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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 000-27592
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SCANTEK MEDICAL INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1090126
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 PALMER ROAD, DENVILLE, NEW JERSEY 07834
(973) 366-5250
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(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.001 PAR VALUE
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 [X] 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Aggregate market value of voting stock held by non-affiliates as of
September 15, 1999 was approximately $3,752,862 (based upon the closing sales
price of those shares reported on the National Association of Securities Dealers
Bulletin Board for that day).
Number of shares of Common Stock outstanding as of September 15, 1999:
18,070,200.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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SCANTEK MEDICAL INC.
INDEX
Part I Page
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Item 1. Business ................................................... 2
Item 2. Properties ................................................. 23
Item 3. Legal Proceedings .......................................... 23
Item 4. Submission of Matters to Vote of Security Holders .......... 23
Part II
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters .............................. 23
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 25
Item 7. Financial Statements ....................................... 33
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................... 34
Part III
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Item 9. Directors and Executive Officers; Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act ...................................... 34
Item 10. Executive Compensation ..................................... 37
Item 11. Security Ownership of Certain Beneficial
Owners and Management .................................... 40
Item 12. Certain Relationships and Related Transactions ............. 43
Part IV
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Item 13. Exhibits and Reports on Form 8-K ........................... 44
Signatures ........................................................... 48
* Page F-1 follows page 33
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PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated growth in revenue, gross
margins and earnings, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
expectations, are forward-looking statements in nature and involve a number of
risks and uncertainties. Actual results may differ materially. Among the factors
that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company's competitive factors; the ability of the
terms satisfactory to the Company's competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or its management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements. These statements are made pursuant to the Private Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 1. BUSINESS
GENERAL
Scantek Medical, Inc. (OTC: BB, SKML) (the "Company"), a Delaware
corporation, was organized under the name "Jenncor Acquisition Inc." on June 10,
1988, to obtain funding for prospective business opportunities available to
publicly held entities. Until October 3, 1991, when the Company exchanged its
shares with Scantek Digital Systems Inc. ("SDSI"), the Company's only business
activities involved raising capital through a public offering pursuant to
Regulation A of the Securities Act of 1933, as amended (the "Act"). Pursuant to
the share exchange between the Company and SDSI, the then holder of several
patents relating to a medical product known as the Breast Abnormality Indicator
(the "BreastCare(TM)/BreastAlert(TM)"), SDSI became a wholly-owned subsidiary of
the Company. The Company was formerly a developmental stage company and became
fully operational in early 1999. Research and developmental expenses increased
6.4% to $339,337 for the year ended June 30, 1999 from $291,013 for the year
ended June 30, 1998.
The Company is headquartered in Denville, New Jersey, where it maintains
approximately 13,000 square feet of manufacturing and administrative space. At
this facility, the Company has two production lines in which to manufacture the
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BreastCare(TM)/BreastAlert(TM). These production lines are capable of producing
five million units per shift annually. The Company maintains a manufacturing and
administrative staff and intends to add to its staff in key functional areas,
pending funding of the Company and revenue from sales of the
BreastCare(TM)/BreastAlert(TM) units.
The Company is a high-tech medical company engaged in developing,
manufacturing, selling and licensing of products and devices to assist in the
early detection and diagnosis of disease. At the present time, the Company is
focusing on manufacturing, selling and licensing the Company's first product,
the BreastCare(TM)/BreastAlert(TM) Differential Temperature Sensor in response
to the global demand for the early detection of breast disease, a major threat
to women's health in developing as well as industrial countries. In today's
health care environment, containment of medical care cost is a major priority.
The Company has focused its business on easy to use low cost products and
devices for its domestic and international markets which will have an impact on
preventive health care and cost containment. The BreastCare(TM)/BreastAlert(TM)
has United States Food and Drug Administration ("FDA") marketing clearance; the
BreastCare(TM)/BreastAlert(TM) is to be used by physicians as an adjunct to
clinical breast examination, mammography and other established procedures for
the detection of breast disease. The BreastCare(TM)/BreastAlert(TM) is a
single-use, non-invasive, easy to use and cost-effective test to alert the
physician to the possibility of a physiological condition that may be thermally
active cancer.
The BreastCare(TM)/BreastAlert(TM) can detect cellular abnormalities as
small as one-half centimeter in diameter as established through biopsy proven
tumors. The Company believes that this technology upon which the
BreastCare(TM)/BreastAlert(TM) is based will be useful in measuring certain
other body disorders.
THE PRODUCT
At present, the fear of breast cancer continues to escalate, comparatively
because little is actually known with respect to managing breast cancer. It is
estimated worldwide, that each year, over 300,000 women will die from breast
cancer. In fact, according to the America Cancer Society, this grave disease has
been identified to be the medical issue of highest priority for women's health.
Moreover, it cannot be predicted who will develop this epidemic cancer; any
woman at any age may develop breast cancer. Breast cancer is the second leading
cause of death for women in the U.S., but the most common for women between the
ages of 35 and
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54. Worldwide, breast cancer ranked highest as the leading cause of cancer
deaths for women. Early detection and diagnosis of breast cancer are important
in the reduction of mortalities.
In the United States, American women are afforded with a preventive health
measure, mammography. In developing countries however, mammography is not
readily available to women, even for those women who have the resources to pay
for such. There is a void between manifestation of the breast cancer and
detection due to unavailable screening systems. Failure to intervene during this
period may significantly reduce the likelihood of survival because the cancer
then metastasizes. The American Cancer Society, on Cancer Facts & Figures in
1999, reported that if cancer is localized at the time of diagnosis, there is a
97% chance of a 5 year survival rate, which has risen from 72% in 1940.
Nevertheless, in spite of research and efforts to detect breast cancer in the
early stages, the rate of mortality due to breast cancer in developing countries
has consistently increased over the past four decades.
Management believes that the BreastCare(TM)/BreastAlert(TM) will help to
detect breast cancer in its early stages. Management believes that the
BreastCare(TM)/BreastAlert(TM) will assist in the recognition of abnormal early
cellular development by recording the heat differentiation of corresponding
areas of the breast. The BreastCare(TM)/BreastAlert(TM) is not a definitive test
for cancer (i.e., a biopsy, the removal and examination of, usually microscopic,
tissue from the living body, performed to establish a precise diagnosis) but is
a risk marker to identify and follow breast abnormalities by means of
temperature conductivity integration when used adjunctly with clinical palpation
and mammography.
One of the important biological activities of malignant tumors is the
increased rate of growth as compared to the surrounding or "host" tissue. The
malignant propensities are directly related to the speed of cell division; this
in turn is reflected by accelerated local metabolism which is adequately
supported by increased blood and lymphatic vascularity. These biological
alterations can be detected by measuring temperature differences in the tumor
and its immediate environment, or by comparing to the same area of the opposite
breast.
The BreastCare(TM)/BreastAlert(TM) is designed to assist in the detection
of pathology of the breast by recognizing "significant" heat differences in the
underlying tissue of a particular area, by comparing corresponding
(mirror-image) segments of one breast to the other. The cause of the
hyperthermia cannot be determined by this test alone; therefore, the
BreastCare(TM)/BreastAlert(TM) serves as an early warning signal to alert the
doctor to the fact that there
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is evidence of a pathological process, one of which could be thermally active
breast cancer, which should be further evaluated within a particular area of the
breast.
The BreastCare(TM)/BreastAlert(TM) is designed to complement, not replace,
conventional breast abnormality screening methods and devices. It is intended
for use by women of all ages. The BreastCare(TM)/BreastAlert(TM) is available
for a routine, primary office care procedure used by physicians, gynecologists
and other medical specialists as part of a breast disease monitoring program
adjunctively with Breast Self Examination (BSE), Clinical Breast Examination
(CBE), (depending upon a patient's age, family history, and other factors)
mammography and other established clinical procedures.
The basis for the BreastCare(TM)/BreastAlert(TM) is based upon data going
back a number of years which show that blood on the venous side of breast
cancers is warmer than blood on the arterial side of the lesion. This indication
of heat generation is presumably due to increased metabolic rate of neoplastic
tissue, including more rapid cell division, angiogenesis, etc. However, heat is
not specific to neoplasia and may for example be due to inflammation. The
presence of asymmetrical patterns (one side is warmer than the other by 2
degrees Fahrenheit) is a sign that may be detected with the
BreastCare(TM)/BreastAlert(TM).
The BreastCare(TM)/BreastAlert(TM) consists of a pair of mirror- image,
non-invasive, lightweight, disposable soft pads, each of which has three
wafer-thin foil segments containing columns of heat sensitive chemical sensors
that change color from blue to pink reflecting an 8.5 degree temperature range
between 90 and 98.5 Fahrenheit. When placed against a woman's breast inside her
brassiere for a period of 15 minutes, the BreastCare(TM)/BreastAlert(TM)
registers the temperature variations due to heat conducted from within the
breast tissue to the surface of the skin. The result will be digitally, not
analogically, indicated by color changes for each temperature gradation.
Significant temperature differences (2 degrees Fahrenheit or four bars) in the
corresponding areas of the breast may indicate an abnormal unilateral thermal
activity long before a lump is discovered by self-examination, clinical
examination or other detection methods such as mammography, ultrasound, etc.
Accordingly, by comparing the mirror-image temperature differences between the
two breast registered by the BreastCare(TM)/BreastAlert(TM), a determination can
be made as to whether a sufficient abnormality is present to warrant further
site-specific testing by other diagnostic techniques, including, but not limited
to mammography and/or biopsy. The BreastCare(TM)/BreastAlert(TM) test does not
replace recommended
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guidelines for scheduled mammographic screening.
The BreastCare(TM)/BreastAlert(TM) is a safe, non-invasive, economical and
easy to use test. The BreastCare(TM)/BreastAlert(TM), which is disposable, can
be administered and evaluated by health care providers after minimal instruction
and a permanent record of results can be placed in the patient's files.
Management believes that the utilization of the BreastCare(TM)/BreastAlert(TM)
is cost effective and when used in combination with a mammographic work-up or at
intervals of recommended screenings, will have an impact on breast cancer
mortality and improve a woman's preventive health strategy.
SCIENTIFIC BASIS
Infrared thermography for the evaluation of breast lesions was introduced
in 1956, and systems employing thermosensitive liquid crystal films have
generated renewed interest since 1978. Studies by Dr. Michael Gautherie,
University of Strasbourg, France and others dating from 1970, have directly
evaluated the heat of cancerous breast tissue compared with that of healthy
breast tissue. These studies found that tumor temperature was always higher than
the surrounding temperature and suggested that the increase in tumor heat
resulted from an increased metabolism. Furthermore, two other phenomena were
found to occur: (i) tumor heat was found to be transported within the
surrounding breast tissue (principally by blood convection through the veins)
resulting in local or diffuse increases in skin temperature and (ii) vascular
changes were observed in the tumor area and further in the subcutaneous breast
tissues. In short, both hyperthermia and hypervascularization were found to have
occurred in the tumor and at its periphery, in comparison to the temperature and
blood flow of healthy tissue in the contralateral breast. Further research by
Dr. Gautherie and others has demonstrated an unequivocal relationship between
the metabolic heat production of cancer tissue and the doubling time of tumor
volume: the faster the tumor grows the more heat it generates.
The BreastCare(TM)/BreastAlert(TM) measures underlying breast tissue
temperature and not skin surface temperature by retaining emitted heat when the
BreastCare(TM)/BreastAlert(TM) is placed against the breast. It differs from
preexisting infrared and liquid crystal thermography techniques which allow the
heat to escape or radiate during measurement. The BreastCare(TM)/BreastAlert(TM)
takes into consideration that the average temperature patterns of a healthy
woman's breast are closely symmetrical. This method detects abnormalities by
comparing the temperature differences in the corresponding mirror image areas of
a woman's breast.
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Recently, the scientific foundation for the BreastCare(TM)/BreastAlert(TM)
effectiveness has been considerably strengthened. Comprehensive research has
established in detail the mechanisms by which malignancies radically alter the
host tissue environment, notably through two quantitatively measurable
processes: (i) A tumor significantly elevates overall rates of metabolic
activity and (ii) A tumor greatly intensifies capillary vascularization in host
tissues. In particular, this latter process of angiogenesis was a very critical
finding because it is the probable mechanism by which cancers with an enhanced
mestastic potential prepare to invade the host. These are only two of a number
of measurable host alterations and each is associated with asymmetric heat
distribution.
SUMMARY CLINICAL TESTING HISTORY
Development and clinical trials of the BreastCare(TM)/BreastAlert(TM) were
completed between 1980 and 1984. This testing showed that the
BreastCare(TM)/BreastAlert(TM) is capable of detecting lesions in the breast
earlier than through clinical examination by sensing metabolic changes in the
breast. Biopsy and screening clinical trials were conducted at well-established
U.S. institutions to assess and validate BreastCare(TM)/BreastAlert(TM)
usefulness in detecting breast cancer at Memorial Sloan-Kettering Hospital in
New York, at M.D. Anderson Memorial Hospital in Houston, at Brotman Memorial
Hospital at UCLA, and at Guttman Breast Diagnostic Institute in New York. The
BreastCare(TM)/BreastAlert(TM) was found to be accurate in terms of the
documented sensitivity of the BreastCare(TM)/BreastAlert(TM) (true positive for
cancer) and specificity (true negatives - no cancer detectable by accepted
medical methods) in relation to the biopsy (the "Gold Standard" diagnostic
procedure), clinical breast examination and mammography.
BreastCare(TM)/BreastAlert(TM) Test Results vs. Biopsy Findings: In the
first study in 1984, the BreastCare(TM)/BreastAlert(TM) was the focus of a
clinical trial involving 179 women who underwent a biopsy. This multi-center
study was conducted at three prestigious cancer institutions: M.D. Anderson
Hospital and Tumor Institute, Memorial Sloan-Kettering Hospital, and Brotman
Memorial Hospital. The BreastCare(TM)/BreastAlert(TM) tested positive for the
suspicion of cancer in 93 of the 112 women who were diagnosed with cancer, for
an overall sensitivity index of 83.0% and was notably stronger in detecting
unilateral cancers - a sensitivity index of 88.1% (that is, 74 of the 84
unilateral cancers diagnosed). The frequency of false negatives was higher among
patients who underwent biopsies of both breast (less than 3% of breast cancers
are believed to be bilateral generally).
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The biopsy results were subjected to a breakdown by the size of the cancer
detected and the patient's age. The threshold tumor size detectable with the
BreastCare(TM)/BreastAlert(TM) is five millimeters and up, an early-stage
cancer; out of a total of eight cancers under 1.0 centimeters which were
diagnosed during the screening study, seven tested positive using the
BreastCare(TM)/BreastAlert(TM). It appears that the
BreastCare(TM)/BreastAlert(TM) has the proven ability to detect small,
early-stage cancers which are most likely to be associated with favorable
treatment outcomes. Moreover, a breakdown of the BreastCare(TM)/BreastAlert(TM)
results by age suggests an especially high efficacy in detecting suspicious
abnormalities in younger women. This is noteworthy because a pre-screening
method is critically needed for women under 50 who have not been urged or who
have chosen not to seek a mammogram on an annual basis, since fast-growing,
potentially aggressive cancers are associated with the women in this age
distribution. The BreastCare(TM)/BreastAlert(TM) will be used adjunctively with
palpation and mammography.
BreastCare(TM)/BreastAlert(TM) Test Results vs. Clinical Findings vs.
Mammography and Physical Examination: In the second clinical trial study in
1984, the BreastCare(TM)/BreastAlert(TM) was studied prospectively in 2,805
asymptomatic women for the test's ability to detect abnormalities suspicious of
breast cancer. Specifically, the BreastCare(TM)/BreastAlert(TM) data was
compared to the mammographic and clinical findings, as well as to a limited
number of cytological findings. Of the 2,805 women screened, 99 were recommended
for a biopsy based on the suspicion of cancer in 86 of the 99 women (a
sensitivity index of 86.9%). Fifty-nine biopsies were subsequently performed and
13 of the 15 cancers diagnosed were positive for the
BreastCare(TM)/BreastAlert(TM) test (a sensitivity index of 86.7% against
biopsy). Of the 2,706 women who had no suspicion of cancer based on mammogram
and/or clinical examinations, 2,340 had negative BreastCare(TM)/BreastAlert(TM)
results (a specificity index of 86.5%).
The BreastCare(TM)/BreastAlert(TM) is accurate, both in terms of
sensitivity and specificity. Notably, the very low false positive rate (true
negatives with a positive BreastCare(TM)/BreastAlert(TM) test) of
13.5%*BreastCare(TM)/BreastAlert(TM) for the initial screening trial actually
assumes two additional circumstances: (1) that no mammographically undetectable
cancers occurred; and (2) that the rate of subsequent cancers within this
so-called false positive group is not statistically higher than that of the
population of women as a whole. A lower true false positive rate for the
BreastCare(TM)/BreastAlert(TM) can be assumed if abnormal thermal distribution
is a risk marker for future disease incidences, as had
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frequently been suggested. In fact, several publications have documented a
positive predictive value for thermographically based tests to detect future
cancers. The screening study demonstrated reliability approaching that of
mammography and significantly greater than distantly related thermographic
techniques.
In conclusion, these studies have demonstrated the following with respect
to use of the BreastCare(TM)/BreastAlert(TM): (i) the
BreastCare(TM)/BreastAlert(TM) measures differences in temperature between
corresponding areas of the left and right breasts, (ii) the
BreastCare(TM)/BreastAlert(TM) is a safe device; no adverse reactions were
observed, (iii) minimal variances were found due to clinical influences of
hormones, (iv) a positive test result was found to be a strong indication that a
breast abnormality exists which warrants further examination by a physician with
respect to the possibility of breast cancer; and (v) it is advisable to confirm
a positive test result with a repeat test. The best results were achieved upon
arising in the morning, a time which is characterized by low body temperature in
normal tissue (a positive result was confirmed with a retest). Although a
negative test result was found to indicate a greatly reduced likelihood of
cancer, it does not mean that the woman is free of breast abnormalities,
including cancer. The BreastCare(TM)/BreastAlert(TM) may fail to detect the very
slow growing (cold) tumors which have a relatively low rate of metabolic
activity. In a study of 200 asymptomatic women, comparison of two successive
tests indicated that 12 of 178 negative scores (7%) shifted to a positive level
in the second test.
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In the screening study of 2,805 women at the Guttman Breast Diagnostic
Institute, the observed 13.5% "false positive" index of the
BreastCare(TM)/BreastAlert(TM) test on 366 women did not correlate with the
Guttman clinical staff conclusion on any breast abnormality indicating the
positive of cancer. The observed 13.5% "false positive" index does not mean
that the BreastCare(TM)/BreastAlert(TM) yielded a positive reading in 13.5%
of the women with no abnormalities of the breast. The clinical staff
screens for conditions that warrant investigation regarding the possibility
of breast cancer. Thus, breast abnormalities that produce elevation of
temperature in one breast may result in a positive
BreastCare(TM)/BreastAlert(TM) score, but may be classified as nonmalignant
by the clinical staff. Furthermore, because the thermal signal will often
proceed the tentative confirmation by imaging or clinical findings by
trained physicians, a number of women classified as "false positive" could
have cancer and would be confirmed by biopsy at a later time. Various
follow-up studies using other thermology technologies
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have shown this to be true and unofficial 1-year follow-ups by Sloan
Kettering of the false positive results were proven to be fast growing
fatal cancers. The 2,805 women in the Guttman study may not be considered
representative of the general population since many symptomatic women were
referred to this center by other concerned physicians (In a separate home
study test of 200 asymptomatic women, only 5.5% had false positive).
ADDITIONAL CLINICAL STUDIES
An ongoing study of 250 women with protocol designed to compare the
BreastCare(TM)/BreastAlert(TM) by the European Institute of Oncology, has
already yielded promising results vs clinical examination, mammography and
biopsy, if performed. This study is under the supervision of Dr. Virgilio
Sacchini, a renowned surgical oncologist. The results of the study will be
submitted for publication.
On June 11, 1999, at the International Mastology Meeting in Sao Paulo,
Brazil, Dr. Alfred Barros, surgical oncologist and president of the Brazilian
Society of Mastology, and Dr. Carlos Menke, gynecologist, professor of the
University of Rio Grande Do Sul and Mastologist of the Clinical Center of Porto
Alegre, presented the results of the Brazilian multi center clinical study of
the Company's BreastCare(TM)/BreastAlert(TM) device. The clinical study was
conducted by physician members of the Brazilian Society of Mastology using a
uniform protocol to examine the capabilities of the
BreastCare(TM)/BreastAlert(TM) with a screening method and diagnostic validation
of cases suspicious of cancer. The BreastCare(TM)/BreastAlert(TM) was compared
with corresponding mammographic (909 cases) and /or biopsy (151) results. The
results were analyzed and evaluated by Dr. Alvaro Ronco, the head of Cancer
Epidemiology at Pronacam (National Breast Cancer Program, Ministry of Public
Health of Uruguay) and a member of the New York Academy of Sciences and of the
Society for Epidemiological Research in Baltimore as follows: (i) If clinical
breast examination is normal or doubtful (absence of suspicion of cancer) and
the BreastCare(TM)/BreastAlert(TM) test is negative, the probability of absence
of cancer confirmed by biopsy is around 95%; (ii) if clinical breast examination
is suspicious of cancer and the BreastCare(TM)/BreastAlert(TM) is positive, the
probability of having cancer is about 98%; and (iii) the performance of the
BreastCare(TM)/BreastAlert(TM) is slightly better in women under 50 years old,
who are mainly pre menopausal.
The Company anticipates that such studies, as well as future studies, will
play a vital role for future screening projects in
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hospital and clinical settings.
REGIONAL REPORT: SOUTH AMERICA
The Company has focused a substantial portion of its resources in South
America. The Company's efforts, though not well funded, have provided an
important proving ground for the Company's operating model, which consists of
(i) regionalized production and assembly, supported by local marketing partners;
(ii) the support of opinion leaders, medical societies and mastologists; (iii)
public and medical awareness of the advantages of the
BreastCare(TM)/BreastAlert(TM) screening; and (iv) organized forums and training
for doctors by region. The Company intends to deploy this model in other regions
throughout the world. A summary of the Company's efforts in South America are as
follows:
In January, 1998, the Company organized a wholly-owned subsidiary, Scantek
Medical S.A., Inc., a Uruguayan company, to distribute the
BreastCare(TM)/BreastAlert(TM) in South America.
The Company entered into an exclusive license agreement (the "License
Agreement"), dated September 22, 1997 and amended February 18, 1998, with
Sandell Corp. S.A. ("Sandell"), a Uruguayan corporation, whereby the Company
granted Sandell an exclusive license to market and distribute the
BreastCare(TM)/BreastAlert(TM) in Brazil, Venezuela, Columbia, Costa Rica,
Ecuador, Nicaragua, Paraguay, Panama, Peru, Bolivia, Argentina and Uruguay. As
of June 30, 1999, upon mutual consent of both parties, the Company terminated
the License Agreement with Sandell. In connection with the termination of the
License Agreement, the Company wrote off the balance of the $400,000 license fee
due the Company and approximately $103,000, which represented its investment in
Sandell. Certain of Sandell's key employees have joined Scantek Medical, S.A.,
Inc., and continue to play a major role of the Company's South American
marketing and sales. The Company has commenced to manufacture, market and
distribute the BreastCare(TM)/BreastAlert(TM) throughout South America through
its subsidiaries.
On July 19, 1999, the Company, through its Brazilian subsidiary, Scantek
Medical do Brasil LTDA, executed a Letter of Intent with Contrutora CEC, LTDA
("CEC") and EPIC-Empress de Participacao, Investimento e Consultoria S/C LTDA
("EPIC") to create a joint venture with exclusive right to import, manufacture,
market and distribute the BreastCare(TM)/BreastAlert(TM) in Brazil. CEC and EPIC
are controlled 100% by the family members of the Campos Group, a multimillion
dollar Brazilian conglomerate with interests in hospital construction and
management, civil construction, construction management, warehouse and
logistics, and import and
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export trading. Management of the Company believes that the joint venture with
CEC and EPIC will have a major role in the upcoming Brazilian screening programs
and anticipates capturing 50% of the market share within five years. This Letter
of Intent is subject to a definitive agreement which is still in negotiations
between the parties.
Currently, the Company through its wholly owned subsidiary, Scantek
Medical, S.A., Inc., has established an assembly facility in the Free Trade
Zone, within the city of Montevideo, Uruguay. This 2,000 square foot facility,
which receives product components from the Company's U.S. manufacturing
facility, employs nine product assemblers, and has the capacity to assemble up
to 2850 BreastCare(TM)/BreastAlert(TM) units per day. Products assembled by the
Company's subsidiary supply the entire product to customers in South America.
The Company is currently in the process of relocating this production facility
from Uruguay to Brazil. This will eliminate the high value added tax and thus
allow the Company to initiate sales.
The Company is in advanced negotiations with the states of Brasilia, Sao
Paulo and Bahia to provide for statewide breast cancer screening programs. The
total BreastCare(TM)/BreastAlert(TM) units under consideration for these
programs is 200,000, which the Company anticipates will commence in the fourth
calendar quarter of 1999. The statewide programs are pilots, and if successful,
may lead to a larger screening program. The combined female population of these
regions is 25 million.
REGIONAL REPORT: CHILE AND SINGAPORE
On August 15, 1996, the Company entered into a license agreement, which was
later amended on April 29 1997, with Health Technologies International Inc.
("HTI"), whereby HTI is to assemble, market and sell the
BreastCare(TM)/BreastAlert(TM) in Chile and Singapore, and pay the Company an
initial licensing fee of $250,000, which has been paid. In November, 1997, HTI
was acquired by D-Lanz Development Group, Inc. ("D-Lanz"). As part of the
licensing agreement, the Company received 2,000,000 shares of D-Lanz common
stock which is publicly traded on the Electronic Bulletin Board under the symbol
DLNZ. In June, 1999, the Company agreed to extend the due date for D-Lanz's
first minimum royalty payment of $80,000 until December 31, 1999. Pursuant to
the terms of the licensing agreement, D-Lanz is obligated to pay the Company
minimum royalties of $200,000 in the calendar year 2000 with increasing
royalties leveling out at a minimum of $300,000 in the calendar year 2001,
$400,000 in the year 2002 and thereafter. All royalties are paid based on a
percentage net sales of the BreastCare(TM)/BreastAlert(TM). Presently, no
revenues have been
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derived pursuant to the license agreement with D-Lanz.
REGIONAL REPORT: EUROPE
Management of the Company is working to replicate the model it has
established in South America, in Europe as well. The Company, although
progressing in Europe, is not as advanced as the Company's South American
business due to the limited availability of human and financial resources.
Management believes that the Company has been successful in gaining the
support of the medical field in Europe, identifying regional manufacturing
capacity and has identified with local marketing partners, as discussed in
further detail below.
The Company entered into a letter of understanding with Grupo Grifols, a
publicly held medical products manufacturer and distributor, headquartered in
Barcelona, Spain. Grupo Grifols has approximately $600 million in sales.
Pursuant to this letter of understanding, the Company intends to grant to Grupo
Grifols the exclusive right to sell the BreastCare(TM)/BreastAlert(TM) to the
public and private markets of Portugal and Spain. Grupo Grifols has agreed to
purchase the BreastCare(TM)/BreastAlert(TM) from the Company at a price of
approximately $10.00 (U.S. dollars) per unit. No final agreement has been
executed with respect this arrangement between the Company and Grupo Grifols.
On July 29, 1999, the Company granted an exclusive license to Nugard
Healthcare Ltd. ("Nugard"), an Irish Company, to market and distribute the
BreastCare(TM)/BreastAlert(TM) in Ireland and the United Kingdom. Pursuant to
this License Agreement, Nugard will pay a non-refundable licensing fee of
$350,000 in various stages, of which $45,000 was received as of September 10,
1999, and the Company received common shares equivalent to fifteen (15%) percent
of Nugard's total outstanding common shares. In accordance with the agreement,
Nugard is required to purchase a minimum of 5,000 units per month, to commence
September, 1999. The purchase price will range from $10 to $15 per unit based
upon shipment of the BreastCare(TM)/BreastAlert(TM) to the government or private
physicians.
The Company executed a letter of intent on August 20, 1997 with respect to
the acquisition of a Hungarian based manufacturer of plastic medical packaging
products and the manufacturing facility for an aggregate purchase price of
$1,750,000. It is the Company's intention to use this facility as a production
center for the BreastCare(TM) device for Eastern and Western Europe. The
acquisition is subject to the Company obtaining financing for the purchase of
the Hungarian manufacturer.
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Through the efforts of the Company, the European Institute of Oncology,
located in Milan, Italy, is now performing clinical studies on the
BreastCare(TM)/BreastAlert(TM). The study, which involves 250 women, began in
January, 1999 under the supervision of Dr. Virgilio Sacchini, a world renowned
surgical oncologist. Upon completion of the study, Dr. Sacchini will submit the
study for publication in Breast and Cancer journals.
In order to sell medical devices to the new European Community, a
Certification Europe ("CE") is required, which is based primarily upon
documentation of a compliant Quality Control System. In August, 1999 the Company
received a CE for the BreastCare(TM)/BreastAlert(TM).
REGIONAL REPORT: UNITED STATES
The Company's goals in North America for the immediate future are to review
and reorganize marketing and sales, utilizing the Company's experience and
approach as in South America. However, in order to accomplish this, additional
funding will be needed to implement a new marketing and sales strategy in order
to re-launch the BreastCare(TM)/BreastAlert(TM), which it anticipates will begin
10 to 12 months after financing is completed.
Pursuant to a License Agreement, dated March 17, 1995, as amended on July
31, 1995, October 20, 1995 and May 31, 1996, together with three extensions on
February 26, 1996, March 17, 1996 and April 29,1996, the Company granted
HumaScan Inc. ("HumaScan") an exclusive license to manufacture and sell the
BreastCare(TM)/BreastAlert(TM) in the United States and Canada. On March 15,
1999, pursuant to a Settlement Agreement, dated as of the 11th day of March,
1999, the Company regained the rights to market and sell its
BreastCare(TM)/BreastAlert(TM) in the U.S. and Canada. Pursuant to the
Settlement Agreement, all licensing agreements between the Company and HumaScan
which gave HumaScan the right to manufacture, market and sell the
BreastCare(TM)/BreastAlert(TM) were terminated. Pursuant to the original and
amended licensing agreements, HumaScan was indebted to the Company for failure
to pay license fees, royalties and other sums of money. In exchange for this
cancellation of $575,000 of indebtedness due to it by HumaScan and for the
payment by the Company to HumaScan of an additional $340,000, HumaScan agreed to
assign certain special manufacturing equipment, furniture, raw materials, tools,
materials, laboratory equipment and inventory of HumaScan for the manufacture of
the BreastCare(TM)/BreastAlert(TM). In addition, the Company received 150,000
shares of HumaScan's common stock as part of the Settlement Agreement.
The Company has two complete sensor manufacturing and assembly
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lines for the production of the BreastCare(TM)/BreastAlert(TM) product. The
value of these two manufacturing lines is estimated by the Company to be
approximately $5.5 million.
On April 15, 1999 the Company amended its lease to include an additional
6,000 square feet adjacent to its corporate headquarters in the United States.
The Company anticipates that it will complete renovations for its two line
production facility operations with a capacity to produce 5 million units per
shift annually, when additional funding is obtained. The Company believes that
this capacity will virtually meet the entire sales forecast through 2003.
The manufacturing process maintains a rigid quality control program to
ensure product efficacy. The Company believes that its Quality System meets the
requirements of the international standards of the International Organization.
The Quality System will cover the design, production, packaging, labeling,
storage, distribution and servicing of products of the Company.
REGULATIONS
The Company's development and manufacture of medical devices is controlled
by the Food, Drug and Cosmetic Act (the "Act"). The Food and Drug Administration
("FDA"), which administers the Act, has promulgated a number of regulations
which dictate the method by which new products are allowed to enter the United
States market (Title 21, CFR Section 807, Premarket Notification) and the
documentation and control of manufacturing processes (Title 21, CFR Section 820,
Good manufacturing Practices for the Manufacturing, Storage and Installation of
Medical Devices).
Subject to the potential changes in regulatory status, the Company believes
that it is in full compliance with the requirements of Part 807 Premarket
Notification, as promulgated under Section 510(k) of the Act and has received
permission to market the BreastCare(TM)/BreastAlert(TM). On January 24, 1984,
the FDA determined that the BreastCare(TM)/BreastAlert(TM) is substantially
equivalent to a device marketed in interstate commerce and accordingly may be
freely marketed without further FDA authorization. Also included under Part 807
is a requirement for product registration and listing, which the Company
believes has been satisfied.
Management believes that the proprietary nature of the product is protected
under patent rights issued in the United States and certain foreign countries.
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FOREIGN REGULATION
Because the Company proposes to distribute its product in foreign
countries, the Company will be required to comply with the regulations of those
countries where its product is distributed by the Company through licensees. No
assurances can be given that the Company and/or its licensees will be able to
comply with the regulatory requirements of the foreign markets in which the
BreastCare(TM)/BreastAlert(TM) will be sold.
Most countries require product registration before you can sell. In South
America, the Company's subsidiary, Scantek Medical S.A., Inc., and marketing
partners have applied for and have received product registration in Brazil,
Uruguay, Argentina and Peru. Paraguay and Bolivia have no registration
requirements to sell. In addition, the Company has applied for and received a
Certification Europe (CE), which is required, as of June, 1998, of all products
marketed in the European Union.
PATENTS
The proprietary nature of the BreastCare(TM)/BreastAlert(TM) is protected
under patent rights issued in the U.S. and foreign countries. However, in
general, the level of protection afforded by a patent is directly proportional
to the ability of the patent owner to protect and enforce his rights under the
patent. Since the financial resources of the Company are currently limited, and
patent litigation can be both expensive and time consuming, there is a risk that
enforcing the patents for the BreastCare(TM)/BreastAlert(TM) will have a
material adverse financial effect on the Company or the Company will not have
the financial resources necessary to enforce its patents. Once the Company's
existing patents expire, other companies may be able to create substantially
similar products. If this were to happen, the Company would not be able to avail
itself of the protection afforded by the patent laws.
U.S patents for the BreastCare(TM)/BreastAlert(TM) include:
- -- Patent No. RE 32,000, granted and issued on October 8, 1985; this patent is
a reissue of Patent No, 4, 190,058 for a "Device For Use in Early Detection of
Breast Cancer", which was granted and issued on February 26, 1980 and has since
expired
- -- Patent No. 4,651,749, granted on March 24, 1987, entitled "Cancer Detection
Patch for Early Detection of Breast Cancer; Temperature, Indicators,
Flexibility, Thermoconductivity, Webs", is a partial continuation of Patent No.
4,190,058 above
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- -- Patent No. RE 4,624,264 granted November 24, 1986, has been reinstated and
expires November 25, 2003.
Foreign patents for the BreastCare(TM)/BreastAlert(TM) include:
- -- Belgium Patent No. 884,382; issued July 18, 1980; expires July 18,
2000
- -- Israel Patent No. 58422; issued March 1, 1983; expires October 9,
1999
- -- Venezuela Patent No. 44,664; registered April 20, 1987; will
automatically be extended upon shipment of products from
Venezuela
In addition, in accordance with the Settlement Agreement between the
Company and HumaScan, HumaScan has assigned all of its rights, title and
interests in certain U.S. patents and U.S. and foreign trademarks, including the
following patents:
- -- Patent No. 08/854,144, filed May 14, 1997, entitled "Breast and Axilla Cancer
Screening Device and Method"
- -- Patent No. 08/926,790, filed September 10, 1997, entitled "Differential
Temperature Measuring Device and Method
- -- Patent No. 09/018,765, filed February 5, 1998, entitled "Differential
Temperature Sensor Device for Use in the Detection of Breast Cancer and Breast
Disease.
SUPPLIES AND RAW MATERIALS
Supplies and raw materials for the manufacture of the
BreastCare(TM)/BreastAlert(TM) are available from various sources. Historically,
other than on a few rare occasions, the supplies and raw materials for producing
the BreastCare(TM)/BreastAlert(TM) have been readily available and the cost of
such materials has not experienced any material fluctuation. The Company has
determined the inventory planning and control, as well as other production
management systems, it intends to use. In addition, the Company has acquired
supplies and raw materials in connection with its settlement with HumaScan.
MARKETING and DISTRIBUTION
The Company has created an international marketing plan for licensing and
distribution to capture a significant portion of the $6 billion annual global
breast cancer market with a device that alerts the physician and patient to the
possibility of either proliferating thermally active breast cancer cells or
certain types
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of thermally active breast disease.
Management believes that in emerging and developing countries, the
BreastCare(TM)/BreastAlert(TM) has the potential to become an important part of
the overall screening protocols used to detect breast disease. To market the
BreastCare(TM)/BreastAlert(TM) abroad, the Company intends to utilize the
following basic strategies:
o Foreign production: The Company intends to set up its own Regional
Production Centers overseas. However, all sensor manufacturing will remain in
the United States under the Company's Quality Control.
o Foreign Licensing: The Company intends to enter into exclusive agreements
with various foreign entities, whereby the Company will either permit such
entity to distribute the BreastCare(TM)/BreastAlert(TM) or shall give such
entity the right to utilize the Company's trademark and patent in a specified
geographical area.
o Joint Ventures: The Company intends to enter into agreements whereby the
Company will grant one or more partners (usually partner of the host country)
the right to share in the risks, cost and management of a foreign operation. The
Company, however, will retain control of the manufacturing. The joint venture,
if established, is anticipated to be with a major medical supply manufacturer or
pharmaceutical company which could benefit from the sales and distribution of
the BreastCare(TM)/BreastAlert(TM).
o BreastCare(TM)/BreastAlert(TM) Centers: The Company anticipates that it
will establish breast care centers in cooperation with governments and private
businesses in order to utilize the BreastCare(TM)/BreastAlert(TM) with an
established protocol.
The Company intends to manufacture the BreastCare(TM)/BreastAlert(TM) for
sale to partners pursuant to distribution agreements or intends to control the
manufacturing if a joint venture is established. With respect to pursuing the
International market for distribution of the BreastCare(TM)/BreastAlert(TM), the
Company intends to enter into new markets by establishing Regional Production
centers to manufacture and distribute in each target market. Management believes
that partnerships with companies which either have working relationships with
distributors throughout the world or have a distribution network established in
the medical communities of the target markets, will be an excellent marketing
vehicle for the Company. Each agreement will be exclusive and tailored to
maximize the penetration of each market. The Company intends to establish
Regional centers, as well as a distribution network in Hungary,
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Ireland, China, and Brazil.
The territories under negotiations for exclusive marketing and distribution
rights are as follows: (i) Eastern and Western European countries, (ii) Asia and
(iii) South America. In markets where there are no definite leaders or where the
distributors are highly fragmented, the Company intends to seek two or three
non-exclusive partners to cover such market. Additionally, as an integral part
of the marketing plan, the Company intends to focus in target markets where
there are the highest incidences of breast cancer, as well as in the majority of
European countries where the death rates are increasingly high, including, but
not limited to: Ireland, United Kingdom and Germany, all of which have higher
death rates then the United States.
The Company, as it has done in the past, intends to conduct a premarket
investigation of the market before marketing is commenced and prior to
finalizing any agreements. A market profile for each market will be completed to
analyze the target markets. The profile will establish the strongest
distributors and the buying decision makers (i.e., physicians, hospitals,
clinics, government agencies and over the counter customers). Management
believes that a standard market profile will permit comparisons between markets
at a later date and provide profiles of the types of markets that provide the
best results. In addition, the Company will expand communications with the
Ministries of Health, Department of Health and Clinical Services to investigate
the statutory controls regulating the sale of medical devices.
The Company has focused on developing partnerships with various
international companies who have relationships with distributors throughout the
world and who have connections in the medical communities of the target markets.
Strategically, the Company intends to centralize manufacturing and
decentralize marketing in a geographical region. Specific markets within that
region shall be covered by individual agreements which provide for the promotion
and distribution of the BreastCare(TM)/BreastAlert(TM). Accordingly, the Company
intends to utilize centralization for control and decentralization for market
penetration. Management believes that the Company's expansion of several
regional centers for the manufacturing locations will give the Company good
access to shipping, tax considerations and low manufacturing cost and to police
the crossover among distributor's areas where distribution is segmented.
SOUTH AMERICA MARKETING
The Company intends to open a production center in Brazil. In South
America, the development of distributorships with selling partners has been and
are further being developed to approach
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private hospitals, clinics and physicians. Simultaneously, the Company intends
to launch the BreastCare(TM)/BreastAlert(TM) Centers with some of the most
renowned physician specialists in the field of breast disease, beginning with
Brazil. Over 25 sites are anticipated to be launched within the first full year
of operations with a capacity to screen 100 women per site per day. A carefully
structured program of publications and professional meetings between such
revered specialists and the rest of the physician population has been underway
throughout 1998 and 1999 and is anticipated that such will be expanded in
ensuing years. This marketing approach will be directed by the International
Medical Advisory Board of the Company, consisting of some of the top specialists
in the world in the diagnosis and treatment of breast disease. State and Federal
governments are also helping to create screening programs in accordance with the
above activities.
In addition, as indicated previously, the Company signed a letter of intent
with CEC and EPIC, which is still being further negotiated, to create a joint
venture with exclusive right to import, manufacture, market and distribute the
BreastCare(TM)/BreastAlert(TM) in Brazil.
EUROPE MARKETING
The Company has been introducing the BreastCare(TM)/BreastAlert(TM) in
Europe at educational forums which were covered by the press and television.
Also, the Company is exhibiting the BreastCare(TM)/BreastAlert(TM) at medical
congresses to introduce the device to the physician market.
The Company intends to utilize government contracts to mass market the
BreastCare(TM)/BreastAlert(TM). Countries, such as Ireland and Spain lend
themselves to this approach, as well as larger independent Eastern European
countries, including but not limited to, Romania, Bulgaria, Ukraine, Russia,
Greece and Turkey.
Exploration has commenced on the feasibility of establishing breast care
centers in Europe. If found to be appropriate and effective for certain
countries, the Company intends to commence development in the year 2000.
As previously discussed, the Company is presently investigating the
potential of purchasing a medical plastic manufacturing facility in Hungary as
the central production and distribution location for supplying the
BreastCare(TM)/BreastAlert(TM) to Eastern and Western Europe.
UNITED STATES AND CANADA MARKETING
The Company's first introduction of the
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BreastCare(TM)/BreastAlert(TM) product was by its former United States and
Canadian licensee, HumaScan which launched the product December 1997. The
Company plans to take a carefully constructed approach to the marketplace in the
United States and Canada. The Company intends to spend between nine to twelve
months reviewing and analyzing the best marketing and sales approaches focused
toward the physician user and managed care insurers. The Company intends to
mirror South America's approach with respect to advisement and leadership from
renowned breast disease specialists.
FUTURE MARKETS
The Company intends to market and sell the BreastCare(TM)/BreastAlert(TM)
worldwide. It has inaugurated potential distributorships in China and Korea. The
Company intends to concentrate its efforts through 2001 in South America, Europe
and the United States. Simultaneously, the Company intends to investigate and
develop the marketplace in Asia, the Middle East and the African continent;
sales are anticipated to flow from these areas beginning in the year 2002 and
on.
COMPETITION
The Company believes that the BreastCare(TM)/BreastAlert(TM), which
provides digital quantitative recordings of underlying tissue temperature,
represents a significant improvement over thermographic technology products
because such other products are subject to the inherent problems of subjective
evaluation of heat patterns. Based upon these differences, the Company believes
that the prospects for the BreastCare(TM)/BreastAlert(TM) as a supplement to
currently existing screening tests are very good.
The Company believes it is in a unique position because the
BreastCare(TM)/BreastAlert(TM) has no known competing low cost screening devices
on the market which would compete directly with the
BreastCare(TM)/BreastAlert(TM) for use by primary care physicians. As a result,
the Company believes that the BreastCare(TM)/BreastAlert(TM) will augment other
existing forms of screening and technology.
Some of the Company's future competitors may be large, well-financed and
established companies which have greater resources for research and development,
manufacturing and marketing then the Company has and, therefore, may be better
able than the Company to compete for a share of the market, even in areas in
which the Company may have superior technology. There can be no assurance that
the Company can continue to produce a product which is commercially acceptable,
or that if continued to be produced, such
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a product will be competitive with existing or future products. It is also
possible that there will be technological changes or developments by competitors
which will render the Company products noncompetitive or obsolete.
FUTURE PRODUCTS
The Company believes that the BreastCare(TM)/BreastAlert(TM) may have
applicability as a screening device for other abnormalities, including measuring
ovulation cycles for infertile couples, measuring changes in the cardiovascular
system to screen for potential stroke victims, and detecting abnormalities in
the kidneys and testicles. Although some testing was performed during the
BreastCare(TM)/BreastAlert(TM) development stage, these initial tests were
preliminary only, and in order to obtain FDA approval, which would be required
in order to market a future product. The Company intends to further explore its
initial findings and perhaps, introduce products in furtherance of these
findings.
EMPLOYEES
The Company employs a total of 13 employees. Three of these employees are
employed in the U.S. as follows: (i) two full time employees: President and
Chief Executive Officer and Vice President and Secretary, and (ii) one part time
employee: Vice President of Corporate Development of the Company. Additional
personnel and consultants are utilized, as required, on a contractual basis.
The remaining 10 employees are employed in South America by the Company's
subsidiary Scantek Medical, S.A., Inc., as follows: a General Manager, a Medical
Director, four (4) other Senior employees and four (4) support staff employees.
None of the Company's employees are covered by a collective bargaining
agreement with a union. The Company considers its relationship with its
employees to be good.
RISKS AND UNCERTAINTIES
The Company's business is subject to a number of risks and uncertainties,
including, but not limited to, (a) the risk that it may be unable to raise
enough capital to fund the Company's operations, (b) the risk that the
BreastCare(TM)/BreastAlert(TM) will not be accepted commercially, (c) the
Company's reliance on certain customers, and (d) the highly competitive nature
of the Company's industry and the impact that competitors' new products and
pricing may have upon the Company. Such factors, as well as shortfalls in the
Company's results of operations as compared with analyst's
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expectations, capital market conditions and general economic conditions, may
also cause substantial volatility in the market price of the Company's Common
Stock.
PUBLIC INFORMATION
The Company electronically files with the Securities and Exchange
Commission (the "SEC") all its reports, including, but not limited to, its
annual and quarterly reports. The SEC maintains an Internet site which contains
all such reports and other information with respect to the Company on its
website, http://www.sec.gov. Additional information on the Company may be
obtained from the Company's web site which will be available in the near future,
http://www.scantekmedical.com.
ITEM 2. PROPERTIES
The Company occupies approximately 13,000 square feet of warehouse and
office space, all of which is leased through leases expiring in June, 2000. See
Note 13 of Notes to Consolidated Financial Statements for additional
information.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ending June 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, par value $.001 per share (the "Common Stock"),
is traded in the over-the-counter market. The Common Stock is available for
quotation in the "pink sheets" published by the National Quotation Bureau,
Incorporated and on the "bulletin board" operated by NASD. The following table
sets forth
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the periods indicated the high and low bid quotation for the Common Stock:
HIGH LOW
---- ---
Fiscal Year Ended June 30, 1998
First Quarter 1 7/8 1 1/32
Second Quarter 1 5/8 13/16
Third Quarter 1 5/8 17/32
Fourth Quarter 1 3/16 1/2
Fiscal Year ended June 30, 1999
First Quarter 1 3/16
Second Quarter 19/32 3/16
Third Quarter 23/32 1/4
Fourth Quarter 1/2 5/32
The Common Stock is reported under the Symbol SKML. As of the date of this
report, the Company's shares of Common Stock were "non-designated" securities as
defined under the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
These quotations reflect an inter-dealer price, without retail mark-up,
mark-down or commission, and may not necessarily reflect actual transactions.
(b) Holders
As of September 15, 1999, there were 203 shareholders of record of the
Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends and has no current plans to pay
any such dividends. There are no restrictions on the Company's ability to pay
dividends.
(d) Recent Sales of Unregistered Securities
On November 16, 1999, the Company sold 150,000 shares of Common Stock each
to Kenneth Courey, Director of the Company and Louis Gottlieb, Vice President of
Corporate Development of the Company, at a purchase price of $.3333 per share,
pursuant to Section 4(2) of the Securities Act of 1933, as amended, based upon
the nature of the sale and the purchasers.
On December 1, 1998, the Company issued 75,000 shares of Common Stock of
the Company pursuant to financing, to three individuals at an issue price of
$.1875 per share.
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On March 13, 1998, the Company issued 125,000 shares of Common Stock of the
Company pursuant to financing, to two individuals at an issue price of .5625 per
share.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OVERVIEW
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes related thereto.
The discussion of results, causes and trends should not be construed to infer
conclusions that such results, causes or trends necessarily will continue in the
future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
increase or decrease of items included in the Company's consolidated statement
of operations:
% Increase (Decrease) from Prior Period
---------------------------------------
June 30, 1999 June 30, 1998
compared with 1998 compared with 1997
------------------ ------------------
Sales (1) -- --
License fee revenue (59.6) --
Cost of sales (1) -- --
General and administrative
expenses 8.3 169.1
Research and development 44.7 16.5
Interest expense 52.8 62.2
- ----------
(1) Percentage not meaningful
REVENUES
Net sales increased to $127,775 for the year ended June 30, 1999 from $-0-
for the year ended June 30, 1998 as the Company commenced initial shipments of
its BreastCare(TM) device during the first quarter of its current fiscal year.
The Company expects its manufacturing and distribution operations to be in full
operation during the latter part of the fourth quarter of calendar 1999.
License fee revenue decreased to $727,500 for the year ended June 30, 1999
from $1,801,582 for the year ended June 30, 1998 as the Company recognized lower
license fees from Sandell and D-Lanz as compared to the license fees from
HumaScan the preceding year.
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The current year license fee revenue was further impacted as $400,000 of the
license fee revenue from Sandell was written off against the current year
revenue.
COST OF SALES
Cost of sales increased to $411,834 for the year ended June 30, 1999 from
$-0- for the year ended June 30, 1998 primarily due to the initial shipments of
its BreastCare(TM) device during the first quarter of the Company's current
fiscal year. Depreciation expense of approximately $221,000 on the production
equipment also increased the cost of sales for the year.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses increased 8.3% for the year ended June
30, 1999 compared to June 30, 1998. This increase is primarily due to increases
in consulting, travel and outside services mainly attributable to the Company's
South American operations offset in part by decreased legal fees.
General and administrative expenses increased 169.1% to $1,060,766 for the
year ended June 30, 1998, from $394,229 for the year ended June 30, 1997. This
increase was primarily due to the purchasing of keyman and directors and
officers insurance coupled with increases in rent for the leasing of office and
warehouse space in Denville, New Jersey, professional fees and financial
services. This was offset in part by decreases in consulting expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased 44.7% to $490,482 for the year
ended June 30, 1999 from $339,037 for the year ended June 30, 1998. The increase
is primarily attributable to stock-based bonuses given to two officers of the
Company working in the experimental area of development, for deferring their
salaries so the Company could use those funds for working capital.
Research and development expense increased 16.5% to $339,337 for the year
ended June 30, 1998 from $291,013 for the year ended June 30, 1997. The increase
was primarily attributable to increased salaries incurred by the Company in the
experimental area of development of its product.
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INTEREST EXPENSE
Interest expense was $280,978 for the year ended June 30, 1999 compared to
$183,889 for the year ended June 30, 1998. The 52.8% increase was primarily
attributable to increased short-term loans and officer loans coupled with
imputed interest on stock issued in consideration for the short-term loans.
Interest expense was $183,889 for the year ended June 30, 1998, compared to
$113,344 for the year ended June 30, 1997. The 62.2% increase was attributable
to interest expense on the short-term debt margin loan.
OTHER INCOME
The Company was required to sell marketable securities to meet a margin
call on its secured margin loan resulting in a gain on marketable securities of
approximately $400,000 for the year ended June 30, 1998. No sales of marketable
securities were recorded in the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funds has increased from period to period as it has
incurred expenses for among other things, research and development; applications
for domestic and international trademarks and international patent protection;
licensing and pre-marketing activities; and attempts to raise the necessary
capital for initial production. Since inception, the Company has funded these
needs through private placements of its equity and debt securities and advances
from the Company's President, Chief Executive Officer and major shareholder. The
Company has entered into various license agreements that have raised additional
funds and borrowed money against common stock received in connection with the
license agreements. In addition, the Company's auditors' report for the year
ended June 30, 1999 dated August 24, 1999 expressed an opinion as to the Company
continuing as a going concern.
During September 1998, the Company commenced the sale of its BreastCare(TM)
device in Brazil, Uruguay and Paraguay through its South American licensee.
During February 1999, the Brazilian economy declined and the Brazilian currency
lost fifty (50%) percent of its value. Brazil increased the import and value
added tax from twenty-one (21%) percent in December 1998 to seventy-four
(74%) percent in February 1999. Due to these factors, sales substantially
decreased in Brazil, which represents approximately eighty (80%) percent of the
Company's present revenue. The Company plans to move the production facility
from Uruguay to Brazil. This will eliminate the high value-added tax and will
be able to initiate sales. The Company terminated its
27
<PAGE>
license agreement (see below) with its present licensee in South America and
signed a letter of intent to create a joint venture with exclusive rights to
import, manufacture, market and distribute the BreastCare(TM) device in Brazil.
The Company expects to be fully operational during the fourth quarter of
calendar 1999. However, until that time, the Company needs financing to fund its
current overhead and various capital requirements. As of June 30, 1999, the
Company borrowed $1,150,000 from unaffiliated third parties. These loans are
payable by the Company on various dates through June 2000. In addition, Mr. Sagi
advanced the Company an additional $317,000 during the fiscal year. These loans
have supported the Company through the current fiscal year, and the Company
expects the cash flow from sales commencing in the latter part of 1999 to cover
the operations of the Company providing the Company is successful in raising
additional capital to support the operations through the end of calendar 1999.
As previously noted, the Company terminated its license agreement with its'
South American licensee. The Company had entered into an exclusive license
agreement, dated September 27, 1997 and amended February 18, 1998, with Sandell
Corp. S.A. (the "Sandell Agreement"), a Uruguayan corporation ("Sandell"),
pursuant to which the Company granted to Sandell an exclusive license to market
and distribute the BreastCare(TM) device in Brazil, Venezuela, Columbia, Costa
Rica, Ecuador, Nicaragua, Paraguay, Panama, Peru, Bolivia, Argentina and
Uruguay. The Sandell Agreement was for a term of fourteen (14) years. Under the
Sandell Agreement, Sandell was to pay the Company a non-refundable license fee
of (i) $500,000 and (ii) thirty-five (35%) percent of the outstanding shares
of Sandell on a fully diluted basis. Upon execution of this agreement the
Company received $100,000. As of June 30, 1999, upon mutual consent of both
parties, the Company terminated its agreement with Sandell. In connection with
the termination of the agreement, the Company wrote off the balance of the
$400,000 license fee due the Company and approximately $103,000, which
represented its value of stock in Sandell. The Company will manufacture, market
and distribute the BreastCare(TM) device throughout South America through the
Company's South American subsidiaries.
On July 19,1999 the Company, through its Brazilian subsidiary, Scantek
Medical Do Brasil LTDA, executed a letter of intent with Contrutoro CEC LTDA
("CEC") and EPIC - Empressa de Participacano, Investimnto e Consultoia s/c LTDA.
("EPIC") to create a joint venture with exclusive rights to import, manufacture,
market and distribute the BreastCare(TM) device in Brazil. The letter of intent
is subject to a definitive agreement which is still in negotiations between the
parties.
On July 29, 1999 the Company granted an exclusive license to
28
<PAGE>
Nugard Healthcare Ltd, an Irish company, ("Nugard") to market Scantek's
BreastCare(TM) device in Ireland and the United Kingdom. Nugard will pay a
non-refundable licensing fee of $350,000 in various stages, of which $45,000 was
received as of September 10, 1999, and the Company received common shares
equivalent to fifteen (15%) percent of Nugard's total outstanding common shares.
The agreement requires minimum purchase of 5,000 units per month beginning
September 1999. The purchase price will range from $10 to $15 per unit based on
shipment of the BreastCare(TM) device to the government or private physicians.
On March 15, 1999 pursuant to a Settlement Agreement ("Agreement") dated
the 11th day of March, 1999 between Scantek and HumaScan, Inc. ("HumaScan"),
Scantek regained the rights to market and sell its
BreastCare(TM)/BreastAlert(TM) in the United States and Canada.
Pursuant to the Agreement, all licensing agreements between Scantek and
HumaScan which gave HumaScan the right to manufacture, market and sell the
BreastCare(TM)/BreastAlert(TM), were terminated. Pursuant to the original and
amended licensing agreements, HumaScan was indebted to Scantek for failure to
pay license fees, royalties and other sums of money. In exchange for this
cancellation of $575,000 of indebtedness due to it by HumaScan and for the
payment by Scantek to HumaScan of an additional $340,000, HumaScan agreed to
assign certain special manufacturing equipment, furniture, raw materials, tools,
materials, laboratory equipment and inventory of HumaScan for the manufacture of
the BreastCare(TM)/BreastAlert(TM). Scantek recognized $375,000 as license fee
income in its statement of operations for the year ended June 30, 1999 that was
previously written off and reflected as a reduction of the license fee revenue
recognized during the year ended June 30, 1998 in accordance with the amended
licensing agreement. Scantek recorded raw materials and finished goods in the
amount of approximately $859,000, which represents the fair value of the
inventory received. Equipment with an initial acquisition cost of approximately
$2.5 million has been recorded for approximately $59,000, which represents the
cost the Company paid HumaScan as part of the Agreement.
In addition, the Company received 150,000 shares of HumaScan common stock
as part of the Agreement.
The Company executed a letter of intent on August 20, 1997 with respect to
the acquisition of a Hungarian based manufacturer of plastic medical packaging
products and the manufacturing facility for an aggregate purchase price of
$1,750,000. It is the Company's intention to use this facility as a production
center for the BreastCare(TM) device for Eastern and Western Europe. The
acquisition is subject to the Company obtaining financing for the purchase of
the Hungarian manufacturer.
29
<PAGE>
The Company's working capital and capital requirements will depend on
numerous factors, including the level of resources that the Company devotes to
the purchase of manufacturing equipment to support start-up production and to
the marketing aspects of its products. The Company intends to construct
production and/or assembly centers abroad to manufacture, market and sell the
BreastCare(TM) in the international market. The Company entered into an
agreement with Zigmed Inc. pursuant to which Zigmed Inc. will manufacture the
production equipment needed for manufacturing of the BreastCare(TM) device for
the contract price of $1,850,680. The Company as of June 30, 1999, has advanced
Zigmed Inc. payments of $921,179 and in September 1996 issued Zigmed Inc.
100,000 shares of the Company's common stock (valued at $1.00 per share) against
the contract price. The balance of $935,180 will be paid when the Company raises
the additional capital.
The Company's success is dependent on raising sufficient capital to
establish a production and assembly facility to manufacture the BreastCare(TM)
for the international market. The Company believes the BreastCare(TM) will be
commercially accepted throughout the international market. The Company does not
have all the financing in place at this time, nor may it ever, to meet these
objectives.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements that may or may not
materialize. Additional information on factors that could potentially affect the
Company's financial results may be found in the Company's filings with the
Securities and Exchange Commission.
OTHER MATTERS
Year 2000
Background
The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable years. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
The Company will rely heavily on computer technologies to operate its
business. In 1998, the Company conducted an initial assessment of its
information technology to determine which Year 2000 related problems might cause
processing errors or computer
30
<PAGE>
system failures. The Company also did a complete analysis of its present
computer system and its needs for the future. Based on the results of that
analysis, the Company's executive management identified the Year 2000 problem as
a top corporate priority and established an internal group to provide a
solution.
The following discussion of the implications of the Year 2000 problem for
the Company contains numerous forward-looking statements based on inherently
uncertain information. The cost of the project and the date on which the Company
plans to complete its internal Year 2000 modifications are based on the
Company's best estimates, which were derived utilizing a number of assumptions
of future events including the continued availability of internal and external
resources, third party modifications and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could
differ. Moreover, although the Company believes it will be able to make the
necessary modifications in advance, there can be no guarantee that failure to
modify the systems would not have a material adverse effect on the Company.
In addition, the Company places a high degree of reliance on computer
systems of third parties, such as customers, trade suppliers and computer
hardware and commercial software suppliers. Although the Company is assessing
the readiness of these third parties and preparing contingency plans, there can
be no guarantee that the failure of these third parties to modify their systems
in advance of December 31, 1999, would not have a material adverse effect on the
Company.
Readiness
The Year 2000 project is intended to ensure that all critical systems,
devices and applications, as well as data exchanged with customers, trade
suppliers and other third parties have been evaluated and will be suitable for
continued use into and beyond the Year 2000.
The Company was formerly a development stage company and became fully
operational in early 1999. All computers the Company operates now are compatible
with the Year 2000. The Company expects to vastly upgrade its computer system as
it becomes fully operational in 1999.
Since early 1998, the Company has required Year 2000 compliance statements
from all suppliers of the Company's computer hardware and commercial software.
Regardless of the compliance statements, all third party hardware and software
will also be subjected to testing to reconfirm the Year 2000 readiness.
31
<PAGE>
Cost
The Company estimates that the total cost of achieving Year 2000 readiness
for its internal systems, devices and applications and a complete upgrade of its
computer system is approximately $250,000. The cost of the Year 2000 problem is
not material but the extent of upgrading the computer system will absorb most of
the cost. Year 2000 project costs are difficult to estimate accurately, and the
projected cost could change due to unanticipated technological difficulties and
Year 2000 readiness of third parties.
Contingency Plans
In the event that the efforts of the Company's Year 2000 project do not
address all potential systems problems, the Company is currently developing
business interruption contingency plans. The Company believes, however, that due
to the widespread nature of potential Year 2000 issues, the contingency planning
process is an ongoing one which will require further modifications as the
Company obtains additional information regarding (1) the Company's internal
systems during the remediation and testing phases of its Year 2000 project and
(2) the status of third party Year 2000 readiness.
Contingency planning for possible Year 2000 disruptions will continue to be
defined, improved and implemented.
Risks
The Company believes that completed and planned modifications and
conversions of its critical systems, devices and applications will allow it to
be Year 2000 compliant in a timely manner. There can be no assurances, however,
that the Company's internal systems, devices and applications or those of a
third parties on which the Company relies will be Year 2000 compliant by year
2000 or that the Company's or third parties' contingency plans will mitigate the
effects of any noncompliance. An interruption of the Company's ability to
conduct its business due to a Year 2000 readiness problem could have a material
adverse effect on the Company.
The Form 10-KSB, other than historical financial information, may consist
of forward-looking statements that include risks and uncertainties, including,
but not limited to, statements contained in "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". Such
statements are based on many assumptions and are subject to risks and
uncertainties. Actual results could differ materially from the results discussed
in the forward-looking statements due to a number of factors, including, but not
limited to, those identified in the preceding paragraphs as well as those set
forth under "Business Risks and Uncertainties" in this Form 10-KSB.
32
<PAGE>
New Accounting Pronouncements
During Fiscal 1997, the Financial Accounting Standards Board issued the
following accounting standard: Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No.130). The Company has adopted
SFAS No. 130 in the current fiscal year. The standard has not had a material
impact on the Company.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The Company is required to adopt the
provisions of this Statement in the Year 2000 year-end financial statements.
This Statement requires that all derivatives be recorded in the balance sheet as
either an asset or liability measured at fair market value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company is in
the process of evaluating this Statement and has not yet determined the future
impact on the Company's consolidated financial statements.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----------
Independent Auditors' Report F-1 - F-2
Financial Statements:
Consolidated Balance Sheets, June 30, 1999 and 1998 F-3
Consolidated Statements of Operations, Years Ended
June 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity,
Years Ended June 30, 1999, 1998 and 1997 F-5 - F-6
Consolidated Statements of Cash Flows, Years Ended
June 30, 1999, 1998 and 1997 F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Scantek Medical, Inc.
We have audited the accompanying consolidated balance sheet of Scantek Medical,
Inc. and subsidiaries (the "Company") as of June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years ended June 30, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Scantek Medical,
Inc. and subsidiaries at June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years ended June 30, 1999
in conformity with generally accepted accounting principles.
F-1
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company is engaged in
manufacturing and marketing a product that detects early breast tissue
abnormalities including cancer. As more fully explained in Note 1 of Notes to
Consolidated Financial Statements, the Company needs to obtain additional
financing to fulfill its activities and achieve a level of sales adequate to
support its cost structure. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Managements' plans are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties should the
Company be unable to continue as a going concern.
WIENER, GOODMAN & COMPANY, P.C.
Certified Public Accountants
Eatontown, New Jersey
August 24, 1999
F-2
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
------------------------------------
1999 1998
----------- -----------
Current Assets:
Cash $ 5,516 $ 55,929
Marketable securities 409,272 2,295,253
Inventories 898,796 --
Due from licensees -- 726,900
Prepaid expenses 84,287 23,517
----------- -----------
Total Current Assets 1,397,871 3,101,599
----------- -----------
Property and equipment - net 1,803,974 822,043
Marketable securities - non-current -- 901,520
Other assets - net 160,179 383,275
----------- -----------
TOTAL ASSETS $ 3,362,024 $ 5,208,437
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt $ 1,274,271 $ 100,000
Deferred income -- 752,500
Accounts payable 1,210,861 266,869
Accrued interest 224,279 110,470
Accrued salaries 1,106,119 841,119
Accrued expenses 84,213 65,785
----------- -----------
Total Current Liabilities 3,899,743 2,136,743
----------- -----------
Long-term debt 1,827,009 1,509,999
----------- -----------
Total Liabilities 5,726,752 3,646,742
----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficiency):
Preferred stock, par value $.001
per share - authorized 5,000,000
shares; none issued -- --
Common stock, par value $.001 per
share - authorized 45,000,000;
outstanding 18,070,200 and
17,220,200 18,070 17,220
Additional paid-in-capital 3,433,002 2,993,206
Unrealized gain (loss) on marketable
securities (165,885) 2,621,616
Deficit (5,649,915) (4,070,347)
----------- -----------
Total Stockholders' Equity
(Deficiency) (2,364,728) 1,561,695
----------- -----------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY (DEFICIENCY) $ 3,362,024 $ 5,208,437
=========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended June 30,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Net sales $ 127,775 $ -- $ --
License fees 727,500 1,801,582 --
------------ ------------ ------------
855,275 1,801,582 --
------------ ------------ ------------
Costs and expenses:
Cost of sales 411,834 -- --
General and adminis-
trative expenses 1,148,449 1,060,766 394,229
Research and
development 490,482 339,037 291,013
------------ ------------ ------------
2,050,765 1,399,803 685,242
------------ ------------ ------------
Income (loss) from operations (1,195,490) 401,779 (685,242)
------------ ------------ ------------
Other income (expense):
Interest and dividends -- 21,507 23,763
Gain on sale of marketable
securities -- 413,504 1,100
Loss on investments (103,100) -- --
Interest expense (280,978) (183,889) (113,344)
Miscellaneous -- 1,900 --
------------ ------------ ------------
(384,078) 253,022 (88,481)
------------ ------------ ------------
Net earnings (loss) $ (1,579,568) $ 654,801 $ (773,723)
============ ============ ============
Earnings (loss) per
common share - basic $(.09) $.04 $(.05)
===== ==== =====
Earnings (loss) per
common share - diluted $(.09) $.03 $(.05)
===== ==== =====
Weighted average
number of common shares
outstanding - basic 17,679,575 17,220,200 16,802,145
============ ============ ============
Weighted average
number of common shares
outstanding - diluted 17,679,575 18,742,501 16,802,145
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Cumulative
Compre- Retained Other
hensive Earnings Comprehensive
Total Income (Loss) (Deficit) Income (Loss)
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance, July 1, 1996 $(1,859,975) $(3,951,425) $ 364,500
Issuance of stock in connection
with private placement offering
(issued at $1.00 per share) 1,070,000
Issuance of stock for professional
services rendered (at $.167 to
$1.00 per share) 22,500
Issuance of stock in lieu of payment
on equipment (at $1.00 per share) 100,000
Stock options exercised ($.10 to
$.375 per share) 28,000
Issuance of stock for rent (at
$2.01 per share) 35,196
Net unrealized gain on marketable
securities 5,202,115 $ 5,202,115 5,202,115
Net (loss) (773,723) (773,723) (773,723)
-----------
Comprehensive Income $ 4,428,392
===========
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 3,824,113 (4,725,148) 5,566,615
Issuance of stock warrants for
services (issued at $.55 to
$1.125 per share) 27,780
Net unrealized loss on marketable
securities (2,944,999) $(2,944,999) (2,944,999)
Net earnings 654,801 654,801 654,801
-----------
Comprehensive Loss $(2,290,198)
===========
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 1,561,695 (4,070,347) 2,621,616
<CAPTION>
Additional
Paid-In
Common Stock Capital
------------ -----------
<S> <C> <C>
Balance, July 1, 1996 15,790 $1,711,160
Issuance of stock in connection
with private placement offering
(issued at $1.00 per share) 1,070 1,068,930
Issuance of stock for professional
services rendered (at $.167 to
$1.00 per share) 73 22,427
Issuance of stock in lieu of payment
on equipment (at $1.00 per share) 100 99,900
Stock options exercised ($.10 to
$.375 per share) 170 27,830
Issuance of stock for rent (at
$2.01 per share) 17 35,179
Net unrealized gain on marketable
securities
Net (loss)
Comprehensive Income
- ---------------------------------------------------------------------------------
Balance, June 30, 1997 17,220 2,965,426
Issuance of stock warrants for
services (issued at $.55 to
$1.125 per share) 27,780
Net unrealized loss on marketable
securities
Net earnings
Comprehensive Loss
- ---------------------------------------------------------------------------------
Balance, June 30, 1998 17,220 2,993,206
</TABLE>
(Continued)
See notes to consolidated financial statements
F-5
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
<TABLE>
<CAPTION>
Cumulative
Compre- Retained Other
hensive Earnings Comprehensive
Total Income (Loss) (Deficit) Income (Loss)
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Common stock issued in lieu of
compensation (issued at $.1875
per share) 65,625
Sale of common stock (at $.3333
per share) 100,000
Common stock issued for loan
financing (issued at $.1875 to
$.5625 per share) 84,375
Issuance of stock warrants for
services (issued at $.1875 to $1.125
per share) 60,853
Compensation for stock options
cancelled and re-issued (from
$.375 to $.21875 per share) 129,793
Net unrealized loss on marketable
securities (2,787,501) $(2,787,501) (2,787,501)
Net (loss) (1,579,568) (1,579,568) (1,579,568)
-----------
Comprehensive Loss $(4,367,069)
===========
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $(2,364,728) $(5,649,915) $ (165,885)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional
Paid-In
Common Stock Capital
------------ -----------
<S> <C> <C>
Common stock issued in lieu of
compensation (issued at $.1875
per share) 350 65,275
Sale of common stock (at $.3333
per share) 300 99,700
Common stock issued for loan
financing (issued at $.1875 to
$.5625 per share) 200 84,175
Issuance of stock warrants for
services (issued at $.1875 to $1.125
per share) 60,853
Compensation for stock options
cancelled and re-issued (from
$.375 to $.21875 per share) 129,793
Net unrealized loss on marketable
securities
Net (loss)
Comprehensive Loss
- ----------------------------------------------------------------------------------
Balance, June 30, 1999 18,070 $3,433,002
- ----------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended June 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,579,568) $ 654,801 $ (773,723)
Adjustments to reconcile net earnings
(loss) to net cash used in operating
activities:
Depreciation and amortization 288,655 84,220 93,384
Net gain on sale of marketable
securities -- (413,504) (1,100)
Non-employee stock based
compensation 84,375 -- --
Non-cash officers compensation 195,418 -- --
Other non-cash items 60,853 27,780 157,696
Changes in operating assets
and liabilities 512,755 (1,015,074) (28,140)
----------- ----------- -----------
Net Cash (Used in)
Operating Activities (437,512) (661,777) (551,883)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable
securities -- 1,168,445 22,868
Purchase and deposits of equipment (1,202,980) (447,203) (394,915)
Purchase of marketable securities -- (345,342) (432,192)
----------- ----------- -----------
Net Cash Provided by (Used in)
Investing Activities (1,202,980) 375,900 (804,239)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 1,150,000 101,202 966,000
Proceeds from officer loans 342,281 317,000 --
Repayment of officer loans (1,000) -- --
Repayment of notes (1,202) (994,789) (37,000)
Proceeds from sale of options -- -- 28,000
Proceeds from sale of common stock 100,000 -- 1,070,000
----------- ----------- -----------
Net Cash Provided by (Used in)
Financing Activities 1,590,079 (576,587) 2,027,000
----------- ----------- -----------
Net Increase (decrease) in Cash (50,413) (862,464) 670,878
Cash - beginning of period 55,929 918,393 247,515
----------- ----------- -----------
Cash - end of period $ 5,516 $ 55,929 $ 918,393
=========== =========== ===========
(Continued)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended June 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Changes in operating assets and
liabilities consist of:
(Increase) in inventory $ (898,796) $ -- $ --
(Increase) decrease in due from
licensee 801,900 248,100 (550,000)
(Increase) decrease in prepaid
expenses (60,770) 47,191 (70,708)
(Increase) in marketable securities
-non-current -- (300,000) --
Increase (decrease) in other assets 80,490 (92,115) (513,025)
Increase (decrease) in accounts
payable and accrued expenses 1,342,431 458,332 (196,907)
Increase (decrease) in deferred
income (752,500) (1,376,582) 1,302,500
----------- ----------- -----------
$ 512,755 $(1,015,074) $ (28,140)
=========== =========== ===========
Supplementary information:
Cash paid during the year for:
Interest $ 103,924 $ 155,709 $ 278,838
=========== =========== ===========
Income taxes $ 5,637 $ -- $ --
=========== =========== ===========
Non-cash investing activities:
Unrealized gain (loss) on marketable
securities $(2,787,501) $(2,944,999) $ 5,202,115
=========== =========== ===========
Deposit on equipment for common
stock $ 100,000
===========
Other Non-Cash Activities:
Conversion of accounts payable
and accrued expenses to common
stock $ 84,375 $ 57,696
=========== ===========
Conversion of accounts payable
to warrants $ 60,853 $ 27,780
=========== ===========
Conversion of accrued officers
salaries to common stock $ 65,625
===========
Common stock issued to officers
in connection with cancellation
and re-issue of stock options $ 129,793
===========
Details of settlement agreement:
Fair value of assets received $ 915,000
Liabilities forgiven 575,000
-----------
Net cash paid $ 340,000
===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Scantek Medical, Inc. and subsidiaries (the "Company"), operates in one
industry segment and is engaged, in developing, manufacturing, marketing,
and licensing the BreastCare(TM) ("BreastCare(TM)") device. The
BreastCare(TM) device is an early screening device which can detect certain
breast tissue abnormalities, including breast cancer. This device has been
patented and has Food and Drug Administration ("FDA") approval for sale.
During the year ended June 30, 1999 principal operations commenced and the
Company commenced shipments of the BreastCare(TM) device in South America.
The Company also obtained the rights to manufacture and sell the
BreastCare(TM)/BreastAlert(TM) device in the United State of America,
Canada and their territories and possessions. See Note 6 of Notes to
Consolidated Financial Statements for further information. Accordingly, the
Company is no longer considered a development stage enterprise as it was
through June 30, 1998. There is no assurance that commercially successful
products will be developed nor that the Company will achieve a profitable
level of operations.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company has experienced losses during its development stage. Losses and
negative cash flows from operations have continued in the current fiscal
year and subsequent to June 30, 1999. As of June 30, 1999, the Company has
working capital deficit of approximately $2.5 million.
The activities of the Company are being financed through the sale of its
common stock and debt securities. The Company's continued existence is
dependent upon its ability to obtain needed working capital through
additional equity and/or debt financing, and the commercial acceptability
of the BreastCare(TM) device to create sales that will help the Company
achieve a profitable level of operations. However, there is no assurance
that additional capital will be obtained or the BreastCare(TM) device will
be commercially successful. This raise substantial doubt about the ability
of the Company to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
F-9
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Scantek
Medical, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of the 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.
MARKETABLE SECURITIES
The Company classifies its investment in equity securities, as "available
for sale", and accordingly, reflects unrealized gains, net of deferred
taxes, as a separate component of stockholders' equity (deficiency).
The fair values of marketable securities are estimated based on quoted
market prices. Realized gains or losses from the sales of marketable
securities are based on the specific identification method.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments. The Company places its temporary cash investments with high
credit quality financial institutions and by policy, in the future, will
limit the amount of credit exposure with any one financial institution.
INVENTORIES
Inventories are stated at the lower of weighted average cost (first-in,
first-out) or market.
DEPRECIATION
Equipment is stated at cost less accumulated depreciation. Depreciation is
recorded using the straight-line method over the estimated useful lives of
the assets which are between 5 and 10 years.
PATENT COSTS
The costs associated with the acquisition and filings of United States,
French, English, Dutch and other patents have been capitalized. The patents
are amortized using the straight-line method over their respective lives,
not to exceed ten (10) years. The carrying value of intangible assets is
periodically reviewed by the Company and impairments are recognized when
the expected future operating cash flows to be derived from such intangible
assets is less than their carrying value.
F-10
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
DEFERRED INCOME
Deferred income consists of initial payments of licensing fees and
marketable securities received by the Company, valued as of the date the
licensing agreements were entered into, in connection with the licensing of
the BreastCare(TM) device. The Company has substantially performed all
material conditions of the licensing agreement giving the licensee the
right to manufacture and sell the BreastCare(TM) device. This revenue has
been recognized in income during the years ended June 30, 1999 and 1998 as
the licensees have commenced operations, since substantial performance has
occurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement was adopted by the Company in 1996. Since
adoption, no impairment losses have been recognized.
STOCK-BASED COMPENSATION
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
The standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on fair value accounting rules. The Company
has adopted the disclosure only provisions of SFAS No. 123.
The Company has cancelled various stock options to officers and reissued
new stock options. The Company has recorded as additional compensation
expense the difference between the new option price and the cancelled
option price for the options that were cancelled.
EARNINGS (LOSS) PER COMMON SHARE
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share", which requires companies to present basic earnings per share (EPS)
and diluted earnings per share, instead of the primary and fully diluted
EPS that was required. The new standard requires additional informational
disclosures, and also makes certain modifications to the currently
applicable EPS calculations defined in Accounting Principles Board No. 15.
F-11
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Basic earnings (loss) per common share are computed by dividing net
earnings (loss) by the weighted average number of common shares outstanding
during the year. For the year ended June 30, 1998 diluted earnings per
common share are computed by dividing net earnings by the weighted average
number of common and common stock equivalent shares outstanding during the
year. Common stock equivalents used in computing diluted earnings per share
relate to stock options and warrants which, if exercised would have a
dilutive effect on earnings per share. The number of common stock
equivalent shares outstanding were 5,587,527, 2,013,178 and 1,163,178 for
the years ended June 30, 1999, 1998 and 1997, respectively. During the
years ended June 30, 1999 and 1997, common stock equivalents were not used
in the computation of diluted loss per common share as their effect would
be antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial instruments including cash, amounts due from licensee,
accounts payable, accrued expenses and short term debt, it was assumed that
the carrying amount approximated fair value because of the short-term
nature of these instruments. The fair value of marketable securities are
based on quoted market prices. It is not practicable to estimate the fair
value of the non-publicly traded long-term debt.
NEW FINANCIAL ACCOUNTING STANDARDS
During fiscal 1997, the Financial Accounting Standards Board issued the
following accounting standard: Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" (SFAS No.130); and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" (SFAS No.131). The Company has adopted
SFAS No. 130 and SFAS 131 in the current fiscal year. In June 1998, The
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). The Company is required to adopt the
provisions of this Statement for all fiscal quarters of fiscal years
beginning after June 15, 2000. This Statement requires that all derivatives
be recorded in the balance sheet as either an asset or liability measured
at fair value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. The Company is in the process of evaluating this
Statement and has not yet determined the future impact on the Company's
consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year balances in order to
conform with the current year's presentation.
F-12
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT IN SUBSIDIARIES
(a) In January, 1998, the Company organized a wholly-owned subsidiary,
Scantek Medical S.A. Inc., a Uruguayan company, to distribute the
BreastCare(TM) device in South America.
(b) The Company has executed a contract to acquire a Hungarian based
manufacturer of plastic medical packaging products and its manufacturing
facility for an aggregate purchase price of $1,750,000. The acquisition is
subject to the Company obtaining financing and the signing of a definitive
agreement.
3. MARKETABLE SECURITIES
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
-------- ---------- ---------- --------
June 30, 1999:
Marketable securities-
current:
Common stock $275,157 $ 409,272 $ 318,000 $183,885
======== ========== ========== ========
Warrants $300,000 $ -- $ -- $300,000
======== ========== ========== ========
June 30, 1998:
Marketable securities-
current:
Common stock $275,157 $2,295,253 $2,020,096 $ --
======== ========== ========== ========
Marketable securities-
non-current:
Warrants $300,000 $ 901,520 $ 601,520 $ --
======== ========== ========== ========
Gross realized gains were $-0- in 1999, $435,352 in 1998 and $1,377 in
1997. Gross realized losses were $-0- in 1999, $21,848 in 1998 and $277 in
1997.
4. INVENTORIES
Inventories at June 30 consist of the following:
June 30,
-------------------
1999 1998
-------- ------
Raw materials $783,175 $ --
Finished goods 115,621 --
-------- ------
$898,796 $ --
======== ======
F-13
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
June 30,
-------------------------
1999 1998
---------- ----------
Equipment $2,014,545 $ 101,565
Furniture and fixtures 27,489 27,489
Deposit on equipment -- 710,000
Leasehold improvements 16,525 16,525
---------- ----------
2,058,559 855,579
Less accumulated depreciation 254,585 33,536
---------- ----------
$1,803,974 $ 822,043
========== ==========
Depreciation expense for the years ended June 30, 1999, 1998 and 1997 was
$221,049, $16,612 and $5,809, respectively.
5. OTHER ASSETS
June 30,
----------------------
1999 1998
-------- --------
Patent costs $676,069 $676,069
Long-term portion of amount
due from licensees -- 75,000
Security deposits 24,750 13,125
Other -- 92,114
-------- --------
700,819 856,308
Less accumulated amortization 540,640 473,033
-------- --------
$160,179 $383,275
======== ========
6. HUMASCAN AGREEMENT/SETTLEMENT
On March 15, 1999 pursuant to a Settlement Agreement ("Agreement") dated as
of the 11th day of March 1999 between Scantek and HumaScan, Inc.
("HumaScan"), Scantek regained the rights to market and sell its
BreastCare(TM)/BreastAlert(TM) in the United States and Canada.
Pursuant to the Agreement, all licensing agreements between Scantek and
HumaScan which gave HumaScan the right to manufacture, market and sell the
BreastCare(TM)/BreastAlert(TM), were terminated. Pursuant to the original
and amended licensing agreements, HumaScan was indebted to Scantek for
failure to pay license fees, royalties and other sums of money. In exchange
for the cancellation of $575,000 of indebtedness due to the Company by
HumaScan and for the payment by Scantek to HumaScan of an additional
$340,000, HumaScan agreed to assign certain special manufacturing
equipment, furniture, raw materials, tools, materials, laboratory equipment
and inventory of HumaScan for the manufacture of the
BreastCare(TM)/BreastAlert(TM).
F-14
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. HUMASCAN AGREEMENT/SETTLEMENT (Continued)
Scantek recognized $375,000 as license fee income in its statement of
operations for the year ended June 30, 1999 that was previously written off
and reflected as a reduction of the license fee revenue recognized during
the year ended June 30, 1998 in accordance with the amended licensing
agreement. Scantek recorded raw materials and finished goods in the amount
of approximately $859,000, which represents the fair market value of the
inventory received. Equipment with an initial acquisition cost of
approximately $2.5 million has been recorded for approximately $59,000,
which represents the cost the Company paid HumaScan as part of the
Agreement.
7. LICENSE AGREEMENTS
The Company entered into an exclusive license agreement, dated September
22, 1997, and amended February 18, 1998, with Sandell Corporation S.A. (the
"Sandell Agreement"), a Uruguayan corporation, ("Sandell"), pursuant to
which the Company granted to Sandell an exclusive license to market and
distribute the BreastCare(TM) device in Brazil, Venezuela, Columbia, Costa
Rica, Ecuador,, Nicaragua, Paraguay, Panama, Peru, Bolivia, Argentina and
Uruguay. The Sandell Agreement was for a term of fourteen (14) years. Under
the Sandell Agreement, Sandell was to pay the Company a non-refundable
license fee of (i) $500,000 and (ii) thirty-five (35%) percent of the
outstanding shares of Sandell on a fully diluted basis. Upon execution of
the agreement the Company received $100,000. As of June 30, 1999 upon
mutual consent of both parties, the Company terminated its agreement with
Sandell. In connection with the termination of the agreement the Company
wrote off the balance of the $400,000 license fee due the Company and
approximately $103,000, which represented its investment in Sandell. The
Company will manufacture, market and distribute the BreastCare(TM) device
throughout the majority of South America through the Company's South
American subsidiaries.
On July 19, 1999 the Company executed a letter of intent with Contrutoro
CEC LTDA ("CEC") and EPIC - Empressa de Participacano, Investmentoe
Consultoria s/c LTDA. ("EPIC") to create a joint venture with exclusive
rights to import, manufacture, market and distribute the BreastCare(TM)
device in Brazil. The letter of intent is subject to a definitive
agreement, which is still in negotiations between the parties.
F-15
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LICENSE AGREEMENTS (Continued)
On July 29, 1999 the Company granted an exclusive license to Nugard
Healthcare Ltd, an Irish Company ("Nugard"), to market Scantek's
BreastCare(TM) device in Ireland and the United Kingdom. Nugard will pay a
non-refundable licensing fee of $350,000 in various stages, of which
$45,000 was received as of September 10, 1999. Additionally, the Company
received common shares of Nugard equivalent to fifteen (15%) percent of
Nugard's total outstanding common shares. The agreement requires minimum
purchases of 5,000 units per month beginning September 1, 1999. The
purchase price will range from $10 to $15 per unit based on the volume of
shipment of the BreastCare(TM) device to the government or private
physicians.
On August 15, 1996, the Company entered into a license agreement with
Health Technologies International Inc. ("HTI"), whereby HTI is to assemble,
market and sell the BreastCare(TM) device in Chile and Singapore, and pay
the Company a licensing fee of $250,000, which has been received by the
Company. During November 1997, HTI was acquired by D-Lanz Development
Group, Inc. ("D-Lanz"). As part of the licensing agreement, the Company
received 2,000,000 shares of D-Lanz common stock which is publicly traded
on the Electronic Bulletin Board under the Symbol DLNZ. The Company will
classify its investment as "available for sale" and accordingly reflect
unrealized gains, net of deferred taxes, as a separate component of
stockholders' equity. At June 30, 1999, the quoted value of D-Lanz's common
stock was $320,000. Also, pursuant to the terms of the agreement, the
company agreed to extend the due date for D-Lanz's first minimum royalty
payment of $80,000 until October 31, 1999. Pursuant to the terms of the
licensing agreement, D-Lanz is obligated to the Company minimum royalties
of $200,000 in the calendar year 2000 with increasing royalties leveling
out at a minimum of $300,000 in the calendar year 2001, $400,000 in the
year 2002 and thereafter. All royalties are paid based on a percentage of
net sales of the BreastCare(TM) device.
8. DEBT
Short-term debt at June 30, is as follows:
1999 1998
---------- ----------
Unsecured notes, interest
at 6% to 10%per year, due on
various dates through 6/12/00 (1) $ 500,000 $ 100,000
Unsecured officer loans, due on
demand, interest at 15% per year (2) 24,271 --
Secured note, due March 15, 2000
interest at 12% per year
The loan is secured by production
equipment 750,000 --
---------- ----------
$1,274,271 $ 100,000
========== ==========
F-16
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEBT (Continued)
Long-term debt at June 30, is as follows:
1999 1998
---------- ----------
Unsecured officer loans, due
December 31, 2000 interest
at prime plus 2% (10% at
June 30, 1999) (3) $ 939,003 $ 621,993
Unsecured notes, interest at prime
plus 2% (10% at June 30, 1999)
due December 31, 2000 (4) 888,006 888,006
---------- ----------
1,827,009 1,509,999
Current portion of long-term
debt -- --
---------- ----------
$1,827,009 $1,509,999
========== ==========
Annual maturities on long-term debt as of June 30, 1999 during the next
five years are:
Year Ending June 30,
--------------------
2000 $ --
2001 1,827,009
2002 --
2003 --
2004 --
----------
$1,827,009
==========
(1) The holders of these notes received as additional consideration 100,000
shares of the Company's common stock. For the year ended June 30, 1999 the
Company recorded interest expense and consulting expense in the amount of
$84,375 in connection with this financing of which $42,187 is included in
prepaid expenses at June 30, 1999.
(2) The unsecured note payable represents loans made to the Company by one
of its officers. Interest expense for the year ended June 30, 1999 amounted
to $946.
(3) The unsecured note payable represents loans made to the Company by Mr.
Zsigmond Sagi ("Mr. Sagi"), the Company's president and chief executive
officer. Interest expense for the years ended June 30, 1999, 1998 and 1997
amounted to $107,317, $31,906 and $28,212, respectively. Accrued interest
at June 30, 1999 and 1998 was $76,621 and $56,973, respectively.
F-17
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. DEBT (Continued)
(4) The holder of the note was a corporation controlled by Mr. Sagi. On
March 31, 1998, the corporation holding the note dissolved and distributed
the note to its five shareholders in equal amounts of $177,601. Two of the
five shareholders are executive officers of the Company, including Mr. Sagi
and Carlo Civelli, Vice President of Finance International. The note terms
were renegotiated with the lenders with principal payments due September
30, 1999 and interest at prime plus two (2%) percent. The notes have been
extended to December 31, 2000. Accrued interest at June 30, 1999 and 1998
was $142,080 and $53,280, respectively. Interest expense for the year,
ended June 30, 1999, 1998 and 1997, amounted to $88,800, $71,040 and
$71,040, respectively.
9. INCOME TAXES
At June 30, 1999, the Company has a net operating loss ("NOL") carryforward
of approximately $5,520,000 for financial reporting purposes and
approximately $2,850,000 for tax purposes. The difference between financial
reporting and tax purposes results from the temporary difference caused by
the capitalization of start-up expenditures for tax purposes required by
Internal Revenue Code Section 195 and the net unrealized gain on marketable
securities. The Company has not reflected any benefit of such net operating
loss carryforwards in the accompanying financial statements in accordance
with Financial Accounting Standards Board Statement No. 109 as the
realization of this deferred tax benefit is not more than likely. The tax
NOL carryforwards expire in the years 2005 through 2011.
A reconciliation of taxes on income at the federal statutory rate to
amounts provided is as follows:
Years Ended June 30,
-------------------------------------
1999 1998 1997
---------- --------- ---------
Tax provision (benefit) computed
at the Federal statutory rate $(341,000) $ 345,000 $(355,000)
Increase (decrease) in taxes
resulting from:
Utilization of Federal net
operating loss carryforward -- (345,000) --
Effect of unused tax losses 341,000 -- 355,000
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
F-18
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (Continued)
The types of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise to a
deferred tax asset and deferred tax liability and their approximate tax
effects are:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net operating
loss carry-
forward $(2,850,000) $(1,140,000) $(1,504,000) $ (602,000)
Deferred start-
up expenses (2,051,000) (820,000) (2,330,000) (932,000)
Unrealized gains
(losses) on marketable
securities (166,000) (66,000) 2,622,000 1,049,000
Valuation
allowance (5,067,000) (2,026,000) 1,212,000 485,000
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
10. SEGMENTS - GEOGRAPHIC AREAS
The Company does not have reportable operating segments as defined in
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The method for
attributing revenues to individual countries is based on the destination to
which finished goods are shipped. The Company operates facilities in the
United States and South America.
One hundred (100%) percent of the sales (127,775) of the BreastCare(TM)
device for the year ended June 30, 1999 were to the Company's South
American licensee, Sandell Corporation S.A. Sales of the BreastCare(TM)
device are not recorded by the Company until Sandell Corporation S.A. ships
the BreastCare(TM) device to unrelated entities. Revenues include license
fees received by the Company in connection with various arrangements
contracted throughout the world. As of June 30, 1999 the Company has
terminated its license agreement with Sandell Corporation S.A. See Note 7
of Notes to Consolidated Financial Statements for further information.
F-19
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENTS - GEOGRAPHIC AREAS (Continued)
June 30,
----------------------------
1999 1998
----------- -----------
Revenues from unrelated
entities and countries of
Company's domicile:
United States $ 727,500 $ 1,801,582
South America 127,775 --
----------- -----------
$ 855,275 $ 1,801,582
Total Revenues:
United States $ 832,936 $ 1,801,582
South America 127,775 --
Less: intergeographic
revenue (75,436) --
----------- -----------
$ 855,275 $ 1,801,582
Income (loss) from operations:
United States $ (952,368) $ 405,871
South America (243,122) (4,092)
----------- -----------
$(1,195,490) $ 401,779
=========== ===========
Assets:
United States $ 3,645,404 $ 5,212,438
South America 127,883 18,360
Less: intergeographic
eliminations (411,263) (22,451)
----------- -----------
$ 3,362,024 $ 5,208,347
=========== ===========
Capital Expenditures:
United States $ 1,202,980 $ 447,203
South America -- --
----------- -----------
$ 1,202,980 $ 447,203
=========== ===========
Depreciation and amortization
expense:
United States $ 288,655 $ 84,220
South America -- --
----------- -----------
$ 288,655 $ 84,220
=========== ===========
Transfers between geographic areas include raw materials manufactured in
the United States which are shipped to South America to be manufactured
into finished products. Income (loss) from operations represents total
revenue less operating expenses.
Identifiable assets are those assets of the Company that are identified
with the operation of each geographic area.
F-20
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for
the stock options awarded. Had compensation cost for the Company's issuing
of stock options and warrants been determined based on the fair value at
the grant date for awards in fiscal years ended 1999, 1998 and 1997
consistent with the provision of SFAS No. 123, the Company's net earnings
(loss) and net earnings (loss) per share would have increased to the
pro-forma amounts indicated below:
June 30,
----------------------------
1999 1998
----------- ---------
Net earnings (loss) - as reported $(1,579,568) $ 654,801
Net earnings (loss) - pro-forma (1,722,680) 411,836
Earnings (loss) per share - basic
- as reported $(.09) $ .04
Earnings (loss) per share - basic
-pro-forma $(.10) $ .02
Earnings (loss) per share - diluted
- as reported $(.09) $ .03
Earnings (loss) per share - diluted
- pro-forma $(.10) $ .02
The fair value of options and warrants are estimated on the date of grant
using the Black-Scholes option pricing method with the following weighted
average assumptions issued for grants in 1999 and 1998, respectively:
dividend yield of -0-%, expected volatility of 145% to 161% and 66% to
208%, risk free interest rate of 5.0% and 5.72% and expected lives of 2-1/2
years.
The Company grants stock options and warrants as follows:
(a) On March 7, 1995, the Company established a Non-Qualified Stock Option
Plan (the "Plan") which provides for the granting to key employees stock
options. The Plan provides for the issuance of up to 500,000 shares, none
of which have been registered. No shares have been granted as of June 30,
1999.
(b) On March 7, 1995, the Company established a Stock Grant Program which
provides for the granting to key employees common stock of the Company. The
Stock Grant Program provides for the issuance of up to 500,000 shares, none
of which have been registered. No shares have been granted as of June 30,
1999.
(c) The following options were granted outside the two March 7, 1995 Plans
during the year ending June 30, 1999:
On August 5, 1998, the Company granted options to two directors to purchase
40,000 shares each (80,000 shares) of the Company's common stock at an
option price of $.5625 per share, the fair value at the date of grant. The
options expire August 5, 2003.
F-21
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (Continued)
On December 14, 1998, the Company granted warrants to purchase 100,000
shares of the Company's common stock at an exercise price of $.1875 per
share the fair value at the date of the grant to D.C. Consultants in
exchange for $17,060 of professional services rendered. The warrants expire
November 30, 2003.
On May 14, 1999, the Company granted warrants to purchase 100,000 shares of
the Company's common stock at an exercise price of $.21875 per share the
fair value at the date of the grant to Daniel Alvarez, the Company's
employee in South America. The warrants expire on May 14, 2004.
On May 14, 1999,, the Company cancelled options granted to the Company's
president and chief executive officer to purchase 484,827 shares of the
Company's common stock at an option price of $.375 per share for the
conversion of accrued salaries to August 30, 1996 in the amount of $181,810
and granted options to purchase up to 2,847,900 shares of the Company's
common stock at an option price of $.21875 per share, the fair value at the
date of the grant, for the conversion of accrued salaries through April 30,
1999 totaling $622,978. The Company recorded as additional compensation
expense the difference between the new option price and the cancelled
option price for the 484,827 options that were cancelled amounting to
$75,754 for the year ended June 30, 1999. The option is exercisable
immediately and expires on May 13, 2004.
On May 14, 1999 the Company cancelled options granted to the Company's
Vice-President and Secretary to purchase 345,851 shares of the Company's
common stock at an option price of $.375 per share for the conversion of
accrued salaries to August 30, 1996 in the amount of $129,694 and granted
options to purchase up to 1,427,127 shares of the Company's common stock at
an option price of $.21875 per share, the fair value at the date of grant,
for the conversion of accrued salaries through April 30, 1999 totaling
$312,184. The Company recorded as additional compensation expense the
difference between the new option price and the cancelled option price for
the 345,881 options that were cancelled amounting to $54,039 for the year
ended June 30, 1999. The option is exercisable immediately and expires on
May 13, 2004.
F-22
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (Continued)
Information regarding the Company's Stock Option Plan and Warrants, for
fiscal years ended 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISED EXERCISED EXERCISED
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options out-
standing -
beginning of
year 2,013,178 $.54 1,163,178 $.49 330,000 $.33
Options exer-
cised -- -- -- (170,000) .17
Options and
warrants granted 4,555,027 .22 850,000 .60 1,053,178 .47
Options
cancelled or
expired (980,678) .41 -- -- (50,000) .01
---------- ---- --------- ---- --------- ----
Options and
warrants out-
standing, end
of year 5,587,527 $.30 2,013,178 $.54 1,163,178 $.49
========== ==== ========= ==== ========= ====
Option and warrants
price range at
end of year $.19 to .56 $.38 to $1.125 $.01 to $1.06
Option price range
for exercised
shares -- -- $.10 to $ .38
Options available
for grant 1,000,000 1,000,000 1,000,000
</TABLE>
F-23
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTIONS AND WARRANTS (Continued)
The weighted exercise price and weighted fair value of options and warrants
granted by the Company for the fiscal years ended 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISED FAIR EXERCISED FAIR EXERCISED FAIR
PRICE VALUE PRICE VALUE PRICE VALUE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
of options and
warrants granted
during the year
whose exercise
price exceeded
fair market value
at the date of
grant -- -- .75 .36 -- --
Weighted average
of options and
warrants granted
during the year
whose exercise
price was equal to
fair market value
at the date of
grant .22 .14 .56 .38 .47 .42
</TABLE>
The following table summarizes information about fixed-price stock options
and warrants outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of Exercise at June 30, Contractual Exercise at June 30, Exercise
Prices 1999 Life Price 1999 Price
----------------- ---------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .19 to $ .63 5,245,027 4.7 years $ .26 5,245,027 $ .26
$ .75 to $1.13 342,500 2.9 years $ .90 342,500 $ .90
--------- ---------
5,587,527 5,587,527
========= =========
</TABLE>
F-24
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED PARTY TRANSACTIONS
a) On December 1, 1998 the Company issued 200,000 and 150,000 shares of the
Company's common stock to Mr. Sagi and the Company's vice
president/secretary, respectively in consideration for deferring their
current year salaries. In connection with the transaction the Company
recorded compensation expense in the amount of $65,625 for the year ending
June 30, 1999.
b) On March 31, 1998, SMC Corp. dissolved and distributed the note due from
the Company to its five shareholders, including Mr. Sagi and Carlo Civelli.
See Note 8 of Notes to Consolidated Financial Statements for further
information. The principal amount of the note at June 30, 1999 and 1998 was
$177,601 for Mr. Sagi and Mr. Civelli. Interest expense for the year ended
June 30, 1999, 1998 and 1997 was $17,760, $14,208 and $14,208, for Mr. Sagi
and Mr. Civelli. As of June 30, 1999 and 1998 accrued interest in the
amount of $28,416 and $10,856 was due Mr. Sagi and Mr. Civelli.
c) On November 16, 1998 the Company sold 150,000 shares of the Company's
common stock to a Director of the Company and an officer of the Company.
The Company received $100,000 net proceeds from the sale.
d) The Company and Zigmed Corporation ("Zigmed") have entered into various
agreements. Zigmed is owned and controlled by two sons of Mr. Sagi, who,
prior to 1990, owned Zigmed. The Company has contracted with Zigmed to
manufacture its production equipment needed for its production centers. The
Company sublets warehouse space to Zigmed for $1,667 per month and received
$20,000 as rental income from Zigmed for the years ended June 30, 1999 and
1998. The Company has also contracted with Zigmed for the production of the
BreastCare(TM) sensors prior to the full scale production by the Company
abroad. Zigmed provided material, labor and product testing services of
$42,109 and $74,028 for the years ended June 30, 1999 and 1998. The Company
owes Zigmed approximately $17,000 and $ -0- as of June 30, 1999 and 1998
for labor. See Note 13 of Notes to Consolidated Financial Statements for
further information.
13. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office and warehousing facilities. Certain of these
leases require the Company to pay certain executory costs (such as
insurance and maintenance). In June, 1997 the Company signed a three (3)
year lease for office and warehouse space in Denville, New Jersey and
amended its lease on April 15, 1999 to include an additional 6,000 square
feet adjacent to its corporate headquarters.
F-25
<PAGE>
SCANTEK MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum lease payments for operating leases are as follows:
Years Ending June 30,
---------------------
2000 $104,000
2001 --
2002 - -
2003 --
Thereafter --
--------
$104,000
========
RENT EXPENSE
Rent expense for the years ended June 30, 1999, 1998 and 1997 was
approximately $86,000, $68,000 and $43,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts in principle with the two
officers/directors of the Company. The agreements all provide the
following: base salaries increasing upon certain conditions, incentive
bonus plans and severance benefits.
PRODUCTION AGREEMENTS
The Company intends to construct strategic regional production centers
throughout the world to manufacture, assemble and market the BreastCare(TM)
device. The Company has entered into an amended agreement with Zigmed
pursuant to which Zigmed will manufacture the production equipment needed
for the manufacturing centers for the contract price of $1,850,680 plus
100,000 shares of the Company's common stock. In August 1996, the Company
paid Zigmed an advance deposit of $200,000 to begin production of the
manufacturing equipment, and in September, 1996 issued Zigmed 100,000
shares of the Company's common stock (valued at $1.00 per share) against
the contract. As of June 30, 1999, the Company has advanced Zigmed
$921,179. See Note 4 of Notes to Consolidated Financial Statements.
F-26
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table and biographical outlines set forth the directors,
positions and officers within the Company presently held by each executive
officer of the Company and a brief account of the business experience of each
such director and officer for the past five years.
Positions and Officers
within the Company/
Name Age Business Experience
- ---- --- -------------------------
Zsigmond L. Sagi, Ph.D. 66 President, Chairman of
the Board, and Chief
Executive Officer
Patricia B. Furness 52 Vice President,
Corporate Secretary and Director
Kenneth Courey 62 Director
Maurice Siegel, Ph.D. 69 Vice President of
Research and
Development and Director
Louis Gottlieb 71 Vice President of
Corporate Development
Carlo Civelli 50 Vice President of
Finance International
Paul Nelson 67 Director
34
<PAGE>
ZSIGMOND L. SAGI, PH.D., has served as President, Chairman of the Board,
Chief Executive Officer and Chief Scientist of the Company since October, 1991.
Mr. Sagi has over 30 years experience in the health-care field and has invented
or developed several commercial medical devices and technological products. From
1968 until 1977 he served as Executive Vice President and Chief Operating
Officer of Bio-Medical Sciences, Inc., a publicly held company of which he was
one of the founders. Thereafter, he organized and managed several companies,
including Zigmed Corp., a healthcare engineering firm. In 1974, he founded BCSI
Laboratories, Inc., the company which developed the
BreastCare(TM)/BreastAlert(TM). From 1986 until 1991, Mr. Sagi served as
Chairman of the Board and President of SMC Corp., a company he founded in 1986.
Mr. Sagi has been issued numerous United States and foreign patents in the
fields of healthcare, chemical applications, electronics and mechanics,
including the disposable oral thermometer, the Zigzag sewing machine, an
ambulatory automated feeding device, and a sterilization indicator. He received
his master's in mechanical engineering in 1954 and his doctorate in Physics in
1956 from the Technical University of Hungary.
PATRICIA B. FURNESS, has served as the Vice President, Secretary and
Director of the Company since 1991. In addition to managing marketing and public
relations for the Company, Ms. Furness is also responsible for coordinating
product and business information to the medical and financial community and for
coordinating clinical follow up studies. From 1988 until 1991 she served as Vice
President and Secretary of Scantek Medical Corp., and, in 1989, was elected to
its Board of Directors. In 1987, Ms. Furness became the Manager of Corporate
Development of Zigmed, Inc., a manufacturer of automated systems for the health
care industry. Ms. Furness received a Bachelor of Science Degree in education
from Appalachian State University in Boone, North Carolina in 1969 and graduate
course study in Human Relations.
35
<PAGE>
KENNETH COUREY, joined the Company's Board of Directors in July 1998. Mr.
Courey is the founder of QualCare Preferred Providers of New Jersey, Inc., and
is presently serving as the Chairman of the Board of Directors of such company.
From 1984-1996 he was President and Chief Executive Officer of St. Francis Life
Care Corporation, from 1984-1994 he was President and Chief Executive Officer of
SSM Health Care Ministry Corporation, and from 1970-1992 he was President of St.
Clare's Riverside Medical Center. Presently, Mr. Courey is also a member of the
Board of Directors of Health Care Insurance Company and C.S.R.A., a
senior-housing management and development company, and one of the directors on
the Advisory Board for Carnegie State Bank. Mr. Courey received a Bachelor of
Arts Degree in Political Science from St. Ambrose College, Davenport, Iowa in
1959 and Master of Arts Degree in Hospital and Health Administration from State
University of Iowa, Iowa City, Iowa in 1962.
MAURICE SIEGEL, PH.D., has served as the Company's Vice President of
Research and Development since 1991 and as a Director of the Company since
August, 1997. Since 1989, Mr. Siegel served in the same capacity with Scantek
Medical Corp., the Company's predecessor. From 1980 to 1984, Mr. Siegel was
responsible for the continuing research and development of the
BreastCare(TM)/BreastAlert(TM). He supervised the analytical and manufacturing
operation and was involved in the process of receiving FDA medical device
approval for the BreastCare(TM)/BreastAlert(TM) for sale to the professional
market. Mr. Siegel was employed by Faberge, Inc. from 1957 through 1987, as
Director of Research and Development from 1957 to 1996, as Vice President of
Research and Development from 1966 to 1977, and last holding the position of
Executive Vice President of Research and Development from 1977 to 1987. Since
1987, Mr. Siegel has been self employed and has served, and continues to serve,
as a consultant to numerous companies, including Tri-Scent, Imported Beauty
Lines, Telebrands and Sun Laboratories. Mr. Siegel received a Ph.D. in Physical
and Organic Chemistry from New York University in 1957.
LOUIS GOTTLIEB, has served as Vice President of Corporate Development since
August, 1996. Presently, he is on the Board of Directors at Brookdale Hospital
Medical Center, Linrock Nursing Home, First Central Financial Corp. From
1992-1995, Mr. Gottlieb was Treasurer and a board member of South Shore
Association for Independent Living. Since 1973 he has served as CEO of the
Gottlieb Group, one of the largest 500 construction firms in the U.S. From 1942
to 1945, Mr. Gottlieb served in the US Air Corps. as a Commissioned Lt. Fighter
pilot. Mr. Gottlieb studied civil engineering at Brooklyn Polytechnical
Institute.
36
<PAGE>
CARLO CIVELLI, has served as Vice President of Finance International since
March 7, 1995. Since 1980, Mr. Civelli has owned Clarion Finance, A.G., a Swiss
corporation which he founded. From 1969 to 1971, Mr. Civelli was an Assistant
Vice-President with New Province Securities in Zurich, Switzerland. From 1971 to
1978, he served as Vice President of a European NYSE brokerage firm. From 1978
to 1980, Mr. Civelli was a free-lance investment advisor. Mr. Civelli is a
graduate of the College of the Swiss Mercantile Society, London.
PAUL NELSON, has served on the Company's Board of Directors since 1991.
From 1987 until 1991, he served as a Director of Scantek Medical Corp., the
Company's Predecessor. In 1968, Mr. Nelson founded compressed Gas, Inc., a
wholesale supplier of medical and industrial compressed gases, whereby he served
as President and a Director of such company; Mr. Nelson has since sold his
ownership in such company. Mr. Nelson received a Bachelor of Science Degree from
the University of North Carolina in Chapel Hill, North Carolina.
Compliance with 16(a) of the Securities and Exchange Act of 1934
To the Company's knowledge, based solely on a review of such materials as
are required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten (10%) percent of the Company's issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended June 30, 1999.
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth, for the fiscal years ended June 30, 1999, 1998
and 1997, the annual and long-term compensation paid or accrued of the Company's
named officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
-------------------------------
Annual Compensation Securities
Name and ----------------------------- Underlying
Principal Position Year Salary Bonus Other Options/SARs (#) Compensation
- ------------------ ---- -------- ------ ----- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Zsigmond L. Sagi 1999 $190,000 $37,500 $-- 2,847,900 $--
President, Chairman 1998 190,000 -- -- 300,000 --
of the Board, Chief 1997 190,000 -- -- 484,827 --
Executive Officer
Patricia Furness 1999 90,000 28,125 -- 1,427,127 --
Vice President and 1998 90,000 -- 150,000 --
Secretary 1997 75,000 -- 385,851 --
</TABLE>
37
<PAGE>
EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into employment agreements in principle
with Mr. Sagi and Ms. Furness. The agreements provide for base salaries of
$190,000 and $75,000 respectively, incentive bonus plans and severance benefits.
Mr. Furness's base salary was increased to $90,000 effective July 1997.
In December 1998, the Company issued 200,000 and 150,000 shares of the
Company's common stock to Mr. Sagi and Ms. Furness for deferring their current
year salaries.
The following table contains information regarding the grant of stock
options during the year ended June 30, 1999 to the named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise or For Option Term (3)
Options/SARs Employees Base Price Expiration -------------------
Name Granted (#) in 1999 ($/sh.) Date 5% ($) 10% ($)
- ---- ----------- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Zsigmond L. Sagi (1) 2,847,900 63.9% $.21875 05/14/2004 $1,059,062 $1,139,160
Patricia Furness (2) 1,427,127 32.0% $.21875 05/14/2004 530,713 570,851
- ----------
</TABLE>
(1) On August 14, 1996 the Company issued 484,827 options to purchase the
Company's common stock to Mr. Sagi for deferring salaries. These options were
subsequently canceled on May 14, 1999
38
<PAGE>
and re-issued for 2,847,900 options to purchase the Company's common stock for
the conversion of accrued salaries to April 30, 1999.
(2) On August 14, 1996, the Company issued 345,851 options to purchase the
Company's common stock to Ms. Furness for deferring salaries. These options were
subsequently canceled on May 14, 1999 and re-issued for 1,427,127 options to
purchase the Company's common stock for the conversion of accrued salaries to
April 30, 1999.
(3) Amounts represent hypothetical gains that could be achieved if the listed
options were exercised at the end of the option term. These gains are based on
assumed rates of stock price appreciation of 5% and 10% compounded annually from
the date the options were granted to their expiration date, based upon fair
market value of the Common Stock as of the date the options were granted. Actual
gains, if any, on stock option exercises and stock holdings are dependent upon
the future performance of the Company and overall financial market conditions.
There can be no assurance that amounts reflected in this table will be achieved.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information regarding stock option exercised
by the Named Officers during the year ended June 30, 1999 including the
aggregate value of gains on the date of exercise. In addition, the following
table provides data regarding the number of shares covered by both exercisable
and non-exercisable stock options at June 30, 1999. Also reported are the values
for "in-the-money" options, which represent the positive spread between the
exercise price of existing options and $.5625, the closing sale price of the
Company's common stock on June 30, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value
Realized
(Market Price Number of Securities Value of
on Exercise Underlying Unexercised Unexercised In-The-Money
Common Shares Date Less Options/SARs at Year End (#) Options/SARs at Year-End ($)
Acquired on Exercise ---------------------------- -----------------------------
Name Exercise (#) Price)($) Exercisable Unexercisable Exercisable Unexercisable
- ----- ------------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Zsigmond L. Sagi 3,147,900 -- 3,147,900 -- 982,716 --
Patricia Furness 1,617,127 -- 1,617,127 -- 499,950 --
</TABLE>
39
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company as
of the date of this Statement, with respect to beneficial ownership of: (i) each
person who is known by the Company to be the beneficial owner of more than five
(5%) percent of the Company's outstanding Common Stock; (ii) each of the
Company's directors and executive officers; and (iii) all officers and directors
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws, where applicable.
- --------------------------------------------------------------------------------
TITLE OF CLASS NAME & ADDRESS AMOUNT & PERCENT OF
OF BENEFICIAL NATURE OF CLASS
OWNER BENEFICIAL
OWNER
- --------------------------------------------------------------------------------
Common Stock Zsigmond L. 8,292,467 39.08%
Sagi
19 Lockley (2), (3), (4),
Court (5)
Mountain
Lakes, NJ
07046
Common Stock 361 2,121,250 11.74%
Acquisition
Corp.
885 W. Georgia (6)
St. Suite 1200
Vancouver, BC
Canada V6L 3E8
Common Stock Patricia B. 2,644,127 13.43%
Furness
25 Beechway (7), (8), (9)
Road
Mountain
Lakes, NJ
07046
40
<PAGE>
- --------------------------------------------------------------------------------
TITLE OF CLASS NAME & ADDRESS AMOUNT & PERCENT OF
OF BENEFICIAL NATURE OF CLASS
OWNER BENEFICIAL
OWNER
- --------------------------------------------------------------------------------
Common Stock Carlo Civelli 942,500 5.2%
19 Lockley
Court (12), (13),
Mountain (14)
Lakes, NJ
07046
Common Stock Kenneth M. 150,000 .8%
Courey
6 Farmstead Rd
Denville, NJ
07834
Common Stock Louis Gottlieb 643,750 2.2%
20 N. Central
Avenue (15) (16)
Valley Stream,
NY 11580
Common Stock Paul Nelson 139,500 .7%
69 Lookout
Road (10)
Mountain
Lakes, NJ
07046
Common Stock Maurice L. 64,000 .3%
Siegel
560 W. 43rd (11)
Street
New York, NY
10036
Common Stock All Directors 12,916,344 55.84%
& Officers as
a Group
(consisting of
8 persons)
- ----------
(1) There were 18,070,200 shares of Common Stock outstanding as of September 15,
1999.
(2) Includes 200,000 shares of the Company's Common Stock issued to Mr. Sagi for
deferring current year salary.
(3) Includes 2,847,900 shares issuable to Mr. Sagi upon the exercise of options
granted on May 14, 1999 for the conversion of accrued salary to April 30, 1999
and 300,000 shares issuable to
41
<PAGE>
Mr. Sagi upon the exercise of options granted in January, 1998.
(4) Includes 535,785 shares received upon the dissolution of SMC Corp. (See
"Certain Relationships and Related Transactions").
(5) Does not include 45,000 shares of the Company's Common Stock owned by Mr.
Sagi's former wife, and 98,500 shares of the Company's Common Stock owned by Mr.
Sagi's children and their spouses, as to which Mr. Sagi disclaims beneficial
ownership.
(6) Includes 621,250 shares of the Company's Common Stock which 361 Acquisition
Corp. received as part of the 361 Acquisition Agreement. (See "Certain
Relationships and Related Transactions").
(7) Includes 10,000 shares owned by Ms. Furness' children, as to which Ms.
Furness disclaims beneficial ownership.
(8) Includes 150,000 shares of the Company's Common Stock issued to Ms. Furness
for deferring current year salary.
(9) Includes 1,427,127 shares issuable to Ms. Furness upon the exercise of
options granted on May 14, 1999 for the conversion of accrued salary to April
30, 1999, 40,000 shares issuable to Ms. Furness upon the exercise of options
granted in August, 1996 and 150,000 shares issuable to Ms. Furness upon the
exercise of options granted in January, 1998.
(10) Includes 40,000 shares of the Company's Common Stock issued upon the
exercise of options granted on March 7, 1995 to such director.
(11) Includes 40,000 shares of the Company's Common Stock issuable upon the
exercise of options granted on August 5, 1998 to Mr. Siegel.
(12) Includes 50,000 shares of the Company's Common Stock issued to Mr. Civelli
upon the exercise of options granted on March 7, 1995 and 142,500 shares
issuable upon the exercise of options granted on October 31, 1996.
(13) Includes 750,000 shares received upon the dissolution of SMC Corp.
(14) Does not include the 2,121,250 shares of the Company's Common Stock owned
by 361 Acquisition Corp. Mr. Civelli is the largest stockholder of 361
Acquisition Corp. and controls in excess of fifty (50%) percent of the
outstanding shares.
(15) Includes 40,000 shares of the Company's Common Stock issued upon the
exercise of options granted on August 14, 1996 to Mr. Gottlieb.
42
<PAGE>
(16) Includes 241,250 shares of the Company's Common Stock issued to Louis and
Ruth Gottlieb.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On December 1, 1998, the Company issued 200,000 and 150,000 shares of
the Company's common stock to Mr. Zsigmond Sagi, the Company's President and
Chief Executive Officer and Ms. Patricia Furness, the Company's Vice
President/Secretary, respectively in consideration for deferring their current
year salaries. In connection with this transaction, the Company recorded
compensation expense in the amount of $65,625 for the year ended June 30, 1999.
(b) The Company and SMC Corp. entered into various agreements with an
investment banking firm ("361 Acquisition Corp.") to, among other things,
provide financing for the Company in exchange for shares of common stock. In
exchange for terminating all prior agreements between 361 and the Company and
SMC Corp., the Company issued 621,250 shares of its common stock to 361
representing services valued at approximately $78,000, which was approved by the
Board of Directors on March 7, 1995. On March 31, 1998, SMC Corp. dissolved and
distributed the note receivable of $888,006 from the Company to its five
shareholders in equal amounts of $177,601, including Mr. Sagi (the Company's
President and Chief Executive Officer), Carlo Civelli (Vice President of Finance
International of the Company), Kilham Management, Malir Enterprises Corp., and
Zurow Investment S.A. The note terms were renegotiated with the lenders with
principal payments due September 30, 1999 and interest at prime plus two (2%)
percent. As of June 30, 1999, accrued interest in the amount of $28,416 and
$10,856 was due Mr. Sagi and Mr. Civelli, respectively. The notes have been
extended to December 31, 2000.
(c) On November 16, 1998, the Company sold 150,000 shares of the Company's
common stock to Kenneth Courey, a Director of the Company and to Louis Gottlieb,
Vice President of Corporate Development; the Company received $100,000 net
proceeds from the sale.
(d) The Company intends to construct regional production centers throughout
the world to manufacture, assemble and market the
BreastCare(TM)/BreastAlert(TM). Accordingly, the Company entered into an
agreement dated August 25, 1996, as amended, with Zigmed,
43
<PAGE>
Inc. ("Zigmed"), a company owned by the two sons of Mr. Zsigmond Sagi; Zigmed,
Inc. was owned by Mr. Sagi prior to 1990. Pursuant to such agreement, Zigmed
agreed to manufacture the production equipment for such manufacturing centers
for the contract price of $1,850,680 plus 100,000 shares of the Company's Common
Stock. In August 1996, the Company paid Zigmed an advance deposit of $200,000 to
begin production of the manufacturing equipment, and in March 1997 issued Zigmed
100,000 shares of the Company's Common Stock (valued at $1.00 per share) against
the contract. As of June 30, 1999, the Company has advanced Zigmed $921,179.
(e) The Company has borrowed funds from Mr. Zsigmond Sagi, the Company's
President and Chief Executive Officer. The promissory note to Mr. Sagi bears
interest at prime plus two (2%) percent, 10% at June 30, 1999, and is payable on
December 31, 2000. The principal amount of the note is $939,003 at June 30,
1999. Subsequent to the balance sheet date, Mr. Sagi advanced an additional
$317,000. Interest expense for the year ended June 30, 1999 was $107,317.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements and supplementary financial
information are filed as part of this Annual Report on Form 10-KSB:
Page
----------
1. Financial Documents:
Independent Auditors' Report F-1
Consolidated Balance Sheets, June 30, 1999 and 1998 F-3
Consolidated Statements of Operations, Years
Ended June 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity,
Years Ended June 30, 1999, 1998 and 1997 F-5 - F-6
Consolidated Statements of Cash Flows, Years
Ended June 30, 1999, 1998 and 1997 F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-26
2. Financial Statement Schedules:
44
<PAGE>
All schedules are omitted because they are inapplicable, not required or
the information is included in the financial statements or notes thereto.
(b) Reports on Form 8-K:
On April 2, 1999, the Company filed a Current Report on Form 8-K,
reporting the following items:
(i) Item 2. Acquisition or Disposition of Assets
(ii) Item 7. Exhibits: Settlement Agreement by and Between Scantek
Medical, Inc. and HumaScan, Inc. dated as of the 11th day of March, 1999.
(c) The following Exhibit Index sets forth the applicable exhibits
(numbered in accordance with Item 601 of Regulation S-B) which are required to
be filed with this Annual Report on Form 10-KSB.
Exhibit
Number Title
- ------- -----
3.1 Certificate of Incorporation and Bylaws of the Registrant --
Incorporated by Reference to Exhibit 2.1 and 2.2 of the
Company's Report on Form 10-SB/A-1 dated September 17, 1996.
3.2 Amendment to the Certificate of Incorporation filed March 31,
1997 -- Incorporated by Reference to Exhibit 3.2 of the
Company's Report on Form 10-KSB for the year ended June 30,
1997.
10.1 Private Placement Memorandum dated May 17, 1994 --
Incorporated by Reference to Exhibit 3.1 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.2 Instrument defining shareholder rights regarding 18,000 shares
of the Company's Common Stock purchased on November 29, 1991
-- Incorporated by Reference to Exhibit 3.2 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.3 Instruments defining shareholder rights regarding 18,000
shares of the Company's Common Stock purchased between June
and August, 1993 -- Incorporated by Reference to Exhibit 3.3
of the Company's Report on Form 10-SB/A-1 dated September 17,
1996.
10.4 Agreement defining Bio-Life shareholders' rights
45
<PAGE>
Exhibit
Number Title
- ------- -----
regarding 35,000 shares of the Company's Common Stock --
Incorporated by Reference to Exhibit 3.4 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.5 Asset Transfer Agreement among SDSI (as SMC Acquisition
Corp.), Mr. Sagi and Scantek Medical Corp. dated August 12,
1991 -- Incorporated by Reference to Exhibit 6.1 of the
Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.6 Letter Agreement between SMC Corp. and Zigmed Corporation
dated January 8, 1991 ("Zigmed Agreement") -- Incorporated by
Reference to Exhibit 6.2 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
10.7 Amendment to Purchase Order Agreement dated August 28, 1996 -
Incorporated by Reference to Exhibit 10.7 of the Company's
Form 10-KSB for the year ended June 30, 1997.
10.8 Purchase Order between SMC Corp. and Zigmed Corp. dated
January 22, 1991 -- Incorporated by Reference to Exhibit 6.3
of the Company's Report on Form 10-SB/A-1 dated September 17,
1996.
10.9 Amendment to Purchase Order Agreement dated August 28, 1996 -
Incorporated by Reference to Exhibit 10.9 of the Company's
Form 10-KSB for the year ended June 30, 1997.
10.10 Non-Disclosure Agreement between SMC Corp. and Zigmed Corp.
dated January 7, 1990 -- Incorporated by Reference to Exhibit
6.4 of the Company's Report on Form 10-SB/A-1 dated September
17, 1996.
10.11 Escrow Agreement among SMC Corp., 361 Acquisition Corp. and
Chase Lincoln First Bank dated August 20, 1991 -- Incorporated
by Reference to Exhibit 6.5 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
10.12 Termination Agreement among Scantek Medical Corp., Mr. Sagi,
361 Acquisition Corp., Dal Brynelsen, Douglas E. McRae and
Scantek Medical Ltd. dated August 12, 1991 -- Incorporated by
Reference to Exhibit 6.6 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
10.13 361 Acquisition Agreement (Amendment No. 2) between SMC Corp.,
Mr. Sagi, 361 Acquisition Corp., Brynelsen, Scantek Medical
Ltd. and Scantek Medical, Inc. dated March 7, 1995 --
Incorporated by Reference to Exhibit 6.7 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.14 HumaScan Inc. Licensing Agreement between Scantek Medical,
Inc. and HumaScan, Inc. dated October 20, 1995
46
<PAGE>
Exhibit
Number Title
- ------- -----
-- Incorporated by Reference to Exhibit 6.8 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.15 Amendment to the HumaScan Inc. Licensing Agreement between
Scantek Medical, Inc. and HumaScan, Inc. dated April 29, 1996
-- Incorporated by Reference to Exhibit 6.9 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.16 Lease between Scantek Medical, Inc. and Kabert Realty
Corporation for Storage and Office Space -- Incorporated by
Reference to Exhibit 6.10 of the Company's Report on Form
10-SB/A-1 dated September 17, 1996.
10.17 Lease between Scantek Medical, Inc. and Carol Yang for Office
Space -- Incorporated by Reference to Exhibit 6.11 of the
Company's Report on Form 10-SB/A-1 dated September 17, 1996.
10.18 Lease between Scantek Medical, Inc. and Pablito, L.L.C. for
Warehouse and Office Space dated June 13, 1997 - Incorporated
by Reference to Exhibit 10.18 of the Company's Form 10-KSB for
the year ended June 30, 1997.
10.19 Letters of Employment for Mr. Zsigmond Sagi and Ms. Patricia
Furness dated February 26, 1993 -- Incorporated by Reference
to Exhibit 6.12 of the Company's Report on Form 10-SB/A-1
dated September 17, 1996.
10.20 Amendment to the HumaScan Inc. Licensing Agreement between
Scantek Medical, Inc. and HumaScan, Inc. dated May 31, 1996 --
Incorporated by Reference to Exhibit 6.13 of the Company's
Report on Form 10-SB/A-1 dated September 17, 1996.
10.21 Licensing Agreement with Health Technologies International
Inc. and Scantek Medical Inc. dated August 15, 1996 --
Incorporated by Reference to Exhibit 10.21 of the Company's
Form 10-KSB for the year ended June 30, 1997.
10.22 Amendment to Licensing Agreement dated August 15, 1996 between
Health Technologies International Inc. and Scantek Medical,
Inc. dated April 30, 1997 -- Incorporated by Reference to
Exhibit 10.22 of the Company's Form 10-KSB for the year ended
June 30, 1997.
10.23 Licensing Agreement with Scantek Medical, Inc. and Sandell
Corp. S.A. dated September 22, 1997 -- Incorporated by
Reference to Exhibit 10.23 of the
47
<PAGE>
Exhibit
Number Title
- ------- -----
Company's Form 10-KSB for the year ended June 30, 1997.
10.24 Amendment to Licensing Agreement between HumaScan, Inc. and
Scantek Medical Inc. dated May 15, 1998 -- Incorporated by
Reference to Exhibit 10.1 of the Company's Form 8-K filed May
27, 1998.
10.25 Amendment to Licensing Agreement with Scantek Medical, Inc.
and Sandell Corp. S.A. dated February 18, 1998 -- Incorporated
by Reference to Exhibit 10.25 of the Company's Form 10-KSB for
the year ended June 30, 1998.
10.26 Settlement Agreement between Scantek Medical, Inc and
HumaScan, Inc. dated March 11, 1999 -- Incorporated by
reference to Exhibit 10.1 of the Company's Form 8-K filed
April 2, 1999.
10.27 Amendment to Lease Agreement between Scantek Medical, Inc. and
Pablito, L.L.C. dated April 15, 1999
10.28 Distribution Agreement with Scantek Medical, Inc. and Nugard
HealthCare Ltd. dated July 14, 1999.
11 A statement regarding the computation of earnings per share is
omitted because such computation can be clearly determined
from the material contained in this Annual Report on Form
10-KSB.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
99.1 Reinstatement of Patent No. RE.4,624,264 United States,
Extension to November 25, 2003, dated August 12, 1997 --
Incorporated by reference of the Company's Form 10-KSB for the
year ended June 30, 1998.
SIGNATURES
Pursuant to the requirements 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.
SCANTEK MEDICAL INC.
By: /s/ ZSIGMOND L. SAGI
------------------------------------
Zsigmond L. Sagi, President
Date: October 12, 1999
48
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ ZSIGMOND L. SAGI
- -------------------------------------
Zsigmond L. Sagi
President, Chairman of the Board,
Chief Executive Officer
and Director
/s/ PATRICIA B. FURNESS
- -------------------------------------
Patricia B. Furness
Vice President, Corporate Secretary
and Director
/s/ KENNETH COUREY
- -------------------------------------
Kenneth Courey
Director
/s/ PAUL NELSON
- -------------------------------------
Paul Nelson
Director
/s/ MAURICE SIEGEL
- -------------------------------------
Maurice Siegel
Director
49
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement ("First Amendment") is entered into
on this 15th day of April, 1999 between PABLITO, L.L.C. ("Landlord") and SCANTEK
MEDICAL, INC. ("Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated June 15,
1997 (the "Lease"), which Lease remains in full force and effect and for which
Lease the parties wish to confirm certain facts; and
WHEREAS, Landlord and Tenant have agreed that the Demised Premises shall be
increased by approximately 6,000 square feet as described below; and
WHEREAS, Landlord and Tenant wish to amend the Lease in accordance with the
terms set forth below.
NOW, THEREFORE, Landlord and Tenant hereby amend the Lease as follows to be
effective as of May 1, 1999 (the "Effective Date"):
A. Section 1. Basic Lease Provisions is hereby deleted in its entirety and
the following is inserted in lieu thereof:
a. Address of Demised Premises: 3321 Palmer Road Denville, NJ
b. Approximate size of floor space of building within the Demised
Premise: 13,000 square feet
c. Term: Three (3) years
d. Commencement Date: June 15, 1997
e. Termination Date: June 14, 2000
f. Base Annual Rent: Year 1: $52,500 ($4,375/month)
Year 2: Through April 30, 1999: 54,250
(4,520.83/month); May 1, 1999 through
June 15,1999:$100,750($8,395.83 /month)
Year 3:$104,000 ($8,666.67/month)
g. Security Deposit: $11,625 New Sec. Dep. Due
h. Address for payment of rent and notices for the Tenant and
Landlord:
321 Palmer Road
Denville, NJ 07834
<PAGE>
i. Options to Extend Term: One three-year term
j. Tenant's Pro Rata Share: Sixty-five percent (65%)
B. SECTION 2. DEMISED PREMISES is hereby amended by deleting the reference
to Exhibit A and inserting, in lieu thereof, the reference to Exhibit A-1
annexed hereto. All references to Exhibit A and to the Demised Premises in the
Lease shall, from and after the Executive Date be the Demised Premises as
described in the First Amendment and as shown on Exhibit A-1 annexed hereto. The
additional portion of the Demised Premises described herein shall be delivered
to Tenant in its as is condition and Landlord shall not be required to perform
any tenant build-out or other work therein.
C. SECTION 5. RENT is hereby amended by deleting the reference to $162,750
in subsection a and by inserting, in lieu thereof, the sum of $216,562.50.
D. BROKER (?)
E. Tenant may at its sole cost and expense, connect the existing Demised
Premises with the additional portion of the Demised Premises described herein
via a doorway, provided that at Landlord's election, but at Tenant's sole cost
and expense, Tenant shall remove said door and shall reinstall the demising wall
to its current condition between such portions of the Demised Premises at the
termination of the Lease.
F. As a material inducement to Landlord to enter into this Amendment,
Tenant hereby irrevocably agrees that Landlord may install a Building addition
adjoining the Demised Premises and, in connection therewith, may eliminate all
of the windows in the Demised Premises on the side of such addition.
G. Tenant may occupy the additional portion of the Demised Premises between
the date hereof and the Effective Date without any charge for Base Annual Rate
during such time.
K. Tenant hereby acknowledges that the Landlord has performed all of its
obligations under the Lease to the date hereof except for punch list items and
that the Tenant has no cause of action or claim against Landlord whatsoever.
Tenant acknowledges that the Landlord is relying on the provisions of this
paragraph in agreeing to allow the Tenant to increase the size of the Demised
Premises a set forth herein.
L. All capitalized terms used herein which are not defined herein shall
have the meaning ascribed to such terms in the Lease.
J. In all other respects, the Lease remains in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment a of the
day and date set forth above.
LANDLORD:
PABLITO, L.L.C.
By: /s/ PAUL SCHREIBER
------------------------
PAUL SCHREIBER,
Manager
TENANT:
SCANTEK MEDICAL, INC.
By: /s/ Patricia B. Furness
----------------------
Name: Patricia B. Furness
Title: Vice President
4/10/98-As per agreement regarding security deposit, 1/2 is paid now for
$5,812.50 and the balance of $5,812.50 will be paid on May 1, 1999.
/s/ Patricia B. Furness
----------------------
EXCLUSIVE DISTRIBUTION AGREEMENT
BETWEEN
SCANTEK MEDICAL, INC.
AND
NUGARD HEALTHCARE, LTD.
THIS AGREEMENT is made as of the 14th day of JULY, 1999 by and between Scantek
Medical, Inc. a Delaware corporation (the "Manufacturer") having its principal
place of business at 321 Palmer Road, Denville, New Jersey 07834, and Nugard
HealthCare, Ltd, a Limited Liability corporation (the "Distributor") having its
principal place of business in Dublin, Ireland.
WHEREAS, the Manufacturer is the owner of certain technology which is the object
of Letters Patent of the United States which is described on Exhibit "A", which
is annexed hereto and made a part hereof. Said technology includes, but is not
limited to, certain technical trade secrets and business know-how (hereinafter
referred to jointly and severally as the "Technology"). In addition to patents
granted in the United States, the Technology has been granted patents which are
owned by the Manufacturer in countries other than the United States; and
WHEREAS, the Manufacturer is the owner of the trademark "BreastCare" which is
registered in the United States Patent Office which it has continued to use and
in which it has retained common law rights (the "Trademarks") (a copy of the
registration is annexed hereto as Exhibit "B" and made a part hereof and which
is used in connection with the Letters Patent for the Products)
WHEREAS, the Distributor is desirous of obtaining, for itself, an
exclusive right to distribute, directly or through sub-distributors, in the
Territory, as defined below, certain devices made with the Technology, which are
further described on Exhibit "C" which is annexed hereto and made a part hereof
(the "Products"); and
WHEREAS, the Manufacturer is willing to grant such rights to the
Distributor upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged,
IT IS AGREED:
1. Recitals Adopted. The parties hereby adopt as part of this Agreement each of
the recitals which are contained above in the WHEREAS clauses, and agree that
such recitals shall be binding upon the parties hereto by way of contract and
not merely by way of recital or inducement; and such
1
<PAGE>
clauses are hereby confirmed and ratified as being accurate by each party as to
itself.
2. Certain Definitions
The following terms as used in this Agreement shall, unless clearly
indicated otherwise, have the following meanings:
A. "Contract Year" shall mean the twelve (12) month period commencing
upon the date which appears on page "1" of this Agreement. Each subsequent
Contract Year shall commence upon the anniversary date of this Agreement.
B. "Dollars" shall mean United States Dollars.
C. "Minimum Product Purchases" shall mean the minimum purchases of
Products specified on Exhibit "D" which is annexed hereto and made a part hereof
D. "Net Sales" shall mean the gross amount invoiced for the Products
less duties, taxes and other governmental charges.
E. "Products" shall mean the Breast Thermal Activity Indicator ("BTAI")
devices which are described on Exhibit "C", which is annexed hereto and made a
part hereof, which are also registered under the Trademarks "BreastCare", and
all improvements thereto to be marketed by the Distributor in the Territory
(hereinafter defined).
F. "Technical Information and Know-How" or "Intellectual Property" shall
mean all information belonging to the Manufacturer or in the Manufacturer's
possession which is necessary for the assembly, marketing and use of the
Products including, inter alia, written assembly directions, quality control
specifications and procedures used in connection therewith and information and
data with respect to the use of the Technology and the Products, and also
information utilized by the Manufacturer in obtaining governmental approvals for
the sale of the Products.
G. "Territory" shall mean the geographic area listed on Exhibit "E"
which is annexed hereto and made a part hereof If the Territory is decreased
pursuant to the provisions of Article "8". of this Agreement, then the Territory
shall mean such decreased geographic area.
H. "Wholesale Price" shall mean the price set forth in Paragraph "C" of
Article "9"of this Agreement.
3. Exclusive Agreement
A. Subject to the Distributor's compliance with the terms hereof, the
Manufacturer hereby grants to the Distributor during the term hereof, a
non-assignable, indivisible, non-transferrable exclusive right to distribute and
sell the Products within, and only within, the Territory. However, the
Distributor shall have right to retain and utilize subdistributors, subject to
the prior written consent of the Manufacturer which shall be given in its sole
and absolute discretion (hereinafter
2
<PAGE>
referred to as an "Acceptable Subdistributor"). The Manufacturer may reject any
subdistributor in its sole and absolute discretion.
B. The Distributor shall purchase the Products solely from the
Manufacturer. The Distributor shall purchase not less than the Minimum Product
Purchases.
C. All manufacturing of the Products shall be the responsibility and
under control of the Manufacturer. The Distributor shall not attempt, directly
or indirectly, to compete with the Manufacturer in manufacturing the Products.
D. This Agreement shall not be construed as a license by implication or
otherwise under any patent and trademark applications or patents owned by the
Manufacturer or under which the Manufacturer has or acquires the right to grant
licenses, except as otherwise specifically set forth.
4. Representations. Warranties and Covenants.
The Manufacturer represents, warrants, and covenants to the Distributor
that:
(i) The Manufacturer is a corporation duly authorized, validly existing and
in good standing under the laws of the State of Delaware with all the requisite
power and authority to carry on its businesses presently conducted in all
jurisdictions where presently conducted.
(ii) The Manufacturer has the full right, power and legal capacity to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution of this Agreement by the Manufacturer, and its delivery to the
Distributor, and the consummation by it of the transactions contemplated hereby
have been duly approved and authorized by all necessary action of the
Manufacturer's Board of Directors, and no further authorization shall be
necessary on the part of the Manufacturer for the performance and consummation
by the Manufacturer of the transactions contemplated hereby. A copy of the
minutes of said action of the Board of Directors is annexed hereto as Exhibit
"F"'.
(iii) The business and operations of the Manufacturer have been and are
being conducted in accordance with all applicable laws, rules, and regulations
of all authorities which affect the Manufacturer or its properties, assets,
businesses or prospects. The performance of this Agreement shall not result in
any breach of, or constitute a default under, or result in the imposition of any
lien or encumbrance upon any property of the Manufacturer or cause an
acceleration under any arrangement, agreement or other instrument to which the
Manufacturer is a party or by which any of its assets are bound. The
Manufacturer has performed all of its obligations which are required to be
performed by it pursuant to the terms of any such agreement, contract, or
commitment.
(iv) The Manufacturer does not know or have any reason to believe that any
Product or any of the Intellectual Property infringes on any trademark, trade
name, servicemark, copyright or patent or any trade secret or other proprietary
right of any other person. The
3
<PAGE>
Manufacturer is the sole and exclusive owner of the Intellectual Property and
has the sole and exclusive right to license the use thereof to the Distributor.
The Manufacturer does not know or have any reason to believe that there are any
claims of any third parties with respect to the use of any of the Intellectual
Property within the Territory.
(v) The Manufacturer has not granted and will not grant, directly or
indirectly, to any other person any right to use any right or license to use any
Intellectual Property within the Territory.
(vi) The Manufacturer has not granted and will not, during the term of this
Agreement, grant, directly or indirectly, to any person any right (whether
current, future, contingent or otherwise) to sell the Products in or into the
Territory.
(vii) No representation or warranty of the Manufacturer which is contained
in this Agreement or in a writing furnished or to be furnished pursuant to this
Agreement contains or shall contain any untrue statement of a material fact,
omits or shall omit to state any material fact which is required to make the
statements which are contained herein or therein, not misleading.
(viii) It shall not be a defense to a suit for damages for any
misrepresentation or breach of covenant or warranty that the Distributor knew or
had reason to know that any covenant, representation or warranty in this
Agreement or furnished or to be furnished to the Distributor contained untrue
statements.
B. The Distributor represents, warrants and covenants to Manufacturer as
follows:
(i) The Distributor is a corporation duly authorized, validly existing and
in good standing under the laws of Ireland with all the requisite power and
authority to carry on its businesses presently conducted in all jurisdictions
where presently conducted.
(ii) The Distributor has the full right, power and legal capacity to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution of this Agreement by the Distributor, and its delivery to the
Manufacturer, and the consummation by it of the transactions contemplated hereby
have been duly approved and authorized by all necessary action of the
Distributor's Board of Directors, and no further authorization shall be
necessary on the part of the Distributor for the performance and consummation by
the Distributor of the transactions contemplated hereby. A copy of the minutes
of said action by the Board of Directors is annexed hereto as Exhibit "G". The
execution, delivery and performance of this Agreement in accordance with its
terms does not and will not require approval, consent or authorization of any
governmental agency or authority including, but not limited to, any governmental
agency or authority of Ireland and/or the United Kingdom or any political
subdivision thereof
(iii) The business and operations of the Distributor have been and are
being
4
<PAGE>
conducted in accordance with all applicable laws, rules, and regulations of all
authorities which affect the Distributor or its properties, assets, businesses
or prospects. The performance of this Agreement shall not result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any property of the Distributor or cause an acceleration under
any arrangement, agreement or other instrument to which the Distributor is a
party or by which any of its assets are bound. The Distributor has performed all
of its obligations which are required to be performed by it pursuant to the
terms of any such agreement contract, or commitment.
(iv) No representation or warranty of the Distributor which is contained in
this Agreement or in a writing finished or to be furnished pursuant to this
Agreement contains or shall contain any untrue statement of a material fact,
omits or shall omit to state any material fact which is required to make the
statements which are contained herein or therein, not misleading.
(v) The Distributor will not grant, directly or indirectly, to any other
person other than an Acceptable Subdistributor any right to use any right or
license to use any Intellectual Property within the Territory.
(vi) The Distributor has the distributing capacity and the financial
resources to satisfy the Minimum Product Purchases requirements as specified on
Exhibit "D" on a timely basis.
(vii) It shall not be a defense to a suit for damages for any
misrepresentation or breach of covenant or warranty that the Manufacturer knew
or had reason to know that any covenant, representation or warranty in this
Agreement or furnished or to be furnished to the Manufacturer contained untrue
statements.
5. Stock Ownership, Initial Fee
A. In addition to any other fees specified in this Agreement, and solely as
consideration for the Manufacturer's entry into this Agreement, the Distributor
shall pay to the Manufacturer a non-refundable fee of fifteen (15%) percent of
the fully diluted, total issued and outstanding common shares of the Distributor
and Three Hundred Fifty Thousand (US $350,000) to be paid in installments as
follows:
1. Forty-Five Thousand (US $45,000) Dollars upon the execution of this
Agreement;
2. Two Thousand (US$2,000) Dollars per month for 12 months, which 12 month
term will commence one (1) month after the signing of the Agreement.
3. Sixty Nine Thousand (US$69,000) Dollars on the first anniversary of
signing.
4. The balance of Two Hundred Fifty Thousand (US$250,000) is to be paid
over 2 years and 2 months, as follows:
US$3,000 for next 6 months = $18,000
US$7,000 for next 6 months = $42,000
US$l0,000 for next 7 months = $70,000
5
<PAGE>
US$20,000 for next 7 months = $120,000
5. Fifteen (15%) percent of fully diluted, total issued and outstanding
common shares upon execution of this Agreement.
B. Fifteen (15%) percent of the equity of the Distributor which is owned by
the Manufacturer pursuant to this Agreement shall not be diluted for any reason
whatsoever. If there is any such dilution, the Manufacturer, in its sole and
absolute discretion, may terminate this Agreement. Such termination shall be in
addition to the Manufacturer's other remedies pursuant to this Agreement or
otherwise and shall not be construed to be a waiver of any other right or
remedies which the Manufacturer may have for damages or otherwise.
C. The Distributor agrees to limit membership on its Board of Directors to
five (5) members of which the Manufacturer shall have the right to designate up
to one (1) Director. The Distributor represents and warrants to the Manufacturer
that it has an agreement with its shareholders that they will vote for the one
(1) Director designated by the Manufacturer.
6. Record Keeping, Reports
A. Not later than thirty (30) days after the end of each quarter, the
Distributor shall furnish the Manufacturer with a detailed statement, certified
to be true and correct by both its president and treasurer, respectively, or
another executive officer, (provided, however that the president and the
treasurer or such other executive officer shall not be the same individual)
showing all sales of the Products made in the Territory during such quarter, any
trade discounts and allowances, and all credits for returned Products and other
similar adjustments together with copies of documents which support the detailed
statement.
B. The Distributor shall maintain true, complete, and correct books of
account and records of all transactions within the scope of this Agreement, in
accordance with generally accepted accounting principles, to enable the
Manufacturer to ascertain all amounts purchased pursuant to this Agreement. The
Manufacturer and/or its duly authorized representatives shall have the right,
during regular business hours, for the duration of this Agreement and for three
(3) years thereafter, to examine said books of account and records and all other
documents (including but not limited to sales invoices) and material in the
possession or under the control of the Distributor with respect to the subject
matter and the terms of this Agreement; and the Manufacturer shall have free and
full access thereto for said purposes and for the purpose of making extracts
therefrom. The Manufacturer will have the right at such inspection to examine
all information pertinent to this Agreement dating from its execution. All such
books and records shall be kept available by the Distributor for at least three
(3) years after the termination of this Agreement. If, upon audit, it is
revealed that there is due and owing by the
6
<PAGE>
Distributor an amount which exceeds the amount which was paid to the
Manufacturer with respect to any Contract Year by two (2) percent or more, the
cost of the audit shall be borne by the Distributor.
7. Advertising, Marketing and Sales
A. During each Contract Year, the Distributor shall have sufficient
quality personnel and capital resources to effect not less than the Minimum
Product Purchases of the Product. The Distributor shall provide the Manufacturer
with a complete list of the Distributor's personnel records for the Territory
for each calendar quarter.
B. The Distributor shall also provide to the Manufacturer a letter of
financial security prepared by a Certified Public Accountant that shall attest,
in writing, that the Distributor is a going concern and not the subject of any
proceeding that would jeopardize its financial stability.
C. The Distributor has the responsibility to provide for all marketing
materials to enable its sales personnel to function properly. The Manufacturer
shall have no obligation to incur any expense with respect to the Distributor's
advertising or marketing, except for the provision of generic marketing
materials and 100 samples of product.
D. The Distributor will spend $20,000 during each of the initial six (6)
months of this Agreement for advertising. Thereafter, the Distributor will spend
for advertising the Products during each calendar quarter a minimum of five (5%)
percent of the Net Sales, from Products sold in the Territory during the prior
calendar quarter during the Term (hereinafter defined).
8. Contract Term
Subject to the provisions of Article "12" of this Agreement, the term of
this Agreement shall be fourteen (14) years (the "Term").
9. Payment; Terms
A. The Distributor shall pay the Wholesale Price with respect to
Products delivered to the Distributor or, at the Distributor's request, to the
Distributor's customers, within thirty (30) days after the shipment of such
Products.
B. Unless otherwise agreed in writing, the Products shall be shipped
F.O.B. the Manufacturer's (or its subcontractors) place of business. The
Distributor shall be responsible for risk of loss, customs clearing, and
transportation. The Distributor acknowledges that it is responsible for the cost
of shipment and insurance of all units purchased once they are delivered to the
F.O.B. point. Title to all products shall pass to the Distributor upon shipping
F.O.B.
C. The Distributor shall pay to the Manufacturer the Wholesale Price
with respect to each Product purchased by the Distributor as hereinafter set
forth in this Paragraph "C" of this Article "9" of this Agreement. The initial
price per Product shall be equal to $10.00. The $10.00 selling price will be
adjusted increased on each successive January 1st, commencing January 1, 2000,
by
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an amount which is equal to the increase in the cost of living (hereinafter
referred to as the "COL Index") from the average for the year of January 1, 1998
through December 31, 1998 (hereinafter referred to as the "COL Year") to the
average for the twelve (12) month period immediately preceding the first day of
the year in which such Wholesale Price shall be payable (each such year is
hereinafter referred to as the "Determination Year"). In order to determine the
average for the COL Year or for the Determination Year, the cost of living for
each of the twelve months in the COL Year or in the Determination Year, as the
case may be, shall be added and the resultant figure shall be divided by 12. All
cost of living computations shall be based upon the Consumer Price Index for all
Urban Consumers for New York, Northeast New Jersey for "all items" of the Bureau
of Labor Statistics of the United States Department of Labor (hereinafter
referred to as the "Index"), or if, at the time a determination must be made,
the Index is no longer published or issued, such other index as is generally
recognized and accepted for similar determinations. The amount of the increase
shall be computed by multiplying ten ($10) dollars by a fraction, the numerator
of which is the average cost of living for the Determination Year and the
denominator of which is the average cost of living for the COL Year. By way of
illustration, assume the following: (i) the average cost of living for the COL
Year is One Hundred ($100) Dollars, (ii) the average cost of living for the
Determination Year of January 1, 2001 through December 31, 2001 is One Hundred
Ten ($110) Dollars, In this example, the price per Product which shall be
payable for the year of January 1, 2002 through December 31, 2002 shall be
Eleven ($11) Dollars, which is the amount arrived at by multiplying Ten ($ 10)
Dollars by One Hundred Ten (110%) (the increase in the average cost of living
from the COL Year, or One Hundred ($100) Dollars, to the Determination Year or
One Hundred Ten ($110) Dollars).
D. Notwithstanding the foregoing, the Manufacturer agrees that if the
Distributor enters into an agreement with a Government Agency concerning a
particular screening programme, the Manufacturer will allow a price break on the
cost of the Products sold to such Government Agency of up to 20%, subject to
minimum purchase orders of 2,500 products per month.
10. Warranty; Quality Control; Returns
A. All Products delivered to the Distributor pursuant to this Agreement
shall be of good and merchantable quality, free from defects in material and
workmanship and reasonably fit for their intended purpose.
B. THE MANUFACTURER HEREBY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES AND
GUARANTIES WITH RESPECT TO THE PRODUCTS PURCHASED HEREUNDER, WHETHER WRITTEN,
ORAL, IMPLIED OR INFERRED BY TRADE, CUSTOM OR PRACTICE, INCLUDING, WITHOUT
LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, EXCEPT AS PROVIDED IN PARAGRAPH "A" IN THIS ARTICLE "10" OF THIS
AGREEMENT. THE MANUFACTURER SHALL NOT BE LIABLE UNDER ANY CIRCUMSTANCES FOR
DAMAGES OF ANY KIND, WHETHER DIRECT, CONSEQUENTIAL OR OTHERWISE RELATING TO THE
PERFORMANCE OF ANY PRODUCTS OR BY ANY FAILURE OF THE MANUFACTURER. IN NO EVENT
SHALL THE MANUFACTURER'S LIABILITY PURSUANT TO THIS AGREEMENT EXCEED THE
PURCHASE PRICE FOR THE PRODUCTS PURCHASED HEREUNDER.
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C. The Distributor shall inspect the Products within thirty (30) days after
receipt of the Products by either the Distributor or any of its subdistributors.
If the Distributor, prior to the expiration of such thirty (30) day period
rejects any of the Products which do not conform to any agreed upon
specifications, the Manufacturer may substitute a like quantity of conforming
Products. The Distributor may reject any shipment of non-conforming units of the
Product only within thirty (30) days after receipt by the Distributor or its
agents, by notice to Manufacturer, pursuant to Paragraph "C" of Article "22",
stating the reason for rejection with specificity. Failure to timely reject or
give proper notice of rejection shall be deemed to constitute acceptance of such
shipment. Properly rejected Products shall, in the Manufacturer's sole and
absolute discretion, to be exercised by written notice pursuant to Paragraph "C"
of Article "22" either (i) be returned to the Manufacture at the Manufacturer's
expense or (ii) be destroyed.
D. If any shipping date is specified, such date represents a good faith
estimate by the Manufacturer. In no event shall the Manufacturer be responsible
for a delay in shipment or for damages or losses attributable to any such delay.
E. If the Distributor does not pay the full amount of the Wholesale Price
and other amounts specified in this Agreement as and when due, then, in addition
to its other rights or remedies hereunder, and under applicable law, the
Manufacturer may, in its sole and absolute discretion, by written notice
pursuant to Paragraph "C" of Article "22" of this Agreement terminate this
Agreement, without liability to the Distributor by the Manufacturer, and without
discharge or mitigation of any of the Distributor's obligations pursuant to this
Agreement.
F. The Distributor may not cancel or assign any order given to the
Manufacturer without the prior written consent of the Manufacturer, which the
Manufacturer may withhold in its sole and absolute discretion.
G. Non delivery or default by the Manufacturer as to any shipment shall not
be deemed a breach of this Agreement except as to such installment. Such non
delivery or default shall not relieve the Distributor from its obligation to
accept and pay for any subsequent or prior installment, regardless of whether
such non delivery substantially impairs the value of this Agreement.
11. Force Majeure
The Manufacturer shall not be responsible for failure or delay in
performing any of its obligations under this Agreement due to causes beyond its
control, including, but not limited to, fire, storm, flood, earthquake,
explosion, accident, acts of a public enemy, war, rebellion, insurrection,
sabotage, terrorism, epidemic, quarantine restrictions, labor disputes or
controversies, labor shortages, transportation embargoes or failures or delays
in transportation, fuel or energy shortages, power interruptions or failures,
acts of God, acts, rules, regulations, orders or directives of any government or
any political subdivision, agency or instrumentality thereof, or the order of
any court or regulatory or arbitral body of competent jurisdiction, including,
but not limited to, any injunction entered against the Manufacturer or its
suppliers enjoining it or them from manufacturing, selling or distributing the
Products.
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<PAGE>
12. Termination
A. Anything in this Agreement notwithstanding; the Manufacturer shall have
the right to terminate this Agreement upon if the Distributor shall at any time
default in the performance of any of its obligations under, or otherwise commit
any material breach of, this Agreement; including but not limited to; diluting
the Manufacturer's 15% interest in the Distributor, failing to pay the full
amount due to the Manufacturer pursuant to this Agreement or any attempted
assignment to transfer in violation of Paragraph "K" of Article "22" of this
Agreement, unless within ten (10) calendar days after receipt of written notice
of such default in accordance with Paragraph "C" of Article "22" of this
Agreement the Distributor cures such default or, if there is a default which
cannot, with due diligence, be cured within ten (10) calendar days, the
Distributor institutes within ten (10) calendar days steps reasonably necessary
to remedy the default and thereafter diligently prosecutes same to completion.
B. The Manufacturer shall have the right to terminate this Agreement
without prior notice to the Distributor if:
(i) If any representation or warranty of the Distributor contained in this
Agreement is determined to have been untrue when made.
(ii) the Distributor files a petition for protection as a debtor under the
bankruptcy laws;
(iii) the Distributor makes a general assignment for the benefit of its
creditors;
(iv) the Distributor consents to the appointment of, or possession by, a
custodian for the whole or any substantial part of its property; or
(v) the Distributor, on a petition by a third party to subject Distributor
as a debtor to the bankruptcy laws which is filed without its consent, fails to
have such petition dismissed within sixty (60) days from the date that such
petition is filed.
C. If the Distributor fails to achieve the Minimum Product Purchases set
forth on Exhibit "C", the Manufacturer may, in its sole and absolute discretion,
to be exercised by written notice pursuant to Paragraph "C" of Article "22" of
this Agreement to the Distributor, either terminate this Agreement or, upon
three (3) days prior written notice, decrease the Territory.
D. The exercise by the Manufacturer of any of its rights pursuant to this
Article "12" of this Agreement shall not be construed to be a waiver of any
other rights or remedies which the Manufacturer may have for damages or
otherwise and shall not prejudice the right of the Manufacturer to any monies
due hereunder.
13. Effect of Termination
The termination of this Agreement for any reason shall not release any
party from any liability, obligation or agreement that, pursuant to any
provision of this Agreement, is intended to survive or be performed after the
termination hereof. The right of the Manufacturer to terminate this Agreement
pursuant to Article "12" of this Agreement or otherwise shall be in addition to
and not exclusive of any other right or remedy that may exist at law, equity, or
otherwise, that the Manufacturer may possess under this Agreement, all of which
rights and remedies shall survive such termination.
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14. Necessary Documents
The Distributor shall furnish to the Manufacturer, or to its nominees and
patent attorneys, all information and documents regarding any inventions or
improvements developed by the Distributor, including the apparatus, processes,
and formulas with respect thereto, in order to enable the Manufacturer to
utilize such inventions or improvements and to enable the Manufacturer and its
attorneys and/or agents to prepare and prosecute Patent applications therefor,
with respect to any and all inventions and improvements developed by the
Distributor with the understanding that, if so requested by the Manufacturer,
the Distributor's patent attorneys shall collaborate with such Patent attorneys
as the Manufacturer may designate.
15. Ownership of Patents
All Patents shall be the exclusive property of the Manufacturer. No
additional patents covering any technology developed by Manufacturer or the
Distributor which uses the Manufacturer's technology as a starting point, shall
be applied for by the Distributor.
16. New Inventions / Test Results
If during the term of this Agreement the Distributor makes any improvements
in the Product, the Technical Information or Know-How or the Technology or the
mode using them, or becomes the owner of any such improvements either through
Patents or otherwise, then it shall and hereby does assign such improvements to
the Manufacturer (without cost to the Manufacturer) which shall give the
Manufacturer full information regarding the mode of using them. However, during
the Term of this Agreement, the Distributor shall be entitled to use the same
with all rights which are hereby granted to the Distributor in respect to the
Technology and the Technical Information. The Distributor shall also provide the
Manufacturer with any and all test results arising from tests of any Product as
soon as such results are available.
17. Uses of Intellectual Property, Technical Information and Know-How
A. PATENTS. The Distributor may, only with the express written consent of
the Manufacturer and at its own expense, apply for patents in any country on any
discovery or invention which Distributor or its employees shall have obtained
prior to the termination of this Agreement with respect to the Technology,
Technical Information, Intellectual Property or Products, notifying Manufacturer
of its intention, keeping Manufacturer currently informed of its activities with
respect thereto, and providing Manufacturer with copies of patent applications
and amendments thereto, patent office communications, and other relevant papers.
All such patent applications or issued patents shall be assigned to the
Manufacturer without cost to the Manufacturer.
B. TRADEMARKS. During the term hereof, the Manufacturer, through its
designated representative or representatives, grants to the Distributor the
right to affix, without charge to the Distributor, the Trademarks set forth on
Exhibit "B" (the "Trademarks") which is owned by the Manufacturer as marks of
certification to Products distributed in the Territory by the Distributor though
the operations, practices, agreements, and processes which are the subject of
this Agreement, provided:
(i) all labels, advertising, and packaging for the Products by the
Distributor must conform to the specifications of the Manufacturer.
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<PAGE>
(ii) Whenever the Distributor uses the Trademarks in advertising or in any
other manner in connection with the sale and distribution of the Products, the
Distributor shall indicate clearly the Manufacturer's ownership of the
Trademarks. The Distributor agrees to affix to each Product and to the package
containing each Product and any papers inserted in the Package a notice stating
"Licensed under United States Patent No.___ ". The Distributor shall provide the
Manufacturer with samples of all literature, packages, labels, labeling and
advertising prepared by or for the Distributor and intended to be used by the
Distributor. When using the Trademarks, the Distributor undertakes to comply
with all trademark laws, including, but not limited to, compliance with marking
requirements.
(iii) If required, the Manufacturer shall make application to register the
Distributor as a Permitted User or Registered User of the Trademarks and if
necessary or if requested by the Manufacturer, the Distributor undertakes to
join in such application and to execute any such documents and to take such
action as may be necessary or requested by the Distributor to implement such
application or retain, enforce or defend the Trademarks.
(iv) The Distributor acknowledges the Manufacturer's exclusive right, title
and interest in and to the Trademarks and will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to impair
any part of such right, title and interest. The Distributor shall not in any
manner represent that it has any ownership in the Trademarks or registration
thereof, and the Distributor acknowledges that use of the Trademarks shall not
create in the Distributor's favor any right, title or interest in or to the
Trademarks, but all uses of the Trademarks by the Distributor hereto shall inure
to the benefit of the Manufacturer.
C. The Distributor agrees to provide any improvements to the Technology,
Technical Information, Intellectual Property or Products which are developed by
Distributor during the Term to the Manufacturer, without cost.
D. The Manufacturer hereby grants in the Territory to Distributor a license
pursuant to the terms and conditions of this Agreement, during the Term, to use,
in connection with the sale, marketing, and distribution of the Products the
Intellectual Property, and all applications therefore now or hereafter owned by
Manufacturer including but not limited to, those trademarks, trade names,
service marks, copyrights and patents now owned or hereafter acquired by
Manufacturer. Distributor's rights hereunder include, but are not limited to,
the right to use the Intellectual Property and to make appropriate reference
thereto on or in connection with the Products and any and all packaging
materials, print advertisement, pamphlets, brochures, displays, letterhead or
other sales, marketing and distribution materials used in connection with the
Products. No right or license is granted to the Distributor to make,
manufacture, or assemble any of the Products or to use any Technology, Technical
Information and/or Intellectual Property in connection with any manufacturing
process, in either case whether within or outside the Territory. The Distributor
shall use the Trademark only with Products manufactured by the Manufacturer.
E. Nothing contained in this Agreement shall be construed as conferring
upon the Distributor or any of its subdistributors or customers, directly or by
implication, estoppel or otherwise, any license under any trade secrets or
know-how of the Manufacturer, and no such license or other rights shall arise
from this Agreement or from any acts, statements or dealings resulting in or
relating to this Agreement.
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<PAGE>
F. No representation or warranty has been or is made by the Manufacturer
that the Letter Patent or Trademark, or part or subdivisions thereof may be
manufactured, used, sold, or leased free of infringement of patent or trademark
or other proprietary rights of others
G. The Manufacturer assumes no liability to the Distributor or to third
parties with respect to the performance characteristics of any Products sold by
the Distributor or its subdistributors.
H. The Distributor acknowledges the Manufacturer's exclusive right, title
and interest in and to the Technology, Technical Information, Intellectual
Property and Trademark and will not at any time do or cause to be done any act
or thing contesting or in any way impairing or tending to impair any part of
such right, title and interest. The Distributor shall not in any manner
represent that it has any ownership in the Technology, Technical Information,
Intellectual Property, and Trademark or registration thereof, and the
Distributor acknowledges that use of the Technology, Technical Information,
Intellectual Property, and Trademark shall not create in the Distributor's favor
any right, title or interest in or to the Technology, Technical Information,
Intellectual Property and Trademark, but all uses of the Technology, Technical
Information, Intellectual Property or Trademark by the Distributor shall inure
to the benefit of the Manufacturer.
I. If the applicable Intellectual Property law requires, Manufacturer shall
make application to register the Distributor as a Permitted User or Registered
User of the Intellectual Property and if necessary, the Distributor undertakes
to join in such application and to execute any such documents and to take such
action as may be necessary to implement such application.
K. Whenever the Distributor utilizes the Intellectual Property in
advertising or in any manner in connection with the Products which it sells or
distributes, the Distributor shall indicate the Manufacturer's ownership of the
Intellectual Property. The Distributor shall provide the Manufacturer with
representative samples (the "Samples") of all literature, packages, labels
labeling and advertising prepared by or for the Distributor and intended to be
utilized by the Distributor. The Distributor shall only utilize such material if
approved in writing by the Manufacturer in advance. When utilizing the
Technology, Technical Information, Intellectual Property, and Trademark the
Distributor agrees to comply with all laws pertaining to any of the Technology,
Technical Information, Intellectual Property or Trademark in force at any time
in the Territory, including, but not limited to, compliance with marking
requirements.
L. The Distributor acknowledges that the use of the Intellectual Property
shall not create in the Distributor any right, title or interest in or to the
Intellectual Property other than as expressly provided in this Agreement.
M. Upon termination of this Agreement in any manner as provided in this
Agreement, the Distributor shall cease and desist from all use of the
Intellectual Property in any manner.
18. Nondisclosure
A. Confidential Information
(i) Distributor acknowledges that Manufacturer has made available to
Distributor relevant Technical Information and Know-How relating to the Products
in order to allow the
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Distributor to effectively promote the Products. Nothing, contained in this
Agreement shall be construed to require Manufacturer to disclose to Distributor
any information which Manufacturer shall have acquired from others if the
disclosure thereof to Distributor would breach any of the then existing
obligations of Manufacturer.
(ii) As used in this Agreement, "Confidential Information" means
information which is presented to the Distributor by the Manufacturer or
developed, conceived or created by the Manufacturer, or disclosed to the
Distributor or known by or conceived or created by the Distributor during the
Term of this Agreement, with respect to the Manufacturer, its business or any of
its Products, processes, and other services relating thereto relating to the
past, present or future business of the Manufacturer or any plans therefore, or
relating to the past, present or future business of a third party or plans
therefore which are disclosed to the Distributor. Confidential Information
includes, but is not limited to, all documentation, hardware and software
relating thereto, and information and data in written, graphic and/or machine
readable form, Products, processes and services, whether or not patentable,
trademarkable or copyrightable or otherwise protestable, including, but not
limited to, information with respect to discoveries; know-how; ideas; computer
programs, source codes and object codes; designs; algorithms; processes and
structures; product information; marketing information; price list; cost
information; product contents and formulae; manufacturing and production
techniques and methods; research and development information; lists of clients
and vendors and other information relating thereto; financial data and
information; business plans and processes; documentation with respect to any of
the foregoing; and any other information of the Manufacturer that the
Manufacturer informs the Distributor or the Distributor should know, by virtue
of its position or the circumstances in which the Distributor learned such other
information, is to be kept confidential including, but not limited to, any
information required by the Distributor from any sources prior to the
commencement of the term of this Agreement. Confidential Information also
includes similar information obtained by the Distributor in confidence from its
vendors, licensors, licensees, customers and/or clients. Confidential
Information may or may not be labeled as confidential.
(iii) Except as required in the performance of the Distributor's duties
hereunder, the Distributor will not, during or after the term of this Agreement
directly or indirectly, use any Confidential Information or disseminate or
disclose any Confidential Information to any person, firm, corporation,
association or other entity. The Distributor shall take all reasonable measures
to protect Confidential Information from any accidental, unauthorized or
premature use, disclosure or destruction. The foregoing prohibition shall not
apply to any Confidential Information which: (a) becomes publicly available
through no act or omission of the Distributor, (b) is disclosed as reasonably
required in a proceeding to enforce the Distributor's rights under this
Agreement or (c) is disclosed as required by the order of a Court having
jurisdiction over the Distributor; provided, however, that if the Distributor
fails to give the Manufacturer immediate notice of any such court order, the
Distributor shall be deemed to have breached its obligations hereunder and shall
be liable to the Manufacturer for any all damages to the Manufacturer as a
result of any such disclosure pursuant to a court order.
(iv) Upon termination of this Agreement for any reason or at any time upon
request of the Manufacturer, the Distributor agrees to deliver to the
Manufacturer all materials of any nature which are in the Distributor's
possession or control and which are or contain Confidential
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<PAGE>
Information, Work Product or Work Products (hereinafter defined), or which are
otherwise the property of the Manufacturer or any vendor, licensor, licensee,
customer or client of the Manufacturer, including, but not limited to writings,
designs, documents, records, data, memoranda, tapes and disks containing
software, computer source code listings, routines, file layouts, record layouts,
system design information, models, manuals, documentation and notes.
(v) All ideas, inventions, discoveries, intellectual property, or
improvements, whether patentable or not, conceived by the Distributor (alone or
with others) during the term of this Agreement ("Work Products") shall be the
exclusive property of and assigned to the Manufacturer or as the Manufacturer
may direct without compensation to the Distributor. Any records with respect to
the foregoing shall be the sole and exclusive property of the Manufacturer and
the Distributor shall surrender possession of such records to the Manufacturer
upon the termination of this Agreement. Any Work Product shall be deemed
incorporated in the definition of Confidential Information for all purposes
hereunder.
(vi) The Distributor will not assert any rights with respect to the
Manufacturer, its business, or any of its Products, processes and other services
relating thereto, Work Product or any Confidential Information as having been
acquired or known by the Distributor prior to the commencement of this
Agreement.
(vii) All employees and agents of Distributor who shall be given
access to Confidential Information shall execute a Non-Disclosure and Assignment
Agreement in form acceptable to Manufacturer.
(viii) The obligation of confidentiality will not be understood as
non-compliance when a subdistributor is appointed and provided with the
corresponding information for the selling of the Products provided that such
subdistributor shall execute a Non-Disclosure and Assignment Agreement in form
acceptable to Manufacturer.
19. Protection of Intellectual Property; Indemnification; Defense; Products
Liability
A. If Distributor learns of any infringement of any Intellectual Property
or imitation or counterfeiting of any Product, Distributor shall promptly notify
Manufacturer of such information. Upon learning of such information the
Manufacturer shall take such action as it deems advisable in its sole and
absolute discretion for the protection of the Intellectual Property.
B. In order to induce the Manufacturer to enter into this Agreement,
Distributor agrees that neither the Distributor, nor any of its
sub-distributors, its shareholders, officers, directors or principals (with the
exception of the Manufacturer), will not during the term of this Agreement or,
for a period of five (5) years from the date of termination hereof, manufacture
Products or sell or market any competing product, or directly or indirectly own,
manage, operation of control of or be connected as an officer, director,
shareholder, partner, consultant, owner, employee, agent, lender, donor, vendor
or otherwise, or have any financial interest in or aid or assist anyone else in
the conduct of any competing entity which manufactures, distributes or offers
for sale goods similar to the Products to any competing entity. Distributor, and
its shareholders, officers, directors and principals further agree that they
will not for a period of five (5) years from the date of termination hereof. (i)
personally, or cause others to
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<PAGE>
personally induce or attempt to induce any employee to terminate their
employment with the Manufacturer; (ii) interfere with or disrupt the
Manufacturer's relationship with its suppliers, vendors, customers or employees;
or (iii) solicit or entice any person to leave their employ with the
Manufacturer. For the purposes herewith, the term "competing entity" shall mean
any business or enterprise of any and every kind whatsoever which is engaged in
the manufacture, distribution or sale of goods similar or having a similar
purpose to the Products, anywhere in the world; provided, however, that
ownership of one (1%) percent or less of any class of outstanding securities of
a company whose securities are fisted on a national securities exchange or which
has not fewer than 1,000 shareholders shall not be deemed to constitute
ownership or participation in the ownership of the business of such company.
C. The Distributor agrees that the duration, scope and geographic area for
which the provisions set forth in this Paragraph are to be effective are
reasonable. If any court of competent jurisdiction determines that any provision
of this Agreement is invalid or unenforceable by reason of such provision
extending the covenants and agreements contained herein for too great a period
of time or over too great a geographical area, or by reason of it being too
extensive in any other respect, such agreement or covenant shall be interpreted
to extend only over the maximum period of time and geographical area, and to the
maximum extent in all other respects, as to which it is valid and enforceable,
all as determined by such court in such action. Any determination that any
provision of this Agreement is invalid or unenforceable, in whole or in part,
shall have no effect on the validity or enforceability of any remaining
provision of this Agreement.
D. The provisions of Article " 19" of the Agreement shall survive the
termination of this Agreement.
20. Equitable Relief
In the event of any breach by the Distributor of the provisions hereof, the
Distributor acknowledges that the Manufacturer will not have an adequate remedy
at law and the Manufacturer will be entitled to institute and prosecute
proceedings in an appropriate Court of competent jurisdiction and to obtain an
injunction restraining the Distributor from violating the provisions of this
Agreement without posting a bond or other security.
21. No Agency
The Distributor is not and shall not be deemed to be the legal
representative or agent of the Manufacturer for any purpose whatsoever. Neither
party shall have the right or authority to act or bind the other in any way or
to sign the name of the other or to represent that the other is in any way
responsible for its acts or omissions. Neither of the parties hereto is or shall
be deemed to be a partner or joint venturer of the other.
22. Miscellaneous
A. Headings
Headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of the Agreement.
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B. Enforceability
If any provision which is contained in this Agreement should, for any
reason, be held to be invalid or unenforceable in any respect under the laws of
any jurisdiction, such invalidity or unenforceability shall not affect any other
provision of this, Agreement. Instead, this Agreement shall be construed as if
such invalid or unenforceable provisions had not been contained herein.
C. Notices
Any notices or other communication required or permitted hereunder shall be
in writing and be given sufficiently if sent by (i) Certified Mail, Return
Receipt Requested, postage prepaid, (ii) overnight delivery with confirmation of
delivery, or (iii) facsimile transmission with an original mailed by first class
mail, postage prepaid, addressed as follows:
To the Manufacturer: Scantek Medical, Inc.
321 Palmer Road
Denville, New Jersey 07834
Att: Dr. Zsigmond L. Sagi, President
Fax No.: (973) 366-5170
Copy to: Mintz & Fraade, P.C.
488 Madison Avenue
New York, New York 10022
Att: Frederick M. Mintz, Esq.
Fax No.: (212)486-0701
To the Distributor: Nugard Healthcare Limited
3rd Floor 15/17 south Leinster Street
Dublin 2
Att.: Michael Nusca
Fax: 353 1 661 0987
Copy to: P.D. Gardiner & Co. Solicitors
15/17 South Leinster Street
Dublin 2
or in each case to such other address (or fax number) as shall have last been
furnished by like notice. If mailing by certified Mail is impossible due to an
absence of postal service, notice shall be in writing and personally delivered
to the aforesaid address. Each notice or communication shall be deemed to have
been given as of the date so mailed or delivered, as the case may be; provided,
however, that any notice sent by facsimile shall be deemed to have been given as
of the date sent by facsimile if a copy of such notice is also mailed by first
class mail on such date.
D. Governing Law; Disputes
This Agreement shall in all respects be construed, governed, applied and
enforced under the internal laws of the State of New Jersey without giving
effect to the principles of conflicts of law and be deemed to be an agreement
entered into in the State of New Jersey and made under the laws of the State of
New Jersey. The parties agree that they shall be deemed to have agreed to
binding arbitration
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in Newark New Jersey for the entire subject matter of any and all disputes
relating to or arising under this Agreement. Any such arbitration shall be
conducted in Newark, New Jersey under the rules then obtaining of the American
Arbitration Association in Newark, New Jersey. In all arbitrations, judgment
upon the arbitration award may be entered in any court having jurisdiction. The
parties specifically designate the Courts in the State of New Jersey as properly
having venue for any proceeding to confirm and enter judgment upon any such
arbitration award. The parties hereby consent to and submit to personal
jurisdiction over each of them by the Courts of the State of New Jersey in any
action or proceeding, waive personal service of any and all process and
specifically consent that in any such action or proceeding, any service of
process may be effectuated upon any of them by first class or certified mail,
return receipt requested pursuant to Paragraph "C" of Article "14" of this
Agreement. The parties agree, further, that the prevailing party in any such
arbitration as determined by the arbitrators shall be entitled to such costs and
attorney's fees, if any, in connection with such arbitration as may be awarded
by the arbitrators; provided, however, that if a proceeding is commenced to
confirm and enter a judgment thereon by the Courts of the State of New Jersey
and such application is denied, no such costs or attorney's fees shall be paid.
In connection with the arbitrators' determination for this purpose of which
party, if any, is the prevailing party, they shall take into account all of the
factors and circumstances including, without limitation, the relief sought, and
by whom and the relief, if any, awarded, and to whom. In addition, and
notwithstanding the foregoing sentence, a party shall not be deemed to be the
prevailing party unless the amount of the arbitration award exceeds the amount
offered in writing by the other party by fifteen (15%) percent or more. For
example, if the party initiating the arbitration ("A") seeks an award of
$100,000 plus costs and expenses, the other party ("B") has offered A $50,000
prior to the commencement of the arbitration proceeding, and the arbitration
panel awards any amount less than $57,500 to A, the panel should determine that
B has "prevailed".
E. Entire Agreement
The parties have not made any representations, warranties, or covenants
about the subject matter hereof which is not set forth herein, and this
Agreement, together with any instruments executed simultaneously herewith,
constitutes the entire Agreement between them about the subject matter hereof.
All understandings and agreements heretofore had between the parties about the
subject matter hereof are merged in this Agreement and any such instrument which
alone fully and completely expresses their Agreement.
F. Modification
This Agreement may not be changed, modified, extended, terminated or
discharged orally, but only by an Agreement in writing, which is signed by all
of the parties to this Agreement.
G. Effect
The Parties agree to execute any and all such other and further instruments
and documents, and to take any and all such further actions which are reasonably
required to effectuate this Agreement and the intents and purposes hereof.
H. Non-waiver
Except as otherwise expressly provided herein, no waiver of any covenant,
condition, or
18
<PAGE>
provision of this Agreement shall be deemed to have been made unless expressly
in writing and signed by both parties to this Agreement, and (i) the failure of
any party to insist in any one or more cases upon the performance of any of the
provisions, covenants, or conditions of this Agreement or to exercise any option
herein contained shall not be construed as a waiver or relinquishment for the
future of any such provisions, covenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or provision
thereof shall not be deemed a waiver of such breach or failure, and (iii) no
waiver by any party of one breach by another party shall be construed as a
waiver of any other or subsequent breach.
I. Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and all of which together constitute one and the
same instrument.
K. No Assignment by Distributor
The rights granted pursuant to this Agreement shall not be transferable by
the Distributor, without the Manufacturer's prior written consent, provided,
however, that the Distributor shall have the right to use the Trademarks and to
sublicense its use to Acceptable Subdistributor in the Territory subject to the
terms and conditions of this Agreement. For purposes of this Paragraph "K" of
this Article "22" of this Agreement, any transfer of a controlling interest in
the Distributor shall be deemed to be a transfer by the distributor and if such
transfer of a controlling interest has been made without the Manufacturer's
prior written consent, the Manufacturer may in its sole and absolute discretion
terminate by written notice pursuant to Paragraph "C" of this Article "22".
L. Assignment by Manufacturer
This Agreement shall be transferable by the Manufacturer.
M. Product Obsolescence
In the event that the Product technology (as herein defined) becomes
obsolete, the Parties hereto agree that this Agreement shall terminate on 2
month written notice by either party, subject to arbitration in the event of
dispute.
IN WITNESS WHEREOF THE PARTIES HERETO HAVE SET THEIR HANDS ON THIS 14TH DAY
OF JULY 1999
NUGARD HEALTHCARE LIMITED SCANTEK MEDICAL, INC.
BY /s/ DECLAN GARDINER BY /s/ ZSIGMOND L. SAGI
-------------------- ----------------------
Declan Gardiner Zsigmond L. Sagi
Title: Director Title: President
[GRAPHIC OMITTED]
19
<PAGE>
Exhibits:
Exhibit A: Patenta
Exhibit B:
Exhibit C: Description of the Product
Exhibit D: Minimum Product Sales
Exhibit E: Territory
<PAGE>
EXHIBIT A
PATENTS
U.S. PATENTS 4,624,264
4,190,058
4,651,749
CANADA 1,130,157
UNITED KINGDOM 2,023,288
GERMANY 2,920,785
FRANCE 7,913,059
NETHERLANDS 7,094,034
U.S. PATENT APPLICATIONS: App. No. 08/854144 Date: 5/14/97
" " 08/926790 " 9/10/97
" " 09/018765 " 2/05/98
<PAGE>
EXHIBIT C
PRODUCTS KNOWN AS BTAI, BREASTCARE, AND BREASTALERT
Notwithstanding the following more specific description of the Product, the
Products shall include any temperature sensing product manufactured by the
Manufacturer using the patented technology set forth in the Patents listed in
Exhibit "A" or improvements thereto. The BTAI is an early diagnostic direct
reading, digital product to screen the breast for abnormalities, including
cancer.
The BTAI measures underlying breast tissue temperature and not skin surface
temperature by retaining the emitted heat when BTAI is placed against the breast
for 15 minutes. The averaged and recorded reading on the BTAI has taken into
consideration that the temperature patterns of a woman's breasts are closely
symmetrical. This method detects abnormalities by comparing the temperature
differences in the corresponding areas of a woman's breasts.
The BTAI product consists of a pair of non-woven pads made of spun-fiber
material, each of which has three wafer-thin, pliant, aluminum foil, and
temperature responsive segments attached to its inner surface. Each segment is
wedge-shaped and contains 18 columns or bars of thermal dots. These dots contain
chemical heat sensors that changes color when exposed to a specific temperature.
<PAGE>
EXHIBIT D
MINIMUM UNIT SALES
The Minimum Product Purchases are set forth below:
Year Minimum Product Purchases-Monthly
---- ---------------------------------
1999 20,000 (commencing September 1, 1999)
2000 60,000
2001 to end of term 100,000
<PAGE>
EXHIBIT E
TERRITORY
Ireland
United Kingdom (UK)
EXHIBIT 21
SUBSIDIARIES OF SCANTEK MEDICAL INC.
JURISDICTION OF
NAME INCORPORATION
---- -------------
Scantek Medical S.A. Uruguay
Scantek Medical do Brasil LTDA Brazil
Scantek Digital Systems, Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCANTEK
MEDICAL INC. FINANCIAL STATEMENTS AT JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,516
<SECURITIES> 409,272
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 898,769
<CURRENT-ASSETS> 1,397,871
<PP&E> 2,058,559
<DEPRECIATION> 254,585
<TOTAL-ASSETS> 3,362,024
<CURRENT-LIABILITIES> 3,899,743
<BONDS> 0
<COMMON> 18,070
0
0
<OTHER-SE> (2,382,798)
<TOTAL-LIABILITY-AND-EQUITY> 3,362,024
<SALES> 127,775
<TOTAL-REVENUES> 855,275
<CGS> 411,834
<TOTAL-COSTS> 2,050,765
<OTHER-EXPENSES> 103,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,978
<INCOME-PRETAX> (1,579,568)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,579,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,579,568)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
