Company and shall not disclose the same to others if the Company,
within twenty (20) days thereafter, shall claim ownership of such
Inventions under the terms of this Agreement.
5.04 Assistance of the Executive. Upon request and
----------------------------
without further compensation therefor, but at no expense to the
Executive, and whether during the Term of this Agreement or
thereafter, the Executive shall do all lawful acts, including,
but not limited to, the execution of papers and lawful oaths and
the giving of testimony, that in the opinion of the Company, its
successors and assigns, may be necessary or desirable in
obtaining, sustaining, reissuing, extending or enforcing United
States, Canadian and foreign Letters Patents, including, but not
limited to, design patents, on any and all of said Inventions,
and for perfecting, affirming and recording the Company's
complete ownership and title thereto, and to cooperate otherwise
in all proceedings and matters relating thereto.
5.05 Records. The Executive shall keep complete,
--------
accurate and authentic accounts, notes, data and records of all
Inventions in the manner and form requested by the Company. Such
accounts, notes, data and records shall be the property of the
Company. Upon termination of his employment with the Company,
the Executive shall deliver promptly to the Company all records,
manuals, books, blank forms, documents, letters, memoranda,
notes, notebooks, reports, data, tables, calculations or copies
thereof, which are the property of the Company and which relate
in any way to the business, products, practices or techniques of
the Company, and all other property, trade secrets and
confidential information of the Company, including, but not
limited to, all documents which in whole or in part contain any
trade secrets or confidential information of the Company, which
in any of these cases are in his possession or under this
control.
5.06 Non-Competition. The Executive agrees that during
-----------------
the Term of his employment hereunder and for a period of one (l)
year following the termination of such employment (except if this
Agreement is not renewed at the end of any then Term, the
foregoing period shall be six (6) months following such
termination of employment) he shall not (i) directly or
indirectly within the geographical area in which the Company is
manufacturing and marketing its products engage in competition
with the Company by being an employee, shareholder, sole
proprietor, partner, member or consultant to an entity which is
engaged in a business (the "Competitive Business") similar to
that conducted by the Company at any time during the six (6)
month period preceding his termination of employment hereunder or
which at the time of such termination the Company had definitive
plans to enter, or (ii) on his own behalf or in the service of
others solicit, divert or attempt to solicit or divert any person
then employed by the Company. The restrictions in this Section
5.06 shall not apply with respect to (i) a passive investment by
the Executive of less than 5% of the outstanding shares of
capital stock of any corporation or other business entity, (ii)
employment by the Executive with an entity in a management
capacity in an area of business which is not, directly or
indirectly, a Competitive Business, or (iii) a termination of
this Agreement by the Company other than for cause pursuant to
Section 6.04 hereof or by the Executive for cause pursuant to
Section 6.05 hereof or upon a change of control pursuant to
Section 6.06 hereof. To the extent that the employment of the
Executive by ANMR pursuant to the ANMR Agreement is deemed to be
employment in a Competitive Business, the Company hereby consents
to such employment and waives any claims that it may have against
the Executive for breach of this Section 5.06 by reason of such
employment with ANMR.
5.07 Remedies. The Executive agrees that it would be
----------
difficult to compensate the Company fully for damages for any
violation of the provisions of this Agreement, including without
limitation the provisions of this Section 5. Accordingly, the
Executive specifically agrees that the Company shall be entitled
to temporary and permanent injunctive relief to enforce the
provisions of this Agreement. This provision with respect to
injunctive relief shall not, however, diminish the right of the
Company to claim and recover damages in addition to injunctive
relief.
6. Termination.
------------
6.01 Death of the Executive. This Agreement shall
-----------------------
automatically terminate in the event of the death of the
Executive. In the event this Agreement is terminated by reason
of the death of the Executive, the Company shall pay the
representative of the Executive (i) any accrued amount of the
Base Salary (and any Bonus), benefits, reimbursements or other
sums payable pursuant to this Agreement accrued to the date of
death, (ii) an amount equal to two (2) times the Base Salary in
effect at the time of his death, fifty (50%) percent payable
within thirty (30) days from the date of death and the remaining
fifty (50%) percent in twelve (12) equal consecutive monthly
installments, commencing on the first day of the month
immediately following the month in which the Executive died, and
(iii) an amount equal to the product of (A) any Bonus the Company
had paid to the Executive for the immediately preceding year of
this Agreement multiplied by (B) a fraction the numerator of
which shall be the number of whole months during the current year
hereof prior to the month in which the Executive died and the
denominator shall be 12; and the Company shall cause all stock
options and other equity based awards granted by the Company to
the Executive to become fully vested and immediately exercisable
by the Executive's estate subject to their respective terms.
6.02 Disability of the Executive. (a) If the
----------------------------
Executive is determined to be disabled pursuant to this Section,
within thirty (30) days of such determination of disability, the
Company shall have the option to terminate this Agreement by
written notice to the Executive stating the date of termination
which date may be at any time subsequent to the date of such
determination. For purposes of this Section 6.02, "disability"
shall mean a condition, due to illness or injury, either physical
or mental, subject to which the Executive is unable to perform
his customary duties and responsibilities as required by this
Agreement for more than six (6) months in the aggregate out of
any period of twelve (12) consecutive months. The determination
that the Executive is disabled shall be made by the Executive
Committee of the Company, based upon an examination and
certification by a qualified physician selected by the Company
and subject to the Executive's approval, which approval shall not
be unreasonably withheld.
(b) In the event this Agreement is terminated by reason
of the disability of the Executive, (i) the Company shall pay to
the Executive the accrued amount of the Base Salary (and any
Bonus), prorated through the date of termination (other than
expense reimbursements which shall be paid in full), if, as and
when such amounts would be paid but for the termination of this
Agreement, (ii) the Executive's inclusion in the Company's health
plan shall continue at the expense of the Company for a period of
ninety (90) days, provided the Executive does not obtain any
employment during that time which provides him with comparable
health plan coverage and also subject to any changes in such plan
as applicable to other executive officers, (iii) the Company
shall pay to the Executive an amount equal to (A) two (2) times
his then Base Salary, less (B) the aggregate amount of all income
disability benefits which he may be entitled to during the first
twenty-four (24) months after termination by reason of disability
policies for which the Company paid the premiums thereon,
commencing on the first day of the month immediately following
the month during which the foregoing termination of employment
occurred, and payable in twenty-four (24) equal consecutive
monthly installments, (iv) the Company shall pay to the Executive
an amount equal to the product of (A) any Bonus such Company had
paid to the Executive for the immediately preceding year of this
Agreement multiplied by (B) a fraction, the numerator of which
shall be the number of whole months during the current year
hereof that the Executive was an employee of the Company and the
denominator shall be 12, and (v) all stock options and other
equity based awards granted by the Company to the Executive shall
become fully vested and immediately exercisable subject to their
respective terms.
6.03 By the Company For Cause. The Company may
-------------------------
terminate this Agreement for cause at any time. For purposes of
this Section 6.03, the term "cause" shall be limited to (i) the
willful engaging by the Executive in misconduct which is
materially injurious to the Company or its subsidiaries or
affiliates, (ii) the conviction of the Executive of a crime
involving any financial impropriety or which would materially
interfere with the Executive's ability to perform his services
required under this Agreement or otherwise be materially
injurious to the Company or its subsidiaries or affiliates, or
(iii) the failure of the Executive to perform in any material
respect any of his material obligations under this Agreement
without proper justification, which failure is not cured within
ten (10) days after notice thereof from the Company. For the
purposes of this Section 6.03, no act, or failure to act, on the
Executive's part shall be considered willful unless done, or
admitted to be done, by the Executive in bad faith and without
reasonable belief that such action or omission was in the best
interest of the Company. In the event this Agreement is
terminated pursuant to this Section 6.03, the Executive shall not
be entitled to any compensation other than his then current Base
Salary which has accrued through his date of termination, subject
to the Company's right of offset based upon acts of the Executive
which gave rise to the termination, and any other claims which
the Company may then have against the Executive, and all stock
options and other equity based awards granted by the Company to
the Executive which have not yet vested shall terminate.
6.04 By the Company Not for Cause. If the Company
-----------------------------
terminates this Agreement other than for cause as defined in
Section 6.03 hereof prior to the end of the then Term hereof, the
Executive shall be entitled to (i) an amount equal to two (2)
times the Base Salary in effect at the time of termination, fifty
(50%) percent payable within thirty (30) days from the date of
termination and the remaining fifty (50%) percent in twelve (12)
equal consecutive monthly installments, commencing on the first
day of the month immediately following the month in which the
Agreement is terminated pursuant to this Section 6.04, (ii) any
payments owed by the Company which have accrued through his date
of termination shall be paid upon termination, (iii) any Bonus
through the end of the current fiscal year shall be paid promptly
after calculation of any such Bonus, (iv) the continuation of his
participation in the health plan at the expense of the Company
for a period of two (2) years subject to termination of such
health benefits upon the Executive becoming covered by a
comparable plan offered by a subsequent employer and also subject
to any changes in such plan as applicable to other executive
officers, and (v) the immediate vesting and exercise of all stock
options and other equity based awards granted by the Company to
the Executive, subject to their respective terms.
6.05 By the Executive for Cause. The Executive may
---------------------------
terminate this Agreement for cause at any time upon written
notice given to the Company not more than thirty (30) days after
the Executive becomes aware of an event which may constitute
"cause." For purposes of this Section 6.05, the term "cause"
shall be limited to (I) the failure of the Company to perform in
any material respect any of its material obligations under this
Agreement without proper justification, and such failure
continues for at least fifteen (15) days after written notice
from the Executive to the Company specifying the nature of the
alleged failure, (II) the removal of the Executive as Chairman of
the Board and/or Chief Executive of the Company or a change in
responsibilities or functions of the Executive without his prior
written consent or (III) the relocation of the Executive Offices
of the Company to a site more than 30 miles away from the current
Executive Offices without the prior written consent of the
Executive. In the event that the Executive terminates this
Agreement pursuant to this Section 6.05, the Executive shall then
be entitled to: (i) a severance payment equal to an amount equal
to three (3) times his then Base Salary if the termination date
is within two (2) years of the Commencement Date or two (2) times
his then Base Salary if the termination date is more than two (2)
years after the Commencement Date, payable within thirty (30)
days after the termination of this Agreement by reason of this
Section 6.05, (ii) any payments owed by the Company which have
accrued through his date of termination shall be paid upon
termination, (iii) any Bonus through his date of termination
shall be paid promptly after calculation of any such Bonus,
(iv) the continuation of his participation in the Company's
health plan at the expense of the Company for a period of two (2)
years subject to termination of such health plan coverage
benefits upon the Executive becoming covered by a comparable plan
offered by a subsequent employer and also subject to any changes
in such plan as applicable to other executive officers, and (v)
the immediate vesting and exercise of all stock options and other
equity based awards granted by the Company to the Executive,
subject to their respective terms.
6.06 Change in Control of the Company. If, at anytime
----------------------------------
during the Term hereof, a change in control of the Company (as
defined in Section 6.07 hereof) occurs, then within sixty (60)
days after his receipt of written notice of such change in
control of the Company, the Executive may, by written notice to
the Company (or its successor), terminate this Agreement. In the
event of said termination, (i) the Executive shall receive a lump
sum payment equal to 2.99 times his then current Base Salary,
payable within thirty (30) days after termination of this
Agreement, (ii) the Company (or its successor) shall maintain, at
its expense, the health plan coverage of the Executive for a
period of twelve (12) months after such termination, subject to
termination of such health plan coverage benefits upon the
Executive becoming covered by a comparable plan offered by a
subsequent employer and also subject to any changes in such plan
as applicable to other executive officers and (iii) all stock
options and other equity based awards granted by the Company or
ANMR to the Executive shall become fully vested and exercisable
subject to their respective terms; provided, however, if the
------- --------
amount to be paid or distributed to the Executive pursuant to
this Section 6.06 (taken together with any amounts otherwise to
be paid or distributed to the Executive by the Company) (such
amounts collectively the "Section 6.06 Payment") would result in
the application of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any
successor or similar provision thereto, the Section 6.06 Payment
shall not be paid or distributed in the amounts or at the times
otherwise required by this Agreement, but shall instead be paid
or distributed annually, beginning within thirty (30) days after
the termination date pursuant to Section 6.06 hereof and
thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of years
that are determined to be required to reduce the aggregate
present value of Section 6.06 Payment to an amount that will not
cause any Section 6.06 Payment to be non-deductible under Section
280G of the Code. For purposes of this Section 6.06, present
value shall be determined in accordance with Section 280G(d)(4)
of the Code. All determinations to be made under the foregoing
proviso to this Section 6.06 shall be made by the accounting firm
which served as the Company's independent public accountant
immediately prior to the change of control (the "Accounting
Firm"), which firm shall provide its determinations and any
supporting calculations both to the Company and the Executive
within twenty (20) days of the termination date. Any
determination by the Accounting Firm shall be binding upon the
Company and the Executive.
6.07 Change of Control, Defined. "Change of control
----------------------------
of the Company" shall be deemed to have occurred if:
(a) any "person" or "group" (as "person" and "group"
are defined in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than (i) the Executive or a person controlled by him, (ii) a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company, (iii) a person or group by reason of
a transaction with the Company approved by the Company's Board of
Directors as constituted in accordance with Subsection (b) below,
or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 15% or more of the
combined voting power of the Company's then outstanding
securities; or
(b) individuals who on the Commencement Date
constitute members of the Board of Directors, or successors
chosen by such individuals, shall cease for any reason to
constitute a majority of the whole Board of Directors.
6.08 Mitigation. In the event this Agreement is
-----------
terminated pursuant to Section 6.04, 6.05 or 6.06 hereof, the
Executive shall not be required to mitigate the amount of any
payment that the Company becomes obligated to make to the
Executive in connection with this Agreement, by seeking other
employment otherwise, and there shall be no offset against any
payment for any remuneration the Executive may receive from any
subsequent employment or any other source.
7. Assignment and Inurement. This Agreement shall
-----------------------
inure to the benefit of and be binding upon the parties hereto
and their respective heirs, successors, administrators,
successors and permitted assigns. The Company may, without the
consent of the Executive, assign its rights and obligations under
this Agreement to any corporation, firm or other business entity
with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer all or substantially all
of its assets or of which fifty (50%) percent or more of the
equity investment and of the voting control is owned, directly or
indirectly, by, or is under common ownership with, the Company,
provided there is no change in the rights of the Executive or the
obligations of any such assignee by reason of such assignment and
to the Executive's right to terminate this Agreement pursuant to
Section 6.05 or 6.06 hereof.
8. Miscellaneous.
--------------
8.01 Governing Law. This Agreement is made
------------
under and shall be governed by and construed in accordance with
the laws of the State of Massachusetts, subject to any principles
of conflict of laws.
8.02 Prior Agreements. This Agreement contains
----------------
the entire agreement of the parties relating to the subject
matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, including,
without limitation, the 1993 Agreement. The parties hereto have
made no agreements, representations or warranties relating to the
subject matter of this Agreement which are not set forth herein.
8.03 Withholding Taxes. The Company may withhold
-----------------
from any benefits payable under this Agreement all federal,
state, city and other taxes as shall be required pursuant to any
law or governmental regulation or ruling.
8.04 Legal Expenses. In the event the Executive
---------------
institutes any judicial or other legal proceeding to enforce his
rights under this Agreement or defends any claims asserted
against him arising out of this Agreement, the Company shall
reimburse him for his legal fees and expenses with respect to all
portions of any such proceedings or claims for which the
Executive is successful. The obligation of the Company in this
Section 8.04 shall be separate from any claim that the Executive
may have for indemnification against the Company, whether by
statute, agreement or otherwise.
8.05 Amendments. No amendment, modification or
----------
termination of this Agreement shall be deemed effective unless
made in writing signed by the party against whom enforcement of
the amendment, modification or termination is sought. Any
written waiver hereunder shall not be deemed a continuing waiver
unless specifically stated, shall operate only as to the specific
term or condition for the future or as to any act other than that
specifically waived.
8.06 Notices. Any notice, request, demand or
--------
other document to be given hereunder shall be in writing, and
shall be delivered personally or sent by registered, certified
or express mail or facsimile followed by mail as follows:
If to the Company:
Advanced Mammography Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887
Attn: Enrique Levy, President
FAX: (508) 658-3581
If to the Executive:
Jack Nelson
281 East Linden Ave.
Englewood, New Jersey 07631
FAX: (201) 569-2586
or to such other address as either party hereto may hereinafter
duly give to the other.
8.07 Severability. To the extent any provision of
------------
this Agreement shall be invalid, illegal or unenforceable, it
shall be considered deleted here from and the remainder of such
provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration or geographical
extent of, or business activities covered by any provision of
this Agreement be in excess of that which is valid or enforceable
under applicable law, then such provision shall be construed to
cover only that duration, extent or activities which may valid
and enforceable be covered. The Executive and the Company
acknowledge the uncertainty of the law in this respect and
expressly stipulates that this Agreement be given the
construction which renders its provisions valid and enforceable
to the maximum extent (not exceeding its express terms) possible
under applicable law.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year set forth above.
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Enrique Levy
----------------------------
Enrique Levy, President
/s/ Jack Nelson
-----------------------------
Jack Nelson
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statement No. 333-14403 of Advanced Mammography Systems, Inc. (the "Company")
on Form S-8 of our report dated November 22, 1996 on the financial statements
of the Company for the year ended September 30, 1996, the nine-month period
ended September 30, 1995, the year ended December 31, 1994 and the period
July 2, 1994 (inception) to September 30, 1996 appearing in this Annual
Report on Form 10-K of the Company.
/s/ Richard A. Eisner & Company, LLP
-------------------------------------
Richard A. Eisner & Company, LLP
Cambridge, Massachussetts
January 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ADVANCED MAMMOGRAPHY SYSTEMS, INC.
FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,997,076
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,123,404
<CURRENT-ASSETS> 3,147,684
<PP&E> 946,709
<DEPRECIATION> 335,277
<TOTAL-ASSETS> 3,984,351
<CURRENT-LIABILITIES> 908,595
<BONDS> 0
0
0
<COMMON> 83,468
<OTHER-SE> 1,520,537
<TOTAL-LIABILITY-AND-EQUITY> 3,984,351
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,217,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,857
<INCOME-PRETAX> (3,177,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,177,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,177,639)
<EPS-PRIMARY> (.79)
<EPS-DILUTED> 0
</TABLE>
