As filed with the Securities and Exchange Commission on January 6, 1997
Registration No. 33- ______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
___________
MYO DIAGNOSTICS, INC.
(Name of Small Business Issuer in its Charter)
CALIFORNIA 384 95-4089525
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address and Telephone Number of Principal Executive Offices)
___________
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Address of Principal Place of Business or Intended Principal Place
of Business)
___________
GERALD D. APPEL
PRESIDENT
MYO DIAGNOSTIC, INC.
3760 SOUTH ROBERTSON BLVD.
CULVER CITY, CALIFORNIA 90232
(310) 559-5500
(Name, Address and Telephone number of Agent for Service)
___________
COPIES TO:
Alan B. Spatz
Troop Meisinger Steuber & Pasich
10940 Wilshire Boulevard
Los Angeles, California 90024
(310) 824-7000
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT (1) PRICE (1) REGISTRATION FEE
- --------------------------- ---------------- -------------- ------------------- ----------------
Common Stock 3,255,561 shs. $2.42 $7,878,458 $2,388
(1) Based on the price at which the Registrant sold shares to unaffiliated
third parties in December 1996.
___________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
MYO DIAGNOSTICS, INC.
CROSS REFERENCE SHEET
Item in Form SB-2 Location in Prospectus
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ITEM 1. Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 2. Inside Front and Outside Back Cover Pages of
Prospectus. . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Page of Prospectus
ITEM 3. Summary Information and Risk Factors. . . . . . "Prospectus Summary;" "Risk Factors"
ITEM 4. Use of Proceeds . . . . . . . . . . . . . . . . Not Applicable
ITEM 5. Determination of Offering Price . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 6. Dilution. . . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 7. Selling Security Holders. . . . . . . . . . . . "Principal and Selling Shareholders"
ITEM 8. Plan of Distribution. . . . . . . . . . . . . . Outside Front Cover Page of Prospectus
ITEM 9. Legal Proceedings . . . . . . . . . . . . . . . Not Applicable
ITEM 10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . . "Management"
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . "Principal and Selling Shareholders"
ITEM 12. Description of Securities . . . . . . . . . . . "Risk Factors;" "Dividend Policy;"
"Description of Capital Stock"
ITEM 13. Interest of Named Experts and Counsel . . . . . Not Applicable
ITEM 14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . "Management"
ITEM 15. Organization Within Last Five Years . . . . . . Not Applicable
ITEM 16. Description of Business . . . . . . . . . . . . "Prospectus Summary;" "Management's Discussion and Analysis
of Results of Operations and Financial Condition;"
"Business"
ITEM 17. Management's Discussion and Analysis or Plan
of Operation. . . . . . . . . . . . . . . . . . "Management's Discussion and Analysis of Results of
Operations and Financial Condition"
ITEM 18. Description of Property . . . . . . . . . . . . "Business"
ITEM 19. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . . "Certain Transactions"
ITEM 20. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . "Common Stock Matters;" "Risk Factors;"
"Description of Capital Stock"
ITEM 21. Executive Compensation. . . . . . . . . . . . . "Management"
ITEM 22. Financial Statements. . . . . . . . . . . . . . Financial Statements
ITEM 23. Changes in and Disagreements With Accountants
on Account and Financial Disclosure . . . . . . Not Applicable
PROSPECTUS
3,255,561 SHARES
MYO DIAGNOSTICS, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by certain
shareholders (the "Selling Shareholders") of Myo Diagnostics, Inc., a
California corporation (the "Company"), of up to 3,255,561 shares of Common
Stock, no par value (the "Shares"), of the Company. The Company will not
receive any proceeds from the sale of the Shares.
The Selling Shareholders may sell all or a portion of the shares of Common
Stock offered hereby from time to time in brokerage transactions in the
over-the-counter market at prices and terms prevailing at the times of such
sales. The Selling Shareholders may also make private sales directly or through
brokers. The Selling Shareholders may individually pay customary brokerage
commissions and expenses. In connection with any sales, the Selling
Shareholders and any brokers participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act, in which event
commissions received by such brokers may be deemed underwriting commissions
under such Act.
Under the 1934 Act and the regulations thereunder, any person engaged in a
distribution of the shares of Common Stock offered by this Prospectus may not
simultaneously engage in market making activities with respect to the shares of
Common Stock of the Company during the applicable "cooling off" periods prior
to the commencement of such distribution. in addition, and without limiting
the foregoing, the Selling Shareholders will need to comply with applicable
provisions of the 1934 Act and the rules and regulations thereunder including,
without limitation, Rules 10b-6 and 10b-7, which provisions may limit the
timing of purchases and sales of shares of Common Stock by the Selling
Shareholders.
There is no public market for the Common Stock, and none is likely to
develop as a result of this offering.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ______________, 1997
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act with
respect to the shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and
with respect to any contract or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference. For further information with respect to the
Company and the shares offered hereby, reference is hereby made to the
Registration Statement and exhibits thereto. A copy of the Registration
Statement, including the exhibits thereto, may be inspected without charge at
the Securities and Exchange Commission's principal office in Washington, D.C.,
and copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain prescribed rates.
The Company has become subject to the informational requirements of the
Exchange Act and, in accordance therewith, will file reports and other
information with the Securities and Exchange Commission in accordance with its
rules. Such reports and other information concerning the Company may be
inspected and copied at the public reference facilities referred to above as
well as certain regional offices of the Securities and Exchange Commission.
The Company intends to furnish its shareholders with audited reports
containing annual financial statements.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE HEREIN. PROSPECTIVE
INVESTORS ARE URGED TO CAREFULLY READ THIS PROSPECTUS PRIOR TO MAKING AN
INVESTMENT IN THE COMPANY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH ARE INHERENTLY UNCERTAIN. ACTUAL RESULTS MAY DIFFER FROM
THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS FOR THE REASONS, AMONG
OTHERS, DESCRIBED IN "RISK FACTORS."
THE COMPANY
Myo Diagnostics, Inc. (the "Company"), is a development stage company which
was formed in 1988 to develop and bring to market a new medical diagnostic
technique: Muscle Pattern Recognition ("MPR"). MPR provides objective evidence
of soft tissue muscle injury and detailed information on the site, nature and
severity of muscle dysfunction. The Company believes that no other system in
use today is capable of objectively evaluating data to be used in diagnosing
muscle injury of the back and delivering a report outlining the existence,
nature and severity of abnormal muscle recruitment patterns of the back without
the need for a subjective evaluation of raw data by the treating physician.
The Company licenses the MPR process and related technology from Toomim
Research Group ("TRG"), a partnership of three of the Company's shareholders,
which holds a United States patent on the MPR technology. The Company's MPR
system involves proprietary hardware, software and protocols which presently
has the capability of evaluating back and neck muscles. Following successful
Alpha and Beta tests of the prototypes, the production design has been
completed. The system has been submitted to clinical and market tests and
the equipment, has been granted FDA pre-market approval, and is ready for
full-scale roll-out.
MPR is designed to assist physicians to help establish a diagnosis, select
a treatment and assess the effectiveness of such treatment. MPR also addresses
needs that have become increasingly important in the new health care
environment. In medical/legal cases for instance, MPR can serve as a forensic
medical tool. Furthermore, MPR supports the cost-containment and risk
management drive of managed care providers and health care insurers by giving
them the capability to measure treatment outcomes, to eliminate unnecessary
care, and prevent fraud. These providers have been routinely reimbursing the
cost of the procedure.
Back pain and back muscle injuries from automobile, sports and work related
accidents affect a large number of individuals. They represent the largest
cause of work days lost and a main component of employers' costs for workers
compensation. Bostonia Magazine quotes sources stating that there are over 75
million back-pain sufferers in the United States. According to the 1994
Statistical Abstract of the United States, in 1992, 13.8 million people
suffered some sort of sprain or strain.
The Company does not presently have sufficient funds to fully implement its
marketing plan. Absent additional funding, through debt or equity financing or
purchase order advances, it is not anticipated that the Company will be able to
operate profitably.
The Company's principal office is located at 3760 Robertson Blvd., Suite
212, Culver City, California 90232 and its telephone number is (310) 559-5500.
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS
BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
RELIANCE ON LICENSE
The Company licenses the MPR process and related technology from TRG. The
license is exclusive. See "Business -- Intellectual Property." The license
terminates in 2013, but may be terminated earlier upon the occurrence of
certain events including (i) if the Company becomes insolvent or generally
fails to pay its debts when due, (ii) the assignment by the Company of its
property for the benefit of the Company's creditors or the appointment of a
receiver for any part of the Company's property, (iii) the commencement of
any proceedings under bankruptcy or insolvency law by or against the Company,
(iv) the sale or other transfer of the license by the Company without TRG's
consent and (v) the failure of the Company to comply with the terms of the
license. Because the Company's entire business is based upon the licensed
technology so licensed, any termination of the license would have a material
adverse effect on the Company and would likely result in the shares of the
Company being valueless.
DEVELOPMENT STAGE COMPANY, WITH LIMITED OPERATING HISTORY
The Company is in the development stage and its operations are subject to
all the risks inherent in launching a new business enterprise, in developing
and marketing a new product or service, and in establishing a name and a
business reputation. The likelihood of success of the Company must be
considered in the light of problems, expenses, difficulties and delays
frequently encountered in converting prototype designs into viable production
designs, and in achieving market acceptance with a new type of product or
service. The Company has had limited revenues to date and, because it is
only now entering its commercial stage, it will likely sustain operating
losses for an indeterminate time period. There can be no assurance that the
Company will ever generate material revenues or that the Company will ever be
profitable.
NEED FOR ADDITIONAL FUNDING
The Company presently needs additional financing in order to implement
fully its marketing plan. Without additional funds, through equity or debt
financing or purchase order advances, it is unlikely that the Company can
operate profitably.
INTELLECTUAL PROPERTY
TRG holds a United States patent on the MPR technology, and the Company is
the exclusive licensee of the rights under the patent. The Company believes
that its ability to be successful will be contingent on its ability to protect
the MPR technology, its future developments and its know how. There can be no
assurance, however, that this patent will provide substantial protection of the
MPR technology or that its validity will not be challenged. Pursuant to its
license agreement with TRG, the Company has the right to protect the MPR
technology.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date,
the Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
COMPETITION
The Company believes that there is no competitive diagnostic technology in
use today capable of detecting, locating and evaluating soft tissue muscle
injuries in a manner similar to the MPR system. However, there are many
companies, both public and private, which are active in the field of medical
diagnostic imaging. Some of these companies have substantially greater
financial, technical and human resources, have a well established name and
enjoy a strong market presence. There is no assurance that one or several
such companies are not currently developing, or will not start developing,
technology that will prove more effective or desirable than the Company's
technology. Such occurrence could severely affect the Company's ability to
establish and develop a market presence and to maintain its competitive
position.
NEW AND UNCERTAIN MARKET
Until now, muscle injuries have always been diagnosed and evaluated
subjectively by physicians through physical examination. Accordingly, there is
no established demand for a computer-assisted procedure to diagnose such
injuries, and it is difficult to predict if, and when, the procedure will gain
wide acceptance by prescribers. Factors that may affect market penetration
could include resistance to change, concerns over the lack of track record of
the procedure, and the risk for insurance companies to use the results of the
procedure to challenge or overrule the diagnostic or treatment decisions of a
physician.
DEPENDENCE ON THIRD PARTIES
Like other health care companies, the Company is dependent upon medical
institutions to conduct clinical trials of its product, upon physicians to
refer patients, and upon insurance companies and managed care organizations
to pay for or reimburse the procedure. While the Company has not experienced
difficulties in obtaining clinical and scientific testing services to this
date, and has found the market to be responsive to its offering during its
initial marketing efforts, there is no assurance that the Company's
dependence on third parties to succeed in the market place will not affect
its development.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company is substantially dependent upon the experience and efforts of
Gerald D. Appel, President, Chief Executive Officer and founder of the Company.
The loss of the services of Mr. Appel could have a material adverse impact on
the Company and its business unless a suitable replacement for the individual
is found promptly, but there is no assurance that such replacement can be
found.
PRODUCT LIABILITY
The Company may be subject to substantial product liability costs if claims
arise out of problems associated with the use of the Company's MPR system. The
Company maintains insurance against such potential liabilities in amounts which
it believes to be adequate. However, there can be no assurance that such
product liability insurance will adequately insure against such risk.
CONTROL BY MANAGEMENT
Gerald D. Appel, owns beneficially 3,715,019 shares of the Common Stock,
(which includes voting rights with respect to 111,900 shares), representing
48.0% of the outstanding voting power of the Company as of December 31, 1996.
All directors and officers of the Company (including Mr. Appel) currently have
voting power with respect to 51.3% of the outstanding Common Stock.
Accordingly, Mr. Appel individually, and all directors and officers as a group,
have the power to control the election of directors, and therefore the business
and affairs of the Company. See "Principal and Selling Shareholders." This
concentration of stock ownership may have the effect of delaying or
preventing a change in the management or control of the Company.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, issuable in one or more series, the rights, preferences, privileges and
restrictions of which may be established by the Company's Board of Directors
without stockholder approval. As a result, in the future, the Company could
issue Preferred Stock with voting and conversion rights that could adversely
effect the voting power and other rights of the holders of the Common
Stock. No shares of Preferred Stock are presently outstanding and the Company
has no present plans to issue shares of Preferred Stock.
ABSENCE OF PUBLIC MARKET
Presently, there is no public market for any securities of the Company and
it is unlikely that one will develop as a result of the sale of the Shares. No
assurance can be given that any public market will ever develop for the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Any shares of Common Stock sold pursuant to this Prospectus will be freely
tradable without restriction or registration under the Securities Act. An
additional 5,016,031 shares of outstanding Common Stock are either "restricted
securities" as that term is defined in Rule 144 promulgated under the
Securities Act or shares which were issued to investors outside the United
States. In general, "restricted securities" may be resold publicly in
reliance on Rule 144. In general, under Rule 144 as currently in effect, any
person (or persons whose shares are aggregated) who has beneficially owned
shares for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 77,000 shares) or the
average weekly public trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of sale is filed with the
Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and availability of
current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months proceeding the sale and who is
deemed to have owned shares, provided in Rule 144, for at least three years,
is entitled to sell such shares under Rule 144(k) without limit regarding the
volume limitations, manner of sale provisions, public information or notice
requirements. In general, in the case of sales by non-public issuers (such as
the Company), equity securities sold outside the United States may not be
resold in the United States or to United States persons during a restricted
period of one year unless such sales are registered under the Securities Act.
At January 1, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,673,553 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
Except with respect to the shares covered by this Prospectus and 600,000
shares included in units anticipated to be sold within two weeks from the date
of this Prospectus (see "Description of Capital Stock"), the Company has no
obligation to register any shares of Common Stock for its shareholders.
THE COMPANY
The Company was incorporated in California on January 5, 1987 as AREX, Inc.
The name was changed to Devion Group and then to Myo Diagnostics, Inc. in
September 1989.
The Company held a 97.2% general partnership interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California partnership, that began operations in
April 1991. The Partnership researched and developed the hardware and related
software to perform Muscle Pattern Recognition pursuant to a license agreement
with TRG. In December 1994, the Partnership's assets (including the license
agreement) and liabilities were transferred to the Company at their book value
and neither the Partnership nor the Company recognized any gain or loss. The
2.8% partners exchanged their interests in the Partnership, totaling $547,885,
for 755,330 shares of Common Stock and notes in the aggregate principal amount
of $175,000. The business combination was recorded in a manner similar to a
"pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.
DIVIDEND POLICY
The present policy of the Company is to retain earnings to provide funds
for use in its business. The Company has not paid cash dividends on its Common
Stocks and does not anticipate that it will do so in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996.
At September 30, 1996
---------------------
Shareholders' Deficit
Common Stock, no par value -- 50,000,000 shares
authorized; 7,241,037 shares outstanding(1) $ 3,200,154
Deficit accumulated during the development stage (3,623,262)
-------------
Total Shareholders' Deficit $ (423,108)
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______________________________
(1) Does not include: (i) 1,047,333 shares of Common Stock issuable upon
exercise of outstanding warrants and options; and (ii) 505,000 shares
of Common Stock issued in December 1996 and 163,200 shares of Common
Stock issuable upon exercise of warrants issued in December 1996. In
addition, by amendment of its Articles of Incorporation in December
1996, the Company is authorized to issue 10,000,000 shares of Preferred
Stock.
COMMON STOCK MATTERS
Presently, there is no public market for any securities of the Company and
it is unlikely that one will develop as a result of the sale of the Shares. No
assurance can be given that any public market will ever develop for the Common
Stock.
As of December 31, 1996, there were 95 holders of record of the Common
Stock.
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company is a development stage company which has yet to realize any
material revenues. The Company is ready to bring its product to market, but
needs additional funding to implement its marketing plan.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994. The Company had revenues of $67,600
in fiscal 1995, compared to $8,041 in fiscal 1994. These revenues were derived
from sales of MPR evaluations in connection with test marketing the Company's
product.
The Company had operating expenses of $1,090,639 in fiscal 1995 as compared
to $784,802 in fiscal 1994. The increase was due to additional sales,
marketing and general and administrative expenses as the Company increased
its sales, marketing and administrative staffing in anticipation of
commencing full scale marketing efforts in 1996.
The Company suffered a net loss of $1,067,280 in fiscal 1995 compared to
$821,898 in fiscal 1994 due to the increase in operating expenses in fiscal
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995. The Company's results of operations in these nine month
periods were substantially identical. In 1996 the Company spent a significant
portion of the year attempting to raise additional capital to finance the
implementation of its marketing plan.
Revenues declined in the nine months ended September 30, 1996 to $13,650 as
compared to $57,200 in the nine months ended September 30, 1995, because the
Company suspended marketing efforts pending raising additional capital. The
Company's operating expenses in these nine month periods were roughly
comparable, although in the nine months ended September 30, 1996 the Company
had lower research and development, technical services and sales and marketing
expenses, but higher general and administrative expenses, as the Company
incurred costs of raising capital and increased its general and administrative
staffs in anticipation of implementing its marketing plan.
FINANCIAL CONDITION
The Company has funded its operating expenses principally through equity
and debt financings, as the Company has had no material cash flows from
operations. During the nine months ended September 30, 1996, the Company
funded its operations principally through the sales of Common Stock
generating net proceeds of $1,171,818.
The Company has six revolving lines of credit from a commercial bank
pursuant to which the company may from time to time borrow up to $400,000 at
interest rates equal to the bank's prime rate of interest plus .75% to 1.50%.
These lines, which were fully utilized at September 30, 1996, mature at various
times from January 1997 to June 1997.
In December 1996, the Company received net proceeds of $1,116,000 from the
issuance and sale of 480,000 units, each unit consisting of one share of Common
Stock and one quarter stock purchase warrant. Each whole warrant entitles the
holder to purchase one share of Common Stock for $3.00 per share at any time on
or prior to December 1997. The Company has commitments to purchase another
480,000 units, which commitments are anticipated to be fulfilled within several
weeks after the date of this Prospectus.
The Company believes that the proceeds from the sale of these units will
enable the Company to fund operations through the end of fiscal 1997. However,
the Company needs additional funding in order to fully implement its marketing
plan. Absent additional funding, the Company does not anticipate it can
develop sufficient revenues to operate profitably.
BUSINESS
OVERVIEW
The Company was formed to develop and bring to market a new patented
diagnostic technique called Muscle Pattern Recognition ("MPR"). Utilizing
proprietary hardware, expert systems and protocols, MPR analyzes patterns of
muscle recruitment to provide objective evidence of muscle dysfunction to
assist in the diagnosis of muscle injury. It can identify affected muscle
sites, determine the nature of the dysfunction, and measure its severity.
The results of an MPR evaluation are presented in a comprehensive report
which is generated at the Company's central processing facility.
The Company believes that the capabilities of its system are unique and MPR
addresses an unmet market need which has become even more pressing in view of
the cost-consciousness of the present health care environment. MPR supports
the cost-containment and risk management goals of insurers and managed care
providers by giving them means to measure treatment outcomes, to eliminate
unnecessary care and to detect outright fraud. It can serve as a forensic
medical tool in medical/legal cases and reduce the exposure of insurers of
disability and workers compensation risks. These benefits have been recognized
by the industry whose response to the new procedure has been very favorable.
MPR's scientific foundation originates from the research of Dr. Toomim, one
of the principals of the Company. Over the ten-year period that preceded the
formation of the Company, Dr. Toomim did extensive research on the patterns of
interactions occurring between the various muscles which participate in the
execution of a movement. Central to the MPR concept is the discovery of
movement-specific patterns which can be captured by simultaneously recording
the electromyographic ("EMG") signals of all participating muscles. The
comparison of a patient's patterns with those of "normal" subjects, using an
expert system, is the basis of the evaluation. Up until now, the Company has
focused its development efforts on the back and neck muscle application; it
plans to address other muscle groups in the future.
The first MPR system prototype capable of measuring simultaneously up to 14
muscle sites was Alpha and Beta tested in early 1990. A limited market test
was initiated in September 1990 in Southern California, through a non-exclusive
Mobile Diagnostic Distributor. Four technicians were certified and
approximately 300 patients were tested through June 1991. In the fourth
quarter of 1991, the Company appointed in-house and independent sales
representatives to expand the market test. These market tests served to
establish the prerequisites of a successful roll-out. These prerequisites
included: an independent scientific validation of the system, conclusive
clinical studies, a demonstration of the successful use the MPR information
as medical/legal evidence, and the publication of papers in peer reviewed
journals. In the opinion of management, these prerequisites were fully met
by mid 1995 when the Company began market testing in Southern California and
Chicago.
In February 1996, the Company entered into an agreement with a well
established, Cleveland-based diagnostic imaging service company which has
committed to introduce the procedure in 20 markets in the 5 states in which it
operates. Reimbursement for the procedure has been received from more than 60
local and national insurance companies.
MARKET
MARKET ENVIRONMENT: The United States health care delivery and payment
systems have been undergoing profound changes over the past few years. These
changes have been driven by the determination of employers to halt the alarming
escalation of health care spending, by the concerns of the health care industry
over the threat of regulatory controls, and by a general awareness that the
system was plagued by major flaws. Some studies have placed the cost of
unnecessary procedures and services at as high as 20% of total expenditures for
patient care, and the General Accounting Office estimated in 1992 that outright
fraud could represent a full 10% of the total health care budget. Lead by
managed care providers, the re-engineering of the industry has brought a new
focus on the cost-effectiveness of services and procedures. Capitated payment
plans have reversed the financial incentives of managed care providers, and
insurers of traditional indemnity plans have had to adopt similar
cost-containment techniques to compete.
Management believes these trends will benefit the Company as MPR provides
important means required for cost-containment: means to objectively diagnose a
condition to aid in the selection of the most appropriate treatment course,
means to measure outcomes to prevent overuse, and means to detect fraud in
workers compensation, personal injury and disability cases involving back
injury.
BACK MUSCLE DIAGNOSTIC MARKET: According to the 1994 Statistical Abstract
of the United States, in 1992, 13.8 million people suffered some sort of sprain
or strain. Bostonia Magazine quotes sources stating that there are over 75
million back-pain sufferers in the United States. An article in California
Worker's Compensation Enquirer, under the signature of Dr. Richard Hyman,
estimates that, in 1994, soft tissue back injuries may have accounted for up to
70% or $2.1 billion of California's $3 billion annual Worker's Compensation
medical costs. The Company believes that the United States offers as many
annual examination opportunities for MPR as it does for MRI whose existing
market is in excess of 7 million examinations.
BUSINESS STRATEGY
The Company's goal is to establish MPR as a widely recognized and accepted
procedure, to capitalize upon the full potential of this technology by
developing protocols for other applications, and to achieve and maintain a
leadership position in muscle-related diagnostic techniques. The Company's
strategy to achieve these goals consists of the following principal elements:
- DEVELOP AND STRENGTHEN ITS PRESENCE in California and Illinois, the
markets where the Company has initiated its marketing program.
The Company will train and certify additional technicians to
service these sites, will explore new delivery channels and
continue to develop relationships in the insurance industry.
- EXPAND GEOGRAPHICALLY, primarily through limited exclusive
distribution arrangements with diagnostic imaging services and
strategic partners. The Company hopes that the existing referral
base of these providers, their reputation and infrastructure will
provide accelerated entry into a large number of markets. The
Company's approach of such providers has generated considerable
interest as the low capital investment and high margin of MPR
provide an attractive opportunity for incremental profits. One
distribution arrangement already in place gives the Company
immediate entry into five states.
- INCREASE EXPOSURE AND PEER RECOGNITION THROUGH PUBLICATIONS IN MEDICAL
AND SCIENTIFIC JOURNALS: Peer-reviewed publications play an
important role in overcoming physician resistance to new
procedures. Accordingly, the Company has an on-going program of
studies and trials aimed at providing statistical and clinical
evidence for publication. Two papers co-authored by leading
academicians have been published. One additional paper has been
accepted for publication in Spring 1997.
- DEVELOP NEW APPLICATIONS OF ITS CORE TECHNOLOGY: The Company intends
to further capitalize on its know-how and core technology by
addressing other applications related to arm and leg muscles.
For example, the development of appropriate protocols would allow
the Company to introduce evaluation systems for carpal tunnel
syndrome, rotator cuff injuries and pre- and post-operative
arthroscopic surgery evaluation.
PRODUCT
MPR is a computer-assisted evaluation procedure which is based on the
simultaneous measurement of electromyographic signals produced by up to 16
muscles during the execution of a movement. A patient's EMG readings, which
are collected during the examination procedure, digitized, then processed by
an expert system, can be converted into graphic "images" of recognizable muscle
patterns. A computer-assisted comparison of a patient's patterns with those
produced by normal subjects reveals differences which are the basis of the
diagnosis.
All the components of the Company's MPR system have been designed and
built based on published and accepted scientific data and proven medical,
electronic, and statistical technology. The three proprietary components of
the system include:
- the Myo D 1600 Data Acquisition Module,
- the Myo Diagnostics Expert System, and
- the Myo Diagnostics Muscle Pattern Recognition Report.
DATA ACQUISITION MODULE: The data acquisition equipment consists of a
set of 29 cutaneous electrodes connected to the Myo D 1600 Data Acquisition
Module. The electrodes, which are commercially available, pick up the EMG
signals produced by muscles and feed them into the D 1600 whose design
provides for the simultaneous reception of up to 14 of these signals. The
Myo D 1600 has built-in features which analyze the quality of the signal
received from each electrode and recognize and warn the technician/operator
of any malfunction, thereby ensuring that data reflects accurate EMG
measurements. The Data Acquisition Module also assists the operator by
signaling the beginning and end of each movement through visual prompts and
audio tones, and by providing a real-time feedback on the patient's
performance through a graphic display.
After affixing the electrodes on the skin of the patient's back, at
carefully selected muscle sites, and after connecting the electrodes to the D
1600, the technician performs a calibration of the instrument. The purpose
of the calibration is to prevent skin-specific variances to affect the
readings, thereby ensuring that the patterns from various subjects can be
compared. The patient is then directed to execute four repetitions of each
of nine specific movements. Fourteen muscle sites are associated to each
movement and report to the D 1600 during the execution of such movement.
Their repetitions are important for the protocol. To convert these parallel
inflows of signals into digital patterns ("images"), the D 1600 processes
some 75,000 data points and calculates these points' relationships to each
other.
THE EXPERT SYSTEM: The data collected during the examination is
submitted to the Company for processing by the Company's expert system. A
report is generated which includes graphic, statistical and narrative
representations of each muscle group's pattern compared to the pattern of a
normative database of non-injured and pain-free subjects. The normative data
has been collected utilizing the same protocols performed by the patient.
The normative database is continuously updated as more data is collected.
The report which is produced is reviewed by qualified personnel to ascertain
that the data was properly collected and processed.
The analytical system was developed by the Company based on statistical
methodology in common use in this field for a number of years. In developing
the analysis, it was determined that a high degree of statistical certainty
would be required for the report to have the level of accuracy to be
completely reliable. Based on this design, the statistical analysis assures
results which have an average statistical certainty of 95%-99%.
THE MUSCLE PATTERN RECOGNITION REPORT: The MPR Report provides the
physician with findings to classify the patient as normal or with a graded
level of muscle dysfunction. It provides four critical statements about the
muscle groups examined, along with detailed information supportive of these
conclusions. The statements address the following questions:
- - EVIDENCE OF INJURY: Is there evidence that the patient's
muscles are dysfunctional? If so, where does
it occur?
- - FREQUENCY AND SEVERITY
OF THE INJURY: How severe is the dysfunction as compared to
normal and how often does the dysfunction
occur?
- - WHAT ARE THE MUSCLE PATTERNS?: What deviations from normal muscle
patterns exist in each movement and what are
the patterns of muscle compensation?
- - ARE THERE PATTERNS OF SECONDARY
MUSCLE COMPENSATION?: Do the muscle patterns indicate that
there is secondary muscle dysfunction due to
muscles compensating involuntarily to protect
the injury?
- - WHAT IS THE RESULT OF THE
ABNORMAL MUSCLE RECRUITMENT?: What is the bio-mechanical explanation
for the muscle patterns?
When a patient is retested and the second MPR evaluation is compared to the
baseline test, several other critical questions are addressed:
- - IS THE PATIENT'S MUSCLE RECRUITMENT PATTERN NOW WITHIN THE RANGE OF NORMAL?
- - IF STILL DYSFUNCTIONAL, HAS THE PATIENT PROGRESSED THROUGH TREATMENT?
- - SHOULD THE INSURANCE COMPANY CONTINUE TO FUND FURTHER (OR DIFFERENT)
TREATMENT?
These questions address the issues of rehabilitation and short and long term
disability which affect insurance reserves.
SCIENTIFIC VALIDATION OF THE SYSTEM: In May 1992, an independent study of
the Company's evaluation methodology was completed. The study determined that
the overall classification accuracy of normal subjects was 90%. In a further
cross validation study involving 196 subjects, the results confirmed the
stability of the data base.
In June 1992, a second clinical study was completed. This study showed a
high correlation between the Company's evaluation of doctor-diagnosed injured
accident and Workers Compensation patients and the doctors' diagnoses. The
results were particularly impressive because the test was able to detect
injuries after a one to four week time lapse between the doctor's diagnosis
and the Company's examination. A test/retest study of 40 of these patients
indicated that 82% of the patients improved over a four week period. The
retest also validated the accuracy of the Company's classification.
The Company's MPR system was submitted to leading academicians and
clinicians. Dr. V. Reggie Edgerton of UCLA and Dr. Steven Wolf of Emory
University reviewed the technical aspects of the system in detail and
confirmed the validity of the science behind the system. They have
separately authored a total of three papers relating to the Company's
technology, two of which have been published and one of which has been
accepted for publication in Spring 1997.
LEGAL VALIDATION OF THE SYSTEM: In June 1992, the California Workers
Compensation Appeals Board (WCAB) began to hear testimony to determine if MPR
is a valid medical/legal procedure. In September 1993, the WCAB issued a
decision that the Company "...persuaded the court as to the validity of
lien-claimant's (Myo Diagnostics) methodology and mechanism. In addition,
the Opinion stated that, "it is found that the procedure (Muscle Pattern
Recognition) is a valid and useful diagnostic medical tool when used in the
proper case...." It further states that "...it is a reasonable and necessary
diagnostic test."
This opinion helped validate Muscle Pattern Recognition as a valid
medical/legal procedure. This case becomes a reference for any future legal
test.
COMPETITION
The Company believes it has no direct competition and that no other
system in use today is capable of delivering information similar in content,
comprehensiveness and reliability to the Company's MPR system. EMG signals
have been used by others to evaluate muscles at rest and muscles that do not
have kinesiological relationships; but the Company believes that these
methodologies are not supported by scientific studies and are not reliable.
The Company believes that Magnetic Resonance Imaging ("MRI") does not compete
with MPR because it cannot measure interactive muscle relationships when the
muscles are under constant tension. MRI's use in relation to back problems
is primarily to diagnose disk injuries.
However, there are many companies, both public and private, which are
active in the field of medical diagnostic imaging. Some of these companies
have substantially greater financial, technical and human resources, have a
well established name and enjoy a strong market presence. There is no
assurance that one or several such companies are not currently developing, or
will not start developing, technology that will prove more effective or
desirable than the Company's technology. Such occurrence could severely
affect the Company's ability to establish and develop a market presence and
to maintain its competitive position.
MARKETING PLAN
SERVICE DELIVERY STRATEGIES: The Company markets its services on a
per-use basis, either directly ("Direct Services Operations") or through
third party "distributors". In the first instance, the Company itself
performs patient examinations, whereas this service is provided by a
distributor in the second mode of operation. In both cases, however, patient
data is processed by the Company's Central Processing Center, which also
produces the evaluation reports.
DISTRIBUTOR OPERATIONS: The Company intends to establish distributor
operations through limited exclusive arrangements with financially solid
firms which presently provide mobile and fixed-site MRI, CT and ultrasound
services to hospital, clinics and managed care locations. These firms, which
market to the same referral base of doctors which will refer MPR, are
attracted by the low capital investment and high margin of MPR.
DIRECT SERVICES OPERATIONS: In this mode of operation, services will
either be provided at a Company-owned and operated facility (Evaluation
Center), or at the facility of a provider (Mobile Services) using equipment
and personnel supplied by the Company.
The Company has already established an Evaluation Center at its
headquarters in Southern California. Until now this facility has been used
mostly for research, but the Company plans to initiate revenue producing
activities in the first quarter of 1997. Future Centers may be established
as stand alone co-ventures with existing diagnostic, physical therapy and
rehabilitation facilities, or based on lease arrangements with hospitals. An
Evaluation Center can be operated at very low fixed overhead by subleasing
space and services at existing clinics.
Mobile Testing Services is the format under which the Company presently
operates; it allows patient examination to take place on the premises of
medical providers, using the Company's equipment and personnel. This
approach overcomes providers' resistance to invest in equipment and incur
additional personnel costs. Mobile service contracts are offered on the
basis of a minimum daily rate plus a fee per test.
Direct Services Operations provide to the Company the full benefit of the
high margins of MPR while allowing it to remain in close contact with its
end-user market. However, the Company has elected to pursue simultaneously a
distribution strategy in order to achieve faster market penetration.
MARKET TARGETS
The Company's market is comprised of two major segments: the
medical/legal market which deals primarily with workers compensation and
personal injury claims, and the physical medicine market. Initially, the
Company will focus on the medical/legal segment. To this end, the Company
will target strategic alliances with firms servicing insurance companies,
HMOs (Health Maintenance Organizations) and PPOs (Preferred Provider
Organizations), self-insured employers and their third-party plan
administrators, and risk and case management companies. The Company will
also target the medical providers which service these markets such as
hospitals, rehabilitation clinics, industrial clinics, diagnostic centers,
physicians, physical therapists and MRI imaging centers. This second group
is also an important component of the Company's strategy because, in addition
to its capacity to prescribe MPR, it may serve as a delivery vehicle.
INSURANCE COMPANIES are a primary target because their reimbursement
policies and practices have a profound impact on the medical diagnostic
industry; they largely dictate pricing policies, methods of distribution and
growth strategies. Insurance companies are also playing an increasingly
important role as prescribers. For example, recent Workers Compensation
reforms in California have given insurers more control over treatment
regimen. An insurer
can now dictate the treatment of a patient for up to four months. Because MPR
can serve to control direct medical costs and indirect costs such as lost
time, disability claims and litigation costs, the Company believes that its
procedure will be well received by insurers who may become a major source of
referrals, particularly in the Workers Compensation market. More than 60
insurance companies have already approved the reimbursement of MPR procedures.
HMOS AND PPOS are of vital importance to the Company due to their
leadership role in the cost containment drive and the considerable market
share they enjoy.
SELF-INSURED EMPLOYERS accounted for 18.7% of total worker's compensation
benefits paid in 1991. These employers represent a large volume of
opportunities for the Company.
HEALTH CARE PLAN ADMINISTRATORS are large organizations which provide
services to self-insured employers, public or private. In their role to
manage private plans, they can influence care strategies and/or treatment
selection criteria, and they may have authority to commit funds for
evaluation and treatment. Most of them have financial incentives to contain
costs and limit payors' exposure related to ongoing treatment and disability.
HOSPITALS, INDEPENDENT CLINICS, DIAGNOSTIC CENTERS AND INDIVIDUAL
PHYSICIANS will be recruited as Evaluation Centers. These providers may
become the delivery system for corporate clients and insurance companies.
They may service the medical/legal market and may later become the sites for
entry into the medical back pain and physical medicine market.
MANUFACTURING
The Data Acquisition Module consists of a standard laptop computer, a
modified board and the Company's proprietary software. The Company acquires the
laptop computers from an outside source. The modified boards are manufactured
by the subcontractor who participated in their development, and with whom the
Company has established a long term relationship. Once tested, the boards are
shipped to the Company which installs them along with its proprietary software
and tests the completed Module.
FACILITIES AND EMPLOYEES
The Company operates from leased facilities in Culver City, California.
Research and development, manufacturing and report processing activities are
centralized to allow closer control over service and response time, and to
better protect the technology.
The Company intends to maintain its central processing activities at this
headquarter location, but research and development and future clinical
studies will be conducted at various sites in Southern California, in
Atlanta, Georgia and at independent hospitals and universities throughout the
United States and Canada.
As of December 31, 1996, the Company had 15 full time employees.
REGULATORY REQUIREMENTS
The medical equipment manufactured and marketed by the Company is subject
to regulation by the Food and Drug Administration ("FDA"). Under the FDA
Act, manufacturers of medical devices must comply with certain regulations
governing the testing, manufacturing, packaging and marketing of medical
devices. Commercial sales or use of the Company's medical equipment must be
preceded by FDA pre-market clearance pursuant to section 510(k) of the FDA
Act. The Company has met all applicable FDA requirements in connection with
its product.
INTELLECTUAL PROPERTY
The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR system and technology and any related or
derivative technology throughout the world pursuant to an exclusive license
with
TRG, a partnership among Gerald D. Appel, Daniel J. Levendowski and Hershel
Toomim, principal shareholders of the Company. The MPR system and technology
and all additions or modifications thereto remain the property of TRG,
provided, however, that any derivative technology developed by the Company
for purposes other than the evaluation and treatment of muscle dysfunction in
the back, arms and legs ("Derivative Technology") will be the property of the
Company.
The Company pays royalties to TRG for the use of the MPR technology and
any Derivative Technology as follows: (i) the lesser of $30.00 per use or 10%
of total revenues received by the Company for each of the first 10,000 times
the MPR procedure is used, (ii) the greater of $12.50 per use or 5% of total
revenues received by the Company for each use thereafter, (iii) 5% of total
revenues received by the Company for each sale, lease, license or other
transfer of the MPR procedure or related equipment or technology and (iv) 3%
of total revenues received by the Company for each sale, lease, license or
other transfer of the Derivative Technology. The Company is not required to
make any payments on revenues pursuant to (iii) or (iv) to the extent
royalties were previously paid on such revenues pursuant to (i) or (ii).
The license expires in 2013. The license is terminable by TRG upon 14
days notice (subject to cure during such period) (i) if the Company fails to
observe the terms of the Agreement, (ii) if the Company becomes insolvent or
generally fails to pay its debts when due, (iii) the assignment by the
Company of its property for the benefit of the Company's creditors or the
appointment of a receiver for any part of the Company's property, (iv) the
commencement of any proceedings under bankruptcy or insolvency law by or
against the Company and (v) the sale or other transfer of the license by the
Company without TRG's consent.
If the license is terminated for any reason, the Company becomes subject
to a three-year agreement not to engage in the manufacture, sale or
distribution of the MPR system or any similar product in any area in which
the MPR system or procedure has been sold.
The Company and TRG rely upon the law of trade secrets, patent protection
and unpatented proprietary know-how to protect the MPR technology. Due to
the rapid technological change that characterizes the medical device
industry, the Company believes that reliance upon trade secrets and
unpatented know-how, and on the continued introduction of improvements and
new products, are generally as important as patent protection in establishing
and maintaining a competitive advantage. TRG was granted a United States
patent covering the MPR system.
The Company presently has no patent protection of the MPR technology
outside the United States. The Company has the right to file patent
applications and attempt to obtain patents in other jurisdictions. To date, the
Company has not done so, in part because of lack of funds. TRG is under no
obligation to patent the MPR technology in any jurisdiction and the Company's
determination as to whether or not to seek patent protection will depend upon a
number of factors, including the likelihood of the issuance of the patent, the
Company's financial resources and marketing plans.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to each executive
officer and director of the Company.
NAME AGE(1) POSITION
Gerald D. Appel 60 President, Chief Executive Officer and Chairman
of the Board of Directors
John Osborne 37 Vice President - Marketing
Scott Roecklein 39 Vice President of Operations, Secretary
J. Steven Nelson 32 Director of Research and Development
Dr. Hershel Toomim, Sc.D. 80 Director
Wayne C. Cockburn 40 Director
- ---------------
(1) At December 31, 1996
MR. APPEL has served as President and Chief Executive Officer of the
Company since 1991, and as a director of the Company since inception. Mr. Appel
is also Chairman of the Board of Directors.
MR. OSBORNE has served as Vice President--Marketing since November 1996.
From January 1995 to November 1996, Mr. Osborne served as Director of Sales
and Marketing for DermaNet, Inc., where he was responsible for developing
marketing plans, establishing distribution channels and overseeing sales
activity. From October 1993 to November 1994, Mr. Osborne was Vice President
and General Manager of KCI Clinical Systems, a division of KCI, Inc., a
publicly traded therapeutic specialty bed rental company, and from January
1983 to July 1993, Mr. Osborne served as Director Sales and Marketing for ATI
Medical, Inc., a medical equipment rental company.
MR. ROECKLEIN has been Vice President of Operations since September 1996
and Secretary since November 1996. For the two years prior to that he was an
independent health care consultant. From March 1991 through August 1994 Mr.
Roecklein was Vice President-Operations for Tokos Medical Corp., an in-home
provider of skilled nursing and activity monitoring for woman at risk of
pre-term labor.
MR. NELSON has served as Director of Research and Development of the
Company since October 1996. From August 1994 to September 1996, Mr. Nelson
served as Director of Operations and Finance of the Company. Prior to
joining the Company, Mr. Nelson earned a Masters Degree in Business
Administration in June 1994, and worked as a senior financial analyst for the
Operations Division of Mattel, Inc. from October 1990 to October 1992.
DR. TOOMIM has served as a Director of the Company since he co-founded it
with Mr. Appel in 1988. Dr. Toomim also served as Vice President of Research
and Development of the Company from 1988 to 1996.
MR. COCKBURN has served as a Director of the Company since July 1995. Mr.
Cockburn has been employed by Imutec Corporation, a Canadian
biopharmaceutical company, since January 1995, and is currently Vice
President of Corporate Development. From 1994 to 1995 Mr. Cockburn was an
investment banker with McDermid St. Laurence Chisholm, Ontario, Canada, and
for more than the three years prior to that, he was a securities broker with
Midland Walwyn, Ontario, Canada.
MEDICAL ADVISORY BOARD
The Company has a Medical Advisory Board ("MAB") whose members are
physicians with expertise relevant to the Company's business. The role of
the MAB is to advise on the medical considerations involved in designing the
product, to provide a user/prescriber perspective, and to assist with the
design of clinical trials. The MAB meets on an ad hoc basis.
GUNNAR ANDERSSON M.D., PH.D. Dr. Andersson is Chairman of Orthopedic
Surgery at Rush Presbyterian - St. Luke's Medical Center in Chicago. He is
the deputy editor for the journal SPINE. Dr. Andersson is also a managing
partner of Midwest Orthopedics and has served as President of the
International Society for the Study of the Lumbar Spine.
PHILIP J. FAGAN, JR., M.D. Dr. Fagan obtained his medical degree from
the Tulane University School of Medicine, New Orleans in 1969. He is the
Chief Executive Officer and President of Emergency Department Physicians
Medical Group Inc. Dr. Fagan is the Director of the Emergency Department for
Daniel Freeman Marina Hospital, Marina Del Rey and the Hollywood Presbyterian
Medical Center, Los Angeles. He is the Medical Director of E.R. Physicians
Medical Group, Inc., and Chief Executive Officer and Medical Director of the
Burbank Urgent Care and Industrial Medicine Clinic. He is a Diplomate of the
American Board of the Emergency Physicians and the American Board of Family
Practice and a Fellow of the American Academy of Family Physicians and the
American College of Emergency Physicians.
ALAN J. GOLDMAN, M.D. Dr. Goldman was awarded his degree in medicine
from the University of Michigan Medical School in 1971. Currently he is in
private practice while serving as an Assistant Clinical Professor of
Neurology at the University of California at Irvine. For ten years beginning
in 1976, he was an Assistant Clinical Professor of Neurology at UCLA and was
the Chief of Staff and Chairman of the Department of Medicine at the Medicine
Center at Garden Grove, California. Dr. Goldman serves as a neurological
reviewer of new technologies for a number of national insurance carriers.
ROBERT SAMUEL MAYER, M.D. Dr. Mayer is an Assistant Professor in the
Department of Physical Medicine and Rehabilitation at Rush Medical College
and a practicing Physiatrist at the Rehabilitation Clinic, S.C. Dr. Mayer
serves as the Residency Program Director for the Rush-Marianjoy Residency in
Physical Medicine and Rehabilitation. Dr. Mayer also serves on the Editorial
Advisory Committee for the journal SPINE.
SCIENTIFIC ADVISORY BOARD
The Company has a Scientific Advisory Board ("SAB") to advise the Company
in the scientific aspects of its technology and in the area of statistical
analysis, including modeling. This Board meets twice yearly in January and
July.
ANTHONY DELITTO, PH.D. Dr. Delitto is an Associate Professor and
Chairman of the Department of Physical Therapy in the School of Health and
Rehabilitation Services at the University of Pittsburgh. Dr. Delitto also
serves as the Director of Research for the Comprehensive Spine Center at the
University of Pittsburgh and Vice President for Education and Research at
CORE network.
V. REGGIE EDGERTON, PH.D., M.S. Dr. Edgerton received his Bachelor of
Science in Physical Education and Biology from East Carolina University, his
Master of Science in Physical Education from the University of Iowa and Ph.D.
in Exercise Physiology from Michigan State University. Dr. Edgerton is
currently a professor within the Physiological Sciences Department at UCLA
and has served as Chairman of UCLA's Department of Kinesiology. Dr. Edgerton
has published over 200 papers in peer-reviewed journals focusing primarily on
muscle fiber and its activity. Since 1980, he has been the Project Program
Director of the NIH Grant regarding neurological sciences. He has also
worked with NASA and has published extensively regarding muscle adaptation
outside Earth's atmosphere. Dr. Edgerton has been an officer of and/or
associated with organizations including the American Physiological Society,
the American College of Sports Medicine, the American Society of
Gravitational Biology, the Society for Neurosciences, the Neurotrauma
Society, and the American Spinal Injury Association.
HOWARD FULLMAN, M.D. Dr. Fullman has been trained as a medical
technologist and as such has consulted for major health care firms regarding
medical devices and procedures. He presently sits on the Board of Directors
of several privately held medical services companies. Dr. Fullman has a
medical practice in Los Angeles California.
ROBERT I. JENNRICH, PH.D., M.S. Dr. Jennrich received his Bachelor of
Science and Master of Science in Mathematics from the University of Wisconsin
and his Ph.D. in Mathematics from UCLA. Dr. Jennrich is currently a
professor within the Department of Mathematics at UCLA. He has published
over 60 papers in peer-reviewed journals, his most important papers
concerning biological and technical applications of advanced statistics. Dr.
Jennrich is an active member of the Institute of Mathematical Statistics, the
American Statistical Association and the Psychometric Society and has
received numerous honors from these and other societies.
JULES ROTHSTEIN, PH.D. Dr. Rothstein is a Professor and Chairman for The
Department of Physical Therapy at the University of Illinois at Chicago. Dr.
Rothstein is the Editor for the journal PHYSICAL THERAPY.
ROLAND ROY, PH.D. Dr. Roy is currently a Researcher for the Brain
Research Institute at the University of California at Los Angeles. Dr. Roy
also serves as the Co-Director for the Laboratory for Neural Control of
Movement and Neural Muscular Plasticity.
STEVEN L. WOLF, PH.D. Dr. Wolf received his Bachelor of Arts in Biology
from Clark University, his Master of Science degrees in Physical Therapy from
Boston University and Anatomy from Emory University and his Ph.D. in Anatomy
and Neurophysiology from Emory University. Dr. Wolf is currently a professor
and Director of Research within the Department of Rehabilitation Medicine,
Emory University School of Medicine. Dr. Wolf has published over 130 papers
in peer-reviewed journals, authored six books focusing on electromyography,
biofeedback, physical therapy and rehabilitation and has made over 300
presentations, including key note speaker, for groups including the American
Association of Orthopedic Surgeons, the American Physical Therapy
Association, the International Society for Electrokinesiology and the
American Neurology Association. Dr. Wolf has received over 20 grants from
organizations including the National Institute of Aging and the Veterans
Administration. Most recently, Dr. Wolf has served as Chairman of the
Advisory Council of the American Physical Therapy Association, Board of
Director of the International Society for Electrokinesiology, Chairman of the
Scientific Abstracts Committee of the World Confederation of Physical
Therapy, External Reviewer for Rehabilitation Graduate Programs for the
University of Toronto and Massachusetts General Hospital (Harvard University)
and on the Advisory Committee for the MGH Institute of Health Professions.
EXECUTIVE REMUNERATION
The following table sets for certain information regarding the
compensation of the Chief Executive Officer for the year ended December 31,
1995 and 1996 (no other officer had annual compensation in excess of $100,000
during these years):
SUMMARY COMPENSATION TABLE
-----------------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY
---------------------------- ---- ------
Gerald D. Appel, President and Chief 1995 $92,000
Executive Officer 1996 $124,000
EMPLOYEE STOCK OPTION PLAN
The Board of Directors has approved the establishment of a stock option
plan pursuant to which the Company may from time to time issue up to
1,000,000 shares of Common Stock to selected employees. No written plan has
been adopted, and no options have been granted under such a plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation include a provision that eliminates
the personal liability of its directors to the Company and its shareholders for
monetary damages for breach of the directors' fiduciary duties in
certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Company or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the Company or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of a serious injury to
the Company or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Company or its shareholders, (vi) under Section 310 of
the California Corporations Code (the "California Code") (concerning
contracts or transactions between the Company and a director) or (vii) under
Section 316 of the California Code (concerning directors' liability for
improper dividends, loans and guarantees). The provision does not extend to
acts or omissions of a director in his capacity as an officer. Further, the
provision will not affect the availability of injunctions and other equitable
remedies available to the Company's shareholders for any violation of a
director's fiduciary duty to the Company or its shareholders.
The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Company's Bylaws provide for indemnification of the Company's directors,
officers, agents and employees. In addition, the Company, at its discretion,
may provide indemnification to persons whom the Company is not obligated to
indemnify. The Company has entered into indemnity agreements with all
directors which provide the maximum indemnification permitted by law. These
agreements, together with the Company's Bylaws and Articles of Incorporation,
may require the Company, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if
available on reasonable terms.
Section 317 of the California Code and the Company's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Company is currently reviewing director and officer liability
insurance policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of the date hereof, certain information
regarding the ownership of the Common Stock by: (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors (other than members of the
Medical Advisory Board and Scientific Advisory Board); (iii) all of the
Company's executive officers and directors as a group and (iv) each Selling
Shareholder. Except as may be indicated in the footnotes to the table and
subject to applicable community property laws, each of the persons has sole
voting and investment power with respect to the Shares owned. Beneficial
ownership has been determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. Under this Rule, certain shares are deemed
to be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of the
date the information is provided; in computing the percentage ownership of
any person, the amount of shares outstanding is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the persons actual voting power at any particular date.
Beneficial Ownership Prior
to Beneficial Ownership
Offering After the Offering (1)
------------------------- ----------------------
Number Number of
of Shares Shares Number of
Name Owned Percent Offered Shares Percent
- ---------------------------------------- ----------- ------- --------- --------- -------
Gerald D. Appel 3,715,019(2) 48.0% 1,000,000 2,715,019(2) 35.1%
3760 South Robertson Blvd.
Culver City, California 90232
Ontario Municipal Employees 1,401,561(3) 17.2% 1,401,561 0 0%
Retirement Board
One University Avenue, Suite 1100
Toronto, Ontario M5J 2P1 Canada
Altamira Management Ltd. 750,000(4) 9.2% 375,000 375,000 4.6%
250 Bloor Street East, Suite 300
Toronto, Ontario M4W 1E6 Canada
Bona Vista Asset Management Ltd. 450,000(5) 5.6% 225,000 225,000 2.8%
2300 Yonge Street, Suite 2900
P.O. Box 2384
Toronto, Ontario M4P 1E4 Canada
Hershel Toomim 192,000 2.5% 192,000 0 0%
3710 South Robertson Blvd.
Culver City, California 90232
Wayne Cockburn 63,000(6) 0.8% 62,000 1,000 --
Imutec Corporation
1285 Morningside Avenue
Scarboro, Ontario M1B 3W2 Canada
All directors and executive officers as a 3,985,019(2)(7) 51.3% 1,254,000 2,731,019 35.2%
group (6 persons)
- -----------------------
(1) Assumes all shares offered are sold.
(2) Includes 111,900 shares with respect to which Mr. Appel believes he has
voting power as a result of a proxy granted by Daniel J. Levendowski.
(3) Includes 405,555 shares which may be acquired upon exercise of warrants.
(4) Includes 75,000 shares which may be acquired upon exercise of warrants,
and 375,000 shares Altamira Management Ltd. has the right and obligation
to purchase immediately following the date of this Prospectus, of which
75,000 shares may be acquired upon the exercise of warrants.
(5) Includes 45,000 shares which may be acquired upon exercise of warrants,
and 225,000 shares Bona Vista Asset Management Ltd. has the right and
obligation to purchase immediately following the date of this
Prospectus, of which 45,000 shares may be acquired upon the exercise of
warrants.
(6) Includes 1,000 shares registered in the name of 260-274 Geary Avenue Ltd.
over which Mr. Cockburn has exclusive voting and investment power.
(7) Includes 15,000 shares which may be acquired upon exercise of an option.
CERTAIN TRANSACTIONS
In December 1994, the Company entered into a Securities Purchase
Agreement (the "December Purchase Agreement") with Ontario Municipal
Employees Retirement Board ("OMERB"). Pursuant to the terms of the December
Purchase Agreement, the Company sold to OMERB 680,741 shares of Common Stock
for an aggregate purchase price of $1,000,000, and granted to OMERB currently
exercisable warrants to purchase 100,000 shares (the "Series A Warrant") and
83,333 shares (the "Series B Warrant") of Common Stock with a current
exercise price of $1.50 and $1.75 per share, respectively. The Series A
Warrant expires on December 23, 1997 and the Series B Warrant expires on June
23, 1998.
In August 1995, the Company entered into another Securities Purchase
Agreement (the "August Purchase Agreement") with OMERB. Pursuant to the
terms of the August Purchase Agreement, the Company sold to OMERB 111,111
shares of Common Stock for an aggregate purchase price of $200,000, and
granted to OMERB currently exercisable warrants to purchase 222,222 shares of
Common Stock (the "Series C Warrant") with a current exercise price of $2.00
per share. The Series C Warrant expires on December 31, 1998.
The Company licenses the right to manufacture, market, sell, distribute
and further develop the MPR System and technology and any related or
derivative technology throughout the world pursuant to an exclusive
twenty-year license with TRG, a partnership among Gerald D. Appel, Daniel J.
Levendowski and Hershel Toomim. Mr. Appel is the Chairman of the Board,
Chief Executive Officer, President and a principal shareholder of the
Company, and Dr. Toomim is a director and a principal shareholder of the
Company. See "Business--Intellectual Property."
In May 1996 the Company issued to a corporation controlled by Mr.
Cockburn 100,000 shares of Common Stock in satisfaction of obligations of the
Company to such corporation for consulting services rendered during the prior
several years. This corporation presently provides no services to the
Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock. Subject to dividend and liquidation preferences that may be applicable
to any shares of Preferred Stock outstanding, the holders of Common Stock are
entitled to receive dividends as and when declared by the Board of Directors
out of funds legally available therefor, and, upon liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities. The
holders of Common Stock are entitled to one vote for each share of Common
Stock held of record by them, may cumulate votes in the election of
directors, have
no preemptive or conversion rights and are not subject to further calls or
assessments by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Common Stock currently
outstanding is fully paid and non-assessable.
The Company is also authorized to issue up to 10,000,000 shares of
Preferred Stock. The Board of Directors of the Company is authorized to fix
the dividend rights, dividend rate, conversion rights, voting rights,
liquidation preferences, rights and terms of redemption (including sinking
fund provisions) on any wholly-unissued series of Preferred Stock, the number
of shares constituting any such series and the designation thereof. At
present, no shares of Preferred Stock are outstanding and the Company has no
present plans to issue shares of Preferred Stock.
At January 1, 1997 the Company had outstanding options or warrants to
purchase an aggregate of 1,673,553 shares of Common Stock at various times
through March 1999 at a weighted average exercise price of $1.67 per share.
The Company has commitments from certain shareholders to purchase 480,000
shares of Common Stock and warrants to purchase 120,000 shares of Common
Stock, which warrants are exercisable at a price of $3.00 per share for one
year from issuance. It is anticipated that these units will be issued within
two weeks of the date of this Prospectus. In the event of such issuance, the
Company will issue a warrant to the broker/dealer participating in the
Offering to purchase 43,200 shares of Common Stock for an exercise price of
$2.50 per share at any time within two years from the date of issuance.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The audited financial statements of the Company as of December 31, 1995
and for the two-years then ended have been audited by Lever, Lippe, Hellie &
Company LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority to said firm as experts in giving said report.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-2
Balance Sheets as of December 31, 1994 and 1995. . . . . . . . . . . . . . . . . . . .F-3
Statements of Operations for the years ended December 31, 1994 and 1995. . . . . . . .F-4
Statements of Shareholders' Deficit for the years ended December 31, 1994 and 1995 . .F-5
Statements of Cash Flows for the years ended December 31, 1994 and 1995. . . . . . . .F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-7
UNAUDITED FINANCIAL STATEMENTS OF MYO DIAGNOSTICS, INC.
Balance Sheet as of September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . .F-16
Statements of Operations and Shareholders' Deficit for the nine
months ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . .F-17
Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 . . . .F-18
INDEPENDENT AUDITORS' REPORT
Myo Diagnostics, Inc.
Culver City, California
We have audited the accompanying balance sheets of Myo Diagnostics, Inc. (a
development stage company), a California corporation (the "Company"), as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
Statement of Financial Accounting Standards No. 7 "Accounting and Reporting
by Development Stage Enterprises", requires the statement of operations and
statement of cash flows to present cumulative amounts from the Company's
inception. The accompanying financial statements do not disclose the
cumulative amounts for the period from January 5, 1987 (date of inception) to
the year ended December 31, 1993.
In our opinion, except for the omission from the financial statements of the
disclosures described in the preceding paragraph, such financial statements
present fairly, in all material respects, the financial position of the
Company as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
LEVER, LIPPE, HELLIE & COMPANY LLP
June 6, 1996
F-2
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
----------- -----------
CURRENT ASSETS:
Cash $ 3,030 $ 657,584
Accounts receivable - less allowance for doubtful
accounts of $6,222 and $0 for 1995 and 1994,
respectively 31,468 5,200
Prepaid expenses and other assets 5,659 453
----------- -----------
Total Current Assets 40,157 663,237
FURNITURE AND EQUIPMENT, NET (Note 2) 63,487 58,486
OTHER ASSETS (Note 3) 26,079 14,399
----------- -----------
TOTAL ASSETS $ 129,723 $ 736,122
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7) $ 342,568 $ 77,995
Accrued interest payable (Note 5) 45,520 45,610
Notes payable to bank (Note 4) 400,000 400,000
Notes payable to related parties (Note 5) 146,000 248,500
----------- -----------
Total Current Liabilities 934,088 772,105
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' DEFICIT (Notes 5, 7, 8 and 9):
Common stock, no par value, 50,000,000 shares
authorized, 6,521,259 and 6,267,410 shares issued
and outstanding for 1995 and 1994, respectively 2,028,322 1,729,424
Deficit accumulated during the development stage (2,832,687) (1,765,407)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (804,365) (35,983)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 129,723 $ 736,122
----------- -----------
----------- -----------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-3
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- ---------
REVENUE $ 67,600 $ 8,041
OPERATING EXPENSES:
Research and development 239,307 257,536
Technical services 191,588 155,688
Sales and marketing 143,934 55,983
General and administrative 515,810 315,595
----------- ---------
Total Operating Expenses 1,090,639 784,802
----------- ---------
Loss from Operations (1,023,039) (776,761)
OTHER INCOME (EXPENSE):
Interest expense (49,251) (45,427)
Interest income 5,810 1,090
----------- ---------
Total Other Income (Expense) (43,441) (44,337)
----------- ---------
Loss Before Provision for Income Taxes (1,066,480) (821,098)
Provision for Income Taxes (Note 6) 800 800
----------- ---------
Net Loss $(1,067,280) $(821,898)
----------- ---------
----------- ---------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-4
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1994
NO. OF
VALUE SHARES ADDITIONAL
PER ISSUED COMMON PAID-IN ACCUMULATED
SHARE (NOTE 8) STOCK CAPITAL DEFICIT TOTAL
------- --------- -------- ----------- ----------- ------------
Issued upon incorporation for services $ 0.01 910,000 $ 9,100 $ (1,415) $ -- $ 7,685
Issued for services 0.01 952,250 9,523 -- 9,523
Net loss from inception through
December 31, 1990 -- -- -- $ (20,367) (20,367)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1990 1,862,250 18,623 (1,415) (20,367) (3,159)
Issued for services 0.01 305,950 3,060 (656) -- 2,404
Issued for cash 2.23 11,230 112 24,888 -- 25,000
Net loss -- -- -- (243,621) (243,621)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1991 2,179,430 21,795 22,817 (263,988) (219,376)
Net loss -- -- -- (258,180) (258,180)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1992 2,179,430 21,795 22,817 (522,168) (477,556)
Issued for cash 0.10 11,230 112 1,011 1,123
Net loss -- -- -- (421,341) (421,341)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1993 2,190,660 21,907 23,828 (943,509) (897,774)
Stock split 2,190,660 21,907 (21,907) -- --
Issued for exchange of $174,090 of debt 1.20 144,619 1,446 172,644 -- 174,090
Issued for services 0.01 60,000 600 -- -- 600
Issued for net assets of limited
partnership, net of related expenses
of $1,350 0.49 755,330 7,553 365,332 -- 372,885
Issued for cash in a private placement,
net of related expenses of $6,600 1.22 245,400 2,454 297,696 -- 300,150
Issued for cash in a private placement,
net of related expenses of $164,036 1.23 680,741 6,807 829,157 -- 835,964
Net loss -- -- -- (821,898) (821,898)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1994 6,267,410 62,674 1,666,750 (1,765,407) (35,983)
Issued for cash 0.05 15,000 150 600 -- 750
Issued for cash in a private placement,
net of related expenses of $67,609 1.80 125,000 1,250 156,141 -- 157,391
Issued for cash in a private placement,
net of related expenses of $64,243 1.80 111,111 1,111 134,646 -- 135,757
Issued for cash 1.82 2,738 28 4,972 -- 5,000
Net loss -- -- -- (1,067,280) (1,067,280)
--------- -------- ----------- ----------- ------------
Balance - December 31, 1995 6,521,259 $ 65,213 $1,963,109 $(2,832,687) $ (804,365)
--------- -------- ----------- ----------- ------------
--------- -------- ----------- ----------- ------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-5
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,067,280) $ (821,898)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 36,104 27,054
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (26,269) (5,200)
Prepaid expenses (5,206) (453)
Other assets (12,867) (2,061)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 264,483 84,609
------------ ----------
Net Cash Used in Operating Activities (811,035) (717,949)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (39,917) (27,285)
------------ ----------
Net Cash Used in Investing Activities (39,917) (27,285)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under bank revolving lines of credit -- 400,000
Borrowings on notes payable to related parties 12,000 48,500
Repayments on notes payable to related parties (114,500) (103,500)
Net proceeds from issuance of common stock 298,898 997,265
------------ ----------
Net Cash Provided by Financing Activities 196,398 1,342,265
------------ ----------
Net (Decrease) Increase in Cash (654,554) 597,031
CASH - Beginning of Year 657,584 60,553
------------ ----------
CASH - END OF YEAR $ 3,030 $ 657,584
------------ ----------
------------ ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the years for:
Interest $ 49,251 $ 44,047
------------ ----------
------------ ----------
Taxes $ 800 $ 1,600
------------ ----------
------------ ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
During 1994, limited partners' interest in assets and
liabilities of the Partnership were transferred to the
Company through issuance of common stock and debt
as follows:
Notes payable to related parties $ - $ 175,000
Common stock issued - 372,885
------------ ----------
Limited partners' interest in net assets of Partnership $ - $ 547,885
------------ ----------
------------ ----------
During 1994, 144,619 Shares of common stock were issued upon
the conversion of notes payable to related parties $ - $ 174,090
------------ ----------
------------ ----------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-6
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
GENERAL
Myo Diagnostics, Inc. (the "Company") (a development stage company), a
California corporation, was incorporated and commenced operations on
January 5, 1987 as AREX, Inc. The name was changed to Devion Group and
then to Myo Diagnostics, Inc. on September 15, 1989. The principal activity
of the Company is the research and development of Muscle Pattern
Recognition. Muscle Pattern Recognition provides an objective evaluation
of soft-tissue-muscle injuries.
BUSINESS COMBINATION
On December 19, 1994, the Company concluded a business combination as
discussed in the following paragraph:
The Company held a 97.2% sole general partner interest in Myo Diagnostics,
Ltd. (the "Partnership"), a California limited partnership, that began
operations on April 18, 1991. The Partnership researched and developed the
hardware and related software to perform Muscle Pattern Recognition.
Effective on December 19, 1994, the Partnership's assets and liabilities
were transferred to the Company at their book value and neither the
Partnership or Corporation recognized gain or loss. The 2.8% limited
partners exchanged their interests in the Partnership totaling $547,885
for 755,330 shares of common stock and $175,000 in notes payable (see
Note 5). The business combination was recorded in a manner similar to a
"pooling-of-interest" method of accounting. Under this method, assets and
liabilities of the Partnership were recorded at historical cost.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
include:
Cash on deposit with a financial institution amounting to
approximately $6,451 and $790,000 as of December 31, 1995 and 1994,
respectively, which was insured for up to $100,000 by the U.S. Federal
Deposit Insurance Corporation.
REVENUE
Revenue is reported at the estimated net realizable amounts from patients,
third-party payers and others for services rendered.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-7
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
An allowance for uncollectibles is recorded to report the receivables for
services at their net realizable value. Estimates for uncollectible
accounts are reported in the period during which the services are provided
even though the actual amounts may become known at a later date. Included
in general and administrative expenses is bad debt expense of $18,291 and
$0 for the years ended December 31, 1995 and 1994, respectively.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the related assets. The estimated useful lives are as follows:
Furniture and equipment 5 -7 years
Computer hardware and software 5 years
Leasehold improvements are amortized over 3 years, which is the shorter of
their estimated useful lives or the remaining term of the lease.
Expenditures for maintenance and repair are charged to operations as
incurred, while renewals and betterments are capitalized.
PATENT
Patents consist of legal fees incurred in securing a patent for the
Company's product. These costs are amortized over a period of seventeen
years using the straight-line method.
INCOME TAXES
Effective January 1, 1993, the Company became a taxable entity. Previously,
the Company was taxed as an "S" corporation. As such, the Company's
earnings and losses were included in the personal tax returns of the
stockholders, and the Company did not record an income-tax provision.
Effective with the change in tax status, income taxes are provided for the
tax effects of transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes related primarily to
temporary differences between tax and financial reporting of certain assets
and liabilities.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-8
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
1995 1994
--------- --------
Leasehold improvements $ 1,420 $ --
Furniture and equipment 67,911 60,095
Computer hardware and software 121,245 90,564
--------- --------
190,576 150,659
Accumulated depreciation (127,089) (92,173)
--------- --------
FURNITURE AND EQUIPMENT, NET $ 63,487 $ 58,486
--------- --------
--------- --------
Depreciation and amortization expense charged to operations during the
years ended December 31, 1995 and 1994 was $34,916 and $26,466,
respectively.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-9
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. OTHER ASSETS
Other assets consist of the following:
1995 1994
------- -------
Patents (net of accumulated amortization
of $2,265 in 1995 and $1,077 in 1994) $19,957 $10,011
Security deposits 6,122 4,388
------- -------
TOTAL OTHER ASSETS $26,079 $14,399
------- -------
------- -------
Amortization expense on patent costs charged to operations during the years
ended December 31, 1995 and 1994 was $1,188 and $870.
4. NOTES PAYABLE TO BANK
The Company has six revolving lines of credit with a bank that provide for
borrowings up to a total of $400,000. Borrowings under these lines of
credit bear interest at the bank's prime rate (8.75% and 8.5% as of
December 31, 1995 and 1994, respectively) plus .75% to 1.5%, payable
monthly. These revolving lines of credit will mature beginning June 10,
1996 through January 10, 1997, and are collateralized by standby letters of
credit issued to certain third parties (see Note 9). The Company has
$400,000 outstanding on these revolving lines of credit as of December 31,
1995 and 1994.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-10
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of amounts borrowed from
shareholders of the Company. These amounts are as follows as of
December 31, 1995 and 1994:
1995 1994
-------- --------
Unsecured-promissory notes payable to
shareholders in the original principal amount
totaling $175,000 were incurred in connection
with purchasing the 2.8% limited partners'
interest in the Partnership. These notes bear
interest at 8% per annum. The principal sum
of $87,500 plus accrued interest was due
January 31, 1995. The remaining principal
sum of $87,500 plus accrued interest was due
September 30, 1995. In the event of default of
the remaining principal sum of $87,500, the
Company shall issue 3,000 shares of common
stock to the holders of such notes in addition
to the payment of principal and interest. The
Company is in default on the $87,500 remaining
principal sum and is committed to issue 42,000
shares of common stock (see Note 7) $ 87,500 $175,000
Unsecured-promissory notes payable to the
Company's officer and majority shareholder.
These notes bear interest at 10% per annum and
are due upon demand. 58,500 73,500
-------- --------
TOTAL $146,000 $248,500
-------- --------
-------- --------
LICENSING AGREEMENT
The Company is obligated under a licensing agreement to a partnership whose
partners are officers and shareholders of the Company (see Note 7).
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-11
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. INCOME TAXES
As discussed in Note 1, the Company changed its tax status, effective
January 1, 1993. As of December 31, 1995, the Company has approximately
$2,267,000 in federal net operating loss carryforwards, attributable to
losses incurred since the change in its tax status, that may be offset
against future taxable income through the year 2008. The deferred-income-
tax benefit of the loss carryforward has been offset by a valuation
allowance of the same amount. Accordingly, no deferred-income-tax benefit
has been recognized in the 1995 and 1994 financial statements.
The provision for income taxes consists of current taxes payable in the
amount of $800, which represents the California minimum franchise tax.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain equipment under non-
cancelable-operating leases and sub-leases expiring at various dates
through 1997. Certain leases contain renewal provisions. Future minimum
lease payments under these operating leases as of December 31, 1995 are
summarized as follows:
YEARS ENDING AMOUNT
-------------- ----------
1996 $ 51,281
1997 50,761
1998 24,600
----------
Total $126,642
----------
----------
Rent expense under all operating leases was $41,309 and $35,187 for the
years ended December 31, 1995 and 1994.
LICENSING AGREEMENT
The Company has a licensing agreement with Toomim Research Group ("TRG"),
a partnership, whose partners are also shareholders of the Company (see
Note 5). Under the terms of the licensing agreement, the Company is
entitled to exclusive rights to the product under development by the
Company, beginning on August 1, 1993 and ending on August 1, 2013, unless
terminated earlier. As consideration for the exclusive rights to the
product, the Company shall pay TRG a royalty.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-12
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. COMMITMENTS AND CONTINGENCIES (Continued)
The royalty is payable quarterly under the following terms:
- The Company shall pay a royalty on the lesser of 10% of total revenue
or $30 per patient examined and report prepared up to the first 10,000
examinations. After the first 10,000 examinations, the Company shall pay
a royalty of 5% of total revenue but not less than $12.50 per patient
examined and report prepared.
- The Company shall pay a royalty of 5% of total revenue for each sale,
lease, rental, license, transfer or assignment of the product under
license to the extent that no royalty was paid on such total revenue.
- The Company shall pay a royalty of 3% of total revenue for any derivative
technology developed by the Company to the extent that no royalty was
paid on such total revenue.
Under the terms of this agreement, included in accounts payable and accrued
expenses are royalties payable of $1,350 and $0 as of December 31, 1995 and
1994, respectively. There were no royalties paid during the years ended
December 31, 1995 and 1994.
COMMITMENTS TO ISSUE COMMON STOCK
The Company is committed to issue common stock as of December 31, 1995, as
follows:
As discussed in Note 5, the Company defaulted on the $87,500 remaining
principal sum of the notes payable to related parties and is obligated to
issue 42,000 shares of common stock. As of December 31, 1995, included in
accounts payable and accrued expenses is $75,600 that represents the
estimated fair value, on date of default, of the 42,000 shares of common
stock to be issued in 1996.
As of December 31, 1995, the Company is obligated to pay $100,000 in
connection with services rendered for common-stock-private placements. The
Company will settle this obligation with cash or common stock.
8. SHAREHOLDERS' DEFICIT
STOCK SPLIT
On May 4, 1994, the Board of Directors authorized a two-for-one-stock split
of the Company's no par value common stock for shareholders as of that
date. As a result of the split, 2,190,660 shares were issued. All
references in the accompanying financial statements to the per share
amounts for 1994 have been restated to reflect the stock split.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-13
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. SHAREHOLDERS' DEFICIT (Continued)
COMMON STOCK ISSUED FOR SERVICES
Since its inception, the Company has issued a total of 4,396,400 shares of
common stock for services rendered. The common stock issued was recorded
at $.01 per share, which was the fair value determined by the Board of
Directors at the time of issuance.
COMMON STOCK ISSUED FOR NET ASSETS OF PARTNERSHIP
During 1994, the Company issued a total of 755,330 shares of common stock
for approximately $.49 per share in connection with a business combination
with the Partnership, as discussed in Note 1. The fair value assigned to
the common stock was determined by the Board of Directors on the date of
the business combination and represents the net book value of the limited
partners' interest in the net assets transferred, net of $175,000 notes
payable (Note 5).
STOCK ISSUE COSTS
The Company incurred a total of $44,984 in expenses relating to a withdrawn
1995-private placement. These expenses were charged to operations and are
included in general and administrative expenses for the year ended
December 31, 1995.
9. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
There were 70,000 and 50,000 options granted allowing employees and
consultants to purchase shares of common stock at option prices, ranging
from $.10 to $1.47 per share as of December 31, 1995 and 1994,
respectively. These options expire upon certain events. These options have
not been exercised as of December 31, 1995.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-14
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. STOCK OPTIONS AND WARRANTS (Continued)
WARRANTS
As of December 31, 1995, the Company had outstanding warrants to purchase a
total of 615,555 shares of common stock as follows:
Warrant Expiration Date 12/23/97 6/23/98 12/31/98 12/31/96 12/31/96
--------- -------- --------- --------- ---------
Shares allocated 100,000 83,333 222,222 200,000 10,000
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
Warrant price per share $1.50 $1.75 $2.00 $2.50 $2.00
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
STOCK OPTIONS GRANTED FOR COLLATERALIZING NOTES PAYABLE TO BANK
As collateral for the bank revolving lines of credit (see Note 4), certain
third parties (the "Guarantors") have guaranteed the notes payable to bank
by obtaining standby letters of credit totaling $400,000. The Company
granted stock options to purchase the Company's common stock as
consideration for the guarantees. These options entitle the Guarantors to
purchase an aggregate of 400,000 shares of common stock for $1.13 per
share, if certain conditions are met. The options became exercisable at
various dates during 1995; and expire upon certain conditions. These
options have not been exercised as of December 31, 1995.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-15
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
CURRENT ASSETS:
Cash $ 224,455
Accounts receivable - less allowance for doubtful
accounts of $9,150 18,022
Prepaid expenses and other assets 6,509
-------------
Total Current Assets 248,986
FURNITURE AND EQUIPMENT, Net of accumulated
depreciation of $155,030 128,165
OTHER ASSETS 29,251
-------------
Total Assets $ 406,402
-------------
-------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 106,954
Accrued interest payable 45,710
Capital lease obligation 47,346
Notes payable to bank 400,000
Notes payable to related parties 229,500
-------------
Total Current Liabilities 829,510
-------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 50,000,000 shares
authorized, 7,221,037 shares issued and outstanding 3,200,154
Deficit accumulated during the development stage (3,623,262)
-------------
Total Shareholders' Deficit (423,108)
-------------
Total Liabilities and Shareholders' Deficit $ 406,402
-------------
--------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT
AND NOTES TO FINANCIAL STATEMENTS
F-16
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND SHAREHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1996
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- -----------------
REVENUE $ 13,650 $ 57,200
OPERATING EXPENSES:
Research and development 164,253 194,959
Technical services 133,415 161,133
Sales and marketing 65,975 118,096
General and administrative 399,076 285,729
----------------- -----------------
Total Operating Expenses 762,719 759,917
----------------- -----------------
Loss from Operations (749,069) (702,717)
OTHER INCOME (EXPENSE):
Interest expense (46,612) (36,561)
Interest income 5,121 5,427
----------------- -----------------
Total Other Income (Expense) (41,491) (31,134)
----------------- -----------------
Net Loss (790,560) (733,851)
SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE - BEGINNING OF YEAR (2,832,702) (1,765,090)
----------------- -----------------
SHAREHOLDERS' DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE - END OF YEAR $ (3,623,262) $ (2,498,941)
----------------- -----------------
----------------- -----------------
SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT
F-17
MYO DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (790,560) $ (733,851)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,940 26,158
Changes in operating assets and
liabilities:
(Increase) decrease in assets:
Accounts receivable 13,446 (42,073)
Prepaid expenses (850) (14,189)
Other assets (3,172) (8,435)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (235,424) 35,987
----------------- -----------------
Net Cash Used in Operating
Activities (988,620) (736,403)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (92,619) (13,725)
----------------- -----------------
Net Cash Used in Investing
Activities (92,619) (13,725)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to related
parties 95,500 -
Repayments on notes payable to related
parties (12,000) (114,500)
Net proceeds from issuance of common
stock 1,171,818 -
Capital lease obligation 47,346 374,386
----------------- -----------------
Net Cash Provided by Financing
Activities 1,302,664 259,886
----------------- -----------------
Net Increase (Decrease) in Cash 221,425 (490,242)
CASH - Beginning of Periods 3,030 657,584
----------------- -----------------
CASH - End of Periods $ 224,455 $ 167,342
----------------- -----------------
----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest $ 40,483 $ 39,634
----------------- -----------------
----------------- -----------------
Income Taxes $ 800 $ 800
----------------- -----------------
----------------- -----------------
SEE ACCOMPANYING ACCOUNTANTS' COMPILATION REPORT
F-18
No dealer, salesperson or any other individual has been
authorized to give any information or make any representations in
connection with the Offering covered by this Prospectus other
than those contained in this Prospectus. If given or made, such
information or representations must not be relied upon as having
been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the Shares in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that there has not
been any change in the facts set forth in this Prospectus or in
the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Additional Information .................................. 2
Prospectus Summary ...................................... 3
Risk Factors ............................................ 4
The Company ............................................. 7
Dividend Policy ......................................... 7
Capitalization .......................................... 7
Common Stock Matters .................................... 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition ................... 8
Business ................................................ 9
Management .............................................. 16
Principal and Selling Shareholders ...................... 20
Certain Transactions .................................... 21
Description of Capital Stock ............................ 21
Legal Matters ........................................... 22
Experts ................................................. 22
Index to Financial Statements ........................... F-1
UNTIL _______________, 1997, (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,255,561 Shares
MYO DIAGNOSTICS, INC.
Common Stock
_______________
PROSPECTUS
_______________
______________ ____, 1997
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary
duties in certain circumstances. This limitation has no effect on a
director's liability (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of
the Registrant or its shareholders or that involve the absence of good faith
on the part of the director, (iii) for any transaction from which a director
derived an improper personal benefit, (iv) for acts or omissions that show a
reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a
risk of a serious injury to the Registrant or its shareholders, (v) for acts
or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director's duty to the Registrant or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") (concerning contracts or transactions between the
Registrant and a director) or (vii) under Section 316 of the California Code
(concerning directors' liability for improper dividends, loans and
guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not
affect the availability of injunctions and other equitable remedies available
to the Registrant's shareholders for any violation of a director's fiduciary
duty to the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization
for the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's
directors, officers, agents and employees. In addition, the Registrant, at
its discretion, may provide indemnification to persons whom the Registrant is
not obligated to indemnify. Registrant has entered into indemnity agreements
with all directors which provide the maximum indemnification permitted by
law. These agreements, together with the Registrant's Bylaws and Articles of
Incorporation, may require the Registrant, among other things, to indemnify
such directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if
available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
The Registrant is currently reviewing director and officer liability
insurance policies and may purchase such a policy in the future.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions
described above and elsewhere herein:
DOCUMENT EXHIBIT NUMBER
Registrant's Amended and Restated Articles of
Incorporation........................................... 3.1
Registrant's Bylaws....................................... 3.2
Registrant's Form of Indemnification Agreement............ 10.1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
Registration fee--Securities and
Exchange Commission ............................ $ 2,388
Accounting fees and expenses ........................ $ 1,500
Legal fees and expenses ............................. $30,000
Printing ............................................ $ 6,500
Miscellaneous ....................................... $ 1,000
-------
Total ..................................... $41,388
-------
-------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1994 the Company issued 11,230 shares of Common Stock for $1,123
upon exercise of an option issued for a certain securities brokerage services
provided by a securities broker. The issuance of these shares was exempt from
registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In August 1994 the Company issued options to purchase 400,000 shares of
Common Stock for $1.13 per share to six Canadian residents who provided
letters of credit to support the Company's bank debt. The issuance of these
shares was exempt from registration pursuant to Regulation S and pursuant to
Section 4(2) of the Act as a transaction not involving any public offering.
In December 1994 the Company issued 60,000 shares for $600 upon exercise
of an option granted to Wayne Cockburn, a Canadian resident, for financial
consulting and investment banking services provided by that individual. The
issuance of these shares was exempt from registration pursuant to Regulation
S and Section 4(2) of the Act as a transaction not involving any public
offering.
In December 1994 the Company issued an aggregate of 755,330 shares of
Common Stock and notes in the aggregate principal amount of $175,000 in
exchange for limited partnership interest and revenue participation interests
of limited partners and others in Myo Diagnostics, Ltd., a limited
partnership for which the Company was the general partner (the
"Partnership"). In June 1996 the Company issued 42,000 shares of Common
Stock to the former limited partners of the Partnership as a penalty for
failing to timely pay principal and interest on notes issued to such
partners. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In December 1994 the Company issued 680,741 shares of Common Stock and
warrants to purchase 183,333 shares of Common Stock for an aggregate of
$1,000,000 to the Ontario Municipal Employees Retirement Board, Ontario,
Canada ("OMERB"). The issuance of these securities was exempt from
registration pursuant to Regulation S and pursuant to Section 4(2) as a
transaction not involving any public offering. The Company paid a
brokerage commission of $100,000 to Michael Ryshpan, Ontario, Canada, for
services in connection with this transaction.
In December 1994 the Company issued 144,619 shares of Common Stock to
Gerald D. Appel, Chief Executive Officer, Chairman of the Board and principal
shareholder of the Company, in cancellation of indebtedness of $212,589 owed
by the Company to Mr. Appel for advances made by Mr. Appel to the Company.
The issuance of to these shares was exempt from registration pursuant to
Section 4(2) as a transaction not involving any public offering.
In March 1995, the Company issued: (i) an option to purchase 15,000
shares of Common Stock for $.10 per share to an executive officer of the
Company, and (ii) an option to purchase 5,000 shares of Common Stock for
$1.17 per share to an employee of the Company. The issuance of these options
was exempt from registration pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In April 1995 the Company issued 15,000 shares of the Common Stock for
$750 upon an exercise of an option granted in 1992 to a physician who had
provided facilities and services in connection with clinical studies by the
Company. The issuance of these shares was exempt from registration pursuant
to Section 4(2) of the Act as a transaction not involving any public offering.
In August 1995 the Company issued 125,000 shares of Common Stock and
warrants to purchase 200,000 shares of Common Stock for an aggregate of
$225,000 to an institutional investment fund in Ontario, Canada, and issued
113,849 shares of Common Stock and warrants to purchase 222,000 shares of
Common Stock for an aggregate purchase price of $205,000 to OMERB. The
issuance of these securities was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In January 1996 the Company issued 27,778 shares for an aggregate of
$50,000 to a shareholder of the Company who was a resident of Canada. The
issuance of these shares was exempt from registration pursuant to Regulation
S and pursuant to Section 4(2) of the Act as a transaction not involving any
public offering.
In February 1996, the Company issued a note in the amount of $50,000 and
warrants to purchase 20,000 shares of Common Stock for $2.50 per share for an
aggregate of $50,000 to an investment fund in Ontario, Canada. In December
1996, the Company issued to the investment fund 25,000 shares of Common Stock
in cancellation of this note. The issuance of these securities was exempt
from registration pursuant to Regulation S and pursuant to Section 4(2) of
the Act as a transaction not involving any public offering.
In May 1996, Registrant sold 500,000 shares of its Common Stock for
$2.00 per share, or an aggregate purchase price of $1,000,000, to Canadian
investors. The issuance of these securities was exempt from registration
pursuant to Regulation S and pursuant to Section 4(2) of the Act as a
transaction not involving any public offering.
In June 1996, Registrant issued an option to purchase 12,000 shares of
Common Stock for $.50 per share to an individual who is on the Scientific
Advisory Board of the Registrant in satisfaction of certain consulting
services provided by this individual. The issuance of this option was exempt
from registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering by the Registrant.
In September 1996 the Registrant issued 50,000 shares of Common Stock
for $.10 per share upon exercise of an option granted in September 1993 to an
individual who is on the Company's Medical Advisory Board for consulting
services to the Registrant. The issuance of these shares was exempt from
registration pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
In December 1996 the Registrant issued and sold 480,000 units to two
Canadian institutional investors for an aggregate of $1,200,000. Each unit
was comprised of one share of Common Stock and one quarter stock purchase
warrant. Each whole warrant entitles the holder to purchase one share of
Common Stock at a price of $3.00 per share through December 1997. The
Registrant utilized the services of Griffiths McBurney & Partners, a
broker/dealer in Ontario, Canada, in connection with this transaction, which
received a fee of $84,000 and warrants to purchase 43,200 shares of Common
Stock at a price of $2.50 per share, exercisable through December 1998. The
issuance of these securities was exempt from registration pursuant to
Regulation S and pursuant to Section 4(2) of the Act as a transaction not
involving any public offering.
ITEM 27. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
3.1 Amended and Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement.
10.2 Licensing Agreement, dated October 31, 1993, by and between
Registrant and Toomim Research Group, as amended.
10.3 Securities Purchase Agreement, dated December 23, 1994, by and
among Registrant, OMERB, Gerald Appel and Hershel Toomim.
10.4 Securities Purchase Agreement, dated August 18, 1995, by and among
Registrant, OMERB and Gerald Appel.
10.5 Series A Warrant of OMERB, dated December 23, 1994, as amended.
10.6 Series B Warrant of OMERB, dated December 23, 1994, as amended.
10.7 Series C Warrant of OMERB, dated August 18, 1995, as amended.
10.8 Waiver Letter, dated December 8, 1995, from OMERB to Registrant.
10.9 Letter Agreement, dated July 8, 1996, by and between Registrant and
OMERB.
10.10 Letter Agreement, dated December 13, 1994, by and among Registrant
and Donald Patterson, Ronald Goldsack, James Connacher, Chris Skillen,
Richard Reid and James Black, and Form of Stock Option Agreement,
dated December 19, 1994, by and among Registrant and such persons,
as amended.
10.11 Lease Agreement, dated August 1, 1996, by and between Registrant
and The Urcis Family Trust.
10.12 Non-transferable Warrant of Griffiths McBurney & Partners, dated
December 6, 1996.
10.13 Form of Warrant, dated December 6, 1996, by and among Registrant
and persons purchasing units in private placement of December 6,
1996.
10.14 Stock Option Agreement, dated March 23, 1995, by and between
Registrant and Steve Nelson.
10.15 Business PrimeLine Promissory Notes, between Registrant and Wells
Fargo Bank, National Association, as amended.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion to be filed as Exhibit 5.1 hereto).*
23.2 Consent of Lever, Lippe, Hellie & Company LLP
24.1 Power of Attorney (included in signature page).
27 Financial Data Schedule.
___________________________
* To be filed by Amendment.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form or
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial BONA FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer of controlling person of the registrant in the successful defense of
any action, suite of proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Los Angeles, State of California,
on January 3, 1997.
MYO DIAGNOSTICS, INC.
BY: /S/ GERALD D. APPEL
----------------------------------
GERALD D. APPEL, PRESIDENT, CHIEF
EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Gerald D. Appel as his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post effective amendments) to this Registration Statement and a new
Registration Statement filed pursuant to Rule 462(b) of the Securities Act of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gerald D. Appel President, Chief Executive January 3, 1997
- ---------------------------- Officer and Chairman of
GERALD D. APPEL the Board of Directors
/s/ Scott Roecklein Vice President of Operations January 2, 1997
- ---------------------------- and Secretary
SCOTT ROECKLEIN (Principal Financial and
Accounting Officer)
/s/ Dr. Hershel Toomim, Sc.D. Director January 2, 1997
- ----------------------------
DR. HERSHEL TOOMIM, SC.D.
/s/ Wayne C. Cockburn Director January 3, 1997
- ----------------------------
WAYNE C. COCKBURN