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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A-1
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act Of 1934
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JACOBSON RESONANCE ENTERPRISES, INC.
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(Name of Small Business Issuer in Its Charter)
Nevada 65-0684400
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
9960 Central Park Boulevard, #302
Boca Raton, Florida 33428
(561) 477-8020
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(Address and Telephone Number of Principal Executive Offices)
Copies of communications to:
William C. Phillippi, Esq.
Broad and Cassel
Broward Financial Centre
500 E. Broward Boulevard, Suite 1130
Fort Lauderdale, Florida 33394
Telephone No. (954) 764-7060
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
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(Title of class)
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(Title of class)
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SPECIAL NOTE - FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS REGISTRATION STATEMENT, INCLUDING,
WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND WORDS OF SIMILAR IMPORT CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS.
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE SUCCESS AND SUBSEQUENT ACCEPTANCE OF NEW MEDICAL RESEARCH AND
DEVELOPMENT; THE REGULATORY FRAMEWORK OF THE HEALTH CARE INDUSTRY; THE COMPANY'S
ABILITY TO CREATE, SUSTAIN, MANAGE OR FORECAST ITS GROWTH; ITS ABILITY TO
ATTRACT AND RETAIN KEY PERSONNEL; ITS ABILITY TO PROTECT TECHNOLOGY; CHANGES IN
ITS BUSINESS STRATEGY OR DEVELOPMENT PLANS; COMPETITION; DEMOGRAPHIC CHANGES;
BUSINESS DISRUPTIONS; ADVERSE PUBLICITY; AND INTERNATIONAL, NATIONAL AND LOCAL
GENERAL ECONOMIC AND MARKET CONDITIONS.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
Jacobson Resonance Enterprises, Inc. (the "Company"), is in the
development stage and has not had any significant revenue from operations to
date. The Company is a Nevada corporation incorporated on March 6, 1988, and
originally known as Pioneer Services International, Ltd. On June 4, 1996, the
Company acquired Jacobson Resonance Machines, Inc., a closely-held Florida
corporation, in exchange for 57,220,000 shares of the Company's common stock, or
a 92% equity interest in the Company. On July 30, 1998, the Company changed its
name to Jacobson Resonance Enterprises, Inc.
The Company is developing electromagnetic resonance technology patented
by Dr. Jerry I. Jacobson ("Jacobson Resonance") for applications in the medical,
commercial, agriculture and industrial industries. The Company is currently
negotiating, and will continue to use, joint venture and licensing arrangements,
as well as its own resources, to develop, manufacture, distribute and market
products using Jacobson Resonance for various applications.
The Technology
The principles behind Jacobson Resonance are derived from physics. Dr.
Jerry I. Jacobson, trained as a dentist and oral surgeon, developed an interest
in magnetotherapy through his extensive research and study of the work of Albert
Einstein. Einstein tried in vain to develop an algebraic unified-field equation,
which could potentially provide a semblance of order to the way nature works.
Although he failed to isolate the principle, Einstein was certain of its
possibility and named the principle the "Unified Field Equation." Dr. Jacobson
pinpointed the principle that eluded Einstein and became the first person in the
world to file a specification with the U.S. Patent Office conceiving the idea of
how quantum physics united with relativity. While Dr. Jacobson's specification
did not change quantum physics or relativity, he demonstrated a practical way to
unite them, adding a new dimension to quantum physics and extending Einstein's
theory of relativity.
Dr. Jacobson has quantified gravity as it relates to matter. According
to Dr. Jacobson, if energy equals mass times the speed of light squared, then
mass times the speed of light squared equals BVL-q where "B" stands for magnetic
field, "V" for velocity, "L" for length and "q" for a unit electrical charge of
one coulomb. Dr. Jacobson considers the Jacobson Resonance equation, mc(2) =
BVL-q, to be a fundamental law of nature. Reduced to layperson terms, the right
side of the equation equals energy created by the interaction of any conductive
body with a magnetic field. The left side of the equation represents
gravitational energy contained in a mass within a conductor.
With this newly discovered law of nature, Dr. Jacobson ventured into
terrain that was previously believed nonexistent. According to the laws of
quantum physics, the pico tesla fields and nanogauss fields (similar to the
magnetic profile of the brain, the heart and the liver) were
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too weak to produce heat or trigger chemical reactions. It followed that living
systems could not be beneficially influenced. Dr. Jacobson set out to build a
resonator machine (the "Jacobson Resonator") that would track this new law of
nature and, in due course, discover the appropriate resonance for a patient.
Once engaged, he firmly believed that living systems could be beneficially
influenced. The problem was connecting these very weak force-fields with
biochemically induced interactions.
Healthcare Applications
The Company is designing and developing electromedical and
electrotherapeutic medical devices that use Jacobson Resonance for the
non-invasive treatment of musculoskeletal injury and disease. The Company's
proprietary resonators employ a weak electromagnetic field in harmony with the
human body's electromagnetic field to produce gravity waves and
electromagnetically-induced vibrations, which in turn seem to render viruses and
bacteria incapable of invading healthy cells and to allow infected cells to
regain normalcy. This technology is based on the principle of magnetotherapy,
which attempts to treat human pathologies with magnetic force-fields.
The natural process of musculoskeletal tissue healing involves a
complex interaction of several physiological processes, which include the
stimulation of specific cells such as osteoblasts, fibroblasts and endothelial
cells. When an injury occurs, growth factors are produced at the healing site
which stimulate selected cells to initiate the healing cascade. In most cases,
these cells are able to initiate repair in response to an injury and restore the
musculoskeletal tissue to its original strength and structure. Cell stimulation
is a necessary component of tissue regeneration and is dependent upon certain
triggering events that activate the production of connective tissue.
Magnetotherapy, utilizing a non-invasive medical treatment that alters the
electromagnetic force-field of a patient, attempts to give the body's natural
healing process a push, by increasing the rate of production of the regenerative
tissues.
Currently, in treating human patients, the selection of the
electromagnetic field for a particular type of disorder requires trial based
upon theory. Achieving resonance has required time and patience because various
critical molecules must be identified for a particular disorder in order to
reorder electrophysiological states back to normalcy. To the Company's
knowledge, there is no other commercially available apparatus or device that is
attempting to lock into the patient's magnetic force field and produce
vibrations which reinforce and re-establish the normal structure of molecules
and coherent communication between atoms. There is increasing research and
interest in the phenomena discovered by Dr. Jacobson, and much of this interest
has been personally ignited by Dr. Jacobson's many articles and extensive
testing.
The Company is one of many engaged in magnetotherapy. However, its area
of interest sets it apart from its competitors. The Company uses very weak
force-fields involving pico tesla fields, nanogauss fields and even weaker
force-fields. Pico tesla fields are about 50,000,000 times weaker than the
earth's geomagnetic field, and nanogauss fields are about 500,000,000 times
weaker. To place this in proper perspective, magnetic resonance imaging systems
routinely use magnetic force-fields that are 20,000 times stronger than the
earth's geomagnetic field.
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The Company's approach to magnetotherapy is substantially different
from other companies. Most of its competitors work with much stronger
force-fields and most magnetotherapy systems rely on fields comparable to the
earth's geomagnetic field in strength. For example, Orthologic, Inc., which uses
magnetotherapy to heal bone fractures, employs a magnetic-field technology
combining a low energy, static magnetic field with a low-energy, alternating
magnetic field. That company believes the combination of these alternating
force-fields, termed second-generation magnetic-field technology, increases cell
stimulation. While previous first-generation technology utilized electromagnetic
bone-growth stimulators that only produced an alternating magnetic field, more
recent research has revealed that the use of combined static and alternating
magnetic-fields increases the potency of the treatment and therefore reduces the
required daily treatment time. The magnetic force of the technology used by this
company is in the range of the Earth's geomagnetic field.
By contrast, the electromagnetic force-fields emitted by the Jacobson
Resonator are between one million and ten million times weaker than the
electromagnetic force-fields emitted by the equipment produced by that company.
And that company's equipment is universally regarded as employing a low-energy
magnetic field.
Jacobson Resonators for Chronic Pain Reduction
The Company is using Jacobson Resonance for the reduction of chronic
pain. Osteoarthritis, rheumatoid arthritis, lower back injuries, tendinitis,
muscle spasms, sports injuries, carpal tunnel and tarsal tunnel syndromes,
neuropathy and migraine, tension, cluster, sinus and menstrual headaches all
cause chronic pain. Based on data developed by the National Chronic Pain
Outreach Association, an estimated 34 million people in the United States of
America suffer from chronic pain and approximately 50 million work days are lost
annually because of chronic pain.
There are currently seven different models of the Jacobson Resonator
used for the reduction of chronic pain, four of which are designed for clinical
use. The largest clinical model is comprised of a pair of Helmholtz coils that
are seven feet in diameter and placed on a common axis three and a half feet
apart (to encompass a full human frame). The next largest clinical model is
comprised of a pair of Helmholtz coils that are four feet in diameter (to treat
patients who are lying down.). A third clinical model is comprised of a pair of
Helmholtz coils that are 22 inches in diameter and placed on a common axis
eleven inches apart, which can be expanded to 16 inches or 20 inches. The fourth
clinical model is comprised of a pair of Helmholtz coils that are 18 inches in
diameter and placed on a common axis nine inches apart. The latter two models
can encompass a human head, joint or portion of a limb.
The clinical resonators require Food and Drug Administration clearance
before they can be commercially used in the United States of America. The
Company completed double blind and randomized clinical studies earlier in 1999,
and submitted to the FDA on May 27, 1999, its pre-market notification report for
the 18-inch Jacobson Resonator in the treatment of osteoarthritis pain of the
knee. At the request of the FDA, the Company filed an addendum to the report on
September 17, 1999. The Company is currently awaiting the FDA response.
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The clinical resonators also require CE-Mark approval before they can
be commercially used in the European Economic Union. In December 1998, the
Company filed its application for CE-Mark approval for the entire chronic pain
spectrum for the 18-inch Jacobson Resonator. On April 28, 1999, the 18-inch
Jacobson Resonator passed the technical homologation process, meaning that it
met all of the electrical, mechanical and electromagnetic requirements so that
human, clinical trials could begin in Europe. The Company performed the required
clinical trials beginning in early June 1999 and ending in early September 1999.
Also in early June 1999, the seven-foot model passed the technical homologation
process. Because of the 18-inch Jacobson Resonator clinical trials, no clinical
trials of the seven-foot model are expected to be required. The Company
anticipates receiving CE-Mark approval for both the 18-inch and seven-foot
models sometime in the early part of the fourth quarter of 1999. Once that
approval is received, the 22-inch and four-foot clinical models need only pass
the technical homologation process before they can be commercially used in the
European Economic Union.
The other three models of the Jacobson Resonator are portable models.
One portable model consists of a Helmholtz coil that is nine inches in diameter
for use on human limbs. A second portable model is an oval of nine inches by six
inches for the treatment of lower back pain. The third model is a single coil
that is five inches in diameter and designed for placement anywhere on the human
body. The portable models do not require either FDA approval for use in the
United States of America or CE-Mark approval for use in the European Economic
Union.
The Helmholtz coils are networks of flat and circular coils. Each coil
is connected in series to a power generator and attenuator. By design, Helmholtz
coils of equal diameter are paired and share a common axis that is equal in
length to the radius of either coil. An identical low-level current is conveyed
through each coil to ideally produce a homogeneous and evenly dispersed field of
magnetic intensity. The amplitudes used are in the pico tesla range and the
frequencies are extremely low, generally from 0-28 Hertz (EEG frequencies).
The Company is also working on a peripheral product, an "intensity
sweep" device. Once perfected, this device will be able to scan hundreds of weak
electromagnetic fields in a matter of minutes and identify the fields that
provide resonance. This technology will eliminate the time-consuming methodology
currently employed to determine resonance.
Quantum Resonance Technologies, Inc. ("QRTI"), builds the prototypes of
the Company's clinical and portable resonators and is also making the portable
resonators. Benvenutti Electrical Apparatus & Repair, Inc. ("B.E.A.R."), an
electrical apparatus manufacturer in Gulfport, Mississippi, collaborates with
QRTI and manufactures the Company's clinical resonators.
In early September 1999, the Company and Akron Bio-Medical Corporation
("ABM") signed a letter of intent, subject to a more definitive agreement, for
the licensing and distribution of the portable models of the Jacobson Resonator.
ABM would have the exclusive right to market and distribute the portable models
through television and radio with a non-exclusive right to market and distribute
them through other media. In addition, ABM would also become a manufacturer of
the clinical and portable models on a non-exclusive basis.
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The Company plans to distribute the clinical models of the Jacobson
Resonators in the United States of America through existing medical device
distributors. With respect to the portable models, the Company plans to place
them in chain stores and other locations where magnet therapy products are
currently being sold.
Alfonso Serrato is leading the European initiative. Mr. Serrato is a
director of the Company and a former executive officer of Medtronic, Inc., a New
York Stock Exchange company that is a leading manufacturer and distributor of
medical devices around the world. Mr. Serrato worked for Medtronic, Inc., in
various capacities, including Vice President of Worldwide Manufacturing and Vice
President of Pacing Operations, for approximately 18 years until 1996.
In March 1999, the Company signed a ten-year license agreement with
Serrato Enterprises L.L.C., an entity controlled by Mr. Serrato, for the
marketing and distribution of the Company's chronic pain reduction products in
Europe, Africa and the Middle East, excluding Israel and the nations that
formerly constituted the Union of Soviet Socialist Republics. For a summary of
the terms of this agreement, please see "Item 7. Certain Relationships and
Related Transactions." Serrato Enterprises L.L.C. also currently makes the
18-inch and seven-foot models of the Jacobson Resonator and will make all
clinical and portable models for sale in its marketing and distribution
territory. The Company expects to enter into a separate supply and manufacturing
agreement with Serrato Enterprises L.L.C. as well.
In early 1999, the Company and Serrato Enterprises L.L.C. began
construction of a research/testing and educational training facility in
Marbella, Spain. The facility will be operational sometime in the early part of
the fourth quarter of 1999.
Other Planned Uses of Jacobson Resonance
In addition to chronic pain treatment applications, the Company plans
to develop Jacobson Resonance for use in other medical, commercial, agricultural
and industrial applications. They include the following:
1. Jacobson Resonance has been shown to be effective in the
treatment of cardiac arrhythmias in dogs. The Company believes
that this study can lead to the Jacobson Resonator becoming a
required medical device for every hospital emergency room. It
hopes to license this use to a larger medical products company
for development, marketing and distribution.
2. Jacobson Resonance can restructure water molecules to create
greater inter-atomic communication and improve absorption,
coherence, cooperativity and harmony between systems, and
stability. Studies have demonstrated that resonated drinking
water may improve digestion, speed absorption of nutrients in
the gastrointestinal tract and provide ancillary benefits such
as greater regularity, increased stamina and improved
circulation. In July 1999, the Company announced the signing
of a letter of intent with Real Pure Beverage Group, LLC, of
Jackson, Mississippi, for the use of Jacobson Resonance in
multiple water and beverage products lines, including
exclusive marketing and distribution.
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Recently, B.E.A.R. built for the Company a new industrial
model of the Jacobson Resonator consisting of three coils each
ten feet in diameter that are placed vertically and connected
in series for water resonation. After its delivery to Real
Pure early in the fourth quarter of 1999, Real Pure will use
this machine to resonate its water products.
3. Resonation of cosmetics, nutraceuticals and pharmaceuticals
should promote their respective absorption rates and reduce
their respective toxicity to living systems. In July 1999, the
Company announced the signing of a letter of intent for
technology transfer and licensing with O2 Marketing Group,
Inc., a manufacturer of consumer-oriented oxygen products for
the cosmetics, nutraceutical and pharmaceutical industries.
The Company will grant O2 Marketing Group, Inc., an exclusive
license to use Jacobson Resonance for not less than ten years
covering the Republic of South Africa. O2 Marketing Group,
Inc., will grant the Company a license for not less than ten
years covering O2's pure-air system devices, technology and
products.
4. Preliminary testing has shown that resonated water increases
total plant weight and fruit weight of vegetables.
Government Regulation
United States of America
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In the United States of America, the Company's four clinical Jacobson
Resonators for reduction of chronic pain and future clinical products, if any,
are subject to extensive regulation by the federal Food and Drug Administration
(the "FDA"). Prior to commercial sale in the United States, each of the
Company's clinical products must undergo an extensive regulatory approval
process conducted by the FDA under the Federal Food, Drug and Cosmetic Act (the
"FDC Act"). The FDA regulates the clinical testing, manufacturing, labeling,
distributing, and promoting of medical devices. Noncompliance with applicable
requirements can result in failure to receive regulatory clearance or approval
of devices, total or partial suspension of production, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution.
Medical devices are classified into three classes (I, II, or III) on
the basis of the controls necessary to reasonably assure their safety and
effectiveness. After consultation with the FDA, the Company's clinical Jacobson
Resonators should be classified as Class II devices, subject to demonstration of
effectiveness through human clinical trials. They are subject to the general
control requirements of the FDC Act, including registration, labeling,
pre-market notification, and adherence to Good Manufacturing Practices. They
would not be subject to FDA pre-market approval ("PMA") that is required of
Class III devices.
In 1997, the Company filed its submission with the FDA seeking a
determination that the 18-inch clinical Jacobson Resonator qualified as a
nonsignificant risk ("NSR") device for the treatment of osteoarthritis pain of
the knee. On March 4, 1999, the FDA determined that the Company's clinical study
of the 18-inch clinical Jacobson Resonator to demonstrate
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effectiveness was an NSR device study because the resonator did not meet the
definition of a significant risk device under the applicable provision of the
investigational device exemption regulations. This determination in effect means
that the resonator meets the FDCA requirements as to safety.
The Company completed the double blind and randomized clinical studies
to demonstrate effectiveness in 1999, and submitted to the FDA on May 27, 1999,
its pre-market notification report for the 18-inch Jacobson Resonator in the
treatment of osteoarthritis pain of the knee. At the request of the FDA, the
Company filed an addendum to the report on September 17, 1999. The Company is
currently awaiting the FDA response.
The Company may decide, or may have to, obtain PMAs and PMA supplements
for its future products or other uses. A PMA application must be supported by
extensive data, including pre-clinical and clinical trial data, to demonstrate
the safety and effectiveness of the device for the uses specified in the PMA
application. The Company can not guarantee that any PMA application relating to
the Jacobson Resonator that is filed will be granted on a timely basis, if at
all.
If the Company does obtain a PMA, it may be required to file PMA
supplements for new or expanded uses of the Jacobson Resonator and for any
material modifications to it. If a PMA supplement is not accepted by the FDA for
a new or expanded use or material modification of the Jacobson Resonator, the
Company must commence and complete the entire pre-market approval process with
respect to such use or modification. The Company cannot guarantee that any PMA
supplement that it files will be accepted on a timely basis or at all.
Any products manufactured or distributed by the Company pursuant to FDA
clearance or approval are subject to pervasive and continuous regulation by the
FDA, including record-keeping requirements, reports of adverse experience with
the use of the device, post-market surveillance, post-market registry, and other
actions as deemed necessary by the FDA. Product labeling and promoting
activities are subject to scrutiny by the FDA and, in certain instances, by the
Federal Trade Commission. The Company and its agents may promote products only
for the products' approved indications. The Company cannot guarantee that the
FDA will not impose modifications to the labeling that could adversely affect
its ability to market, sell, or be reimbursed for the Jacobson Resonator. In
addition, the Company cannot guarantee that it will not become subject to FDA
actions should physicians prescribe the Jacobson Resonator for unapproved uses.
The portable models of the Jacobson Resonator are classified as Class I
devices because they are battery-operated, are of nonsignificant risk and have
no medical claims associated with them. As a result, they are not subject to FDA
approval before marketing, distribution and sale.
The Company is also subject to numerous federal, state, and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire- hazard control, and disposal of hazardous or
potentially hazardous substances. The Company can not guarantee that it will not
be required to incur significant costs to comply with such laws and regulations
in the future, or that such laws or regulations will not have a material adverse
effect upon its business, financial conditions, results of operations, or cash
flows.
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International
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In order to market and sell the Jacobson Resonator or any future
products in foreign markets, the Company must comply with foreign government
regulations. These laws differ substantially from country to country. In Europe,
the Company will be required to comply with the Medical Device Directive, which
covers most medical devices. Under the Medical Device Directive, effective in
June 1998, medical devices must bear a CE mark to be marketed and sold in the
European Union. To obtain the CE mark, a manufacturer must demonstrate
compliance with product safety requirements as well as quality system
requirements. The CE mark is recognized by countries that are members of the
European Union and the European Free Trade Association. The Company has received
the Ila classification, which references a medical instrument that is
non-hazardous, and an active therapeutic and diagnostic device. Through CETECOM,
a Spanish firm certified by the European Commission, the Company applied for CE
Mark approval and expects to receive the approval in the early part of the
fourth quarter of 1999.
Members of the European Union must accept a CE mark for marketing
medical devices without imposing further requirements related to product safety
and performance. However, each country may require the use of its own language
on labels and instructions for use. In addition, National Competent Authorities,
which are required to enforce compliance with the requirements of the Medical
Device Directive, can restrict, prohibit, and recall CE-marked products if they
are considered to be unsafe. Such a decision must be confirmed by the European
Commission to be valid. Member countries may impose additional requirements as
long as they do not violate the Medical Device Directive or constitute technical
barriers to trade.
The Company can not say with certainty that the FDA or any foreign
regulatory authority will approve its current or future products in a timely
manner, if at all. If the Company experiences delays or failure in obtaining
such approvals, of if previously granted approvals are rescinded, or if the
Company fails to comply with existing or future regulatory requirements, then
its business, financial condition, results of operations and cash flows will be
materially and adversely affected.
Research and Development
Current university studies of the effects of Jacobson Resonance upon
biological systems consist of the following:
1. Nerve repair, growth and regeneration - Cornell University
Medical College in New York City has completed in vitro
sciatic nerve studies in mice, which demonstrated that
application of Jacobson Resonance stimulated growth, repair
and regeneration of damaged sciatic nerves of mice. Jacobson
Resonance especially enhanced the growth, repair and
regeneration of the myelin sheath without disturbing the
integrity of the cellular and subcellular structures. Similar
in vivo studies are ongoing in mice. The principal
investigator is Dr. Brij Saxena, a Professor of Endocrinology
and Biochemistry at the college, the Director of the
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Division of Reproductive Endocrinology in the Department of
Obstetrics and Gynecology at Cornell Medical Center /New York
Hospital, and a member of the Company's Scientific Advisory
Board.
2. Nerve regeneration - A study on the effect of Jacobson
Resonance upon a chemically induced motor neuropathy model in
mice is ongoing at Cornell University Medical College and
Fairleigh Dickinson University. The principal co-investigators
are the husband and wife team of Dr. Brij Saxena and Dr.
Anjali Saxena, Professor of Biology and a neuro-scientist at
Fairleigh Dickinson University.
3. Cardiac pacing - The Department of Cardiovascular Research of
the University of Oklahoma Health Sciences Center is
conducting studies in dogs and has determined that Jacobson
Resonance is effective in the treatment of cardiac arrhythmias
in dogs. The principal co-investigators are Dr. Benjamin
Scherlag, Research Director of the Cardiovascular Laboratory,
and Dr. William Yamanashi, Research Professor of Medicine and
a Medical Physicist. Drs. Scherlag and Yamanashi are both
members of the Company's Scientific Advisory Board.
4. Angina - Quantitative pain studies in rats to determine
whether Jacobson Resonance can reduce angina are occurring at
the University of Oklahoma Medical School. The initial data
appears promising. The principal investigator is Dr. Robert
Foreman, Chairman of Physiology.
5. Vegetable growth enhancement - The Vegetable Improvement
Center of Texas A&M University conducted a pilot study in late
1998 of the effects of resonated spring water on growth and
fruiting of yellow crookneck squash. Because of the promising
results of this study, the center conducted a second study
involving cucumber, radish and squash in 1999. The results
remain promising and studies will continue. The principal
investigator is Dr. Leonard Pike, the Director of the
Vegetable Improvement Center.
6. Epilepsy - A double blind and randomized clinical pilot study
was recently completed at the University of Oklahoma Health
Sciences Center to determine whether Jacobson Resonance can
reduce the frequency and severity of epileptic seizures. The
principal investigator was Dr. Kalarickal J. Oommen, Associate
Professor of Neurology and Director of Epilepsy Research. The
data from the study is currently being evaluated.
7. Cancer - In early October 1999, the Company announced that the
Veterinary Pharmacology Research Laboratory at Mississippi
State University has begun in vitro cancer research using the
22-inch clinical model of the Jacobson Resonator. The research
will evaluate the influence of electromagnetic fields in the
pico tesla range of strength upon cancer cells. The principal
investigator is Dr. Cody Coyne.
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During the first nine months of 1999 and 1998, the Company spent
$196,204 and $169,090, respectively, on research and development activities.
During the fiscal years ended December 31, 1998 and 1997, the Company spent
$232,799 and $104,647, respectively, on research and development activities.
Intellectual Property
The Company is the exclusive licensee of Jacobson Resonance from Dr.
Jacobson, who is the sole owner of all patents issued or pending. Dr. Jacobson
is also the sole owner of all relevant Jacobson Resonance intellectual property.
The Company has the exclusive rights to pursue whatever applications of Jacobson
Resonance that it wants. In return, the Company is obligated to pay Dr. Jacobson
a 3% or 4% royalty on revenues, depending upon the application.
Legal standards relating to the validity of patents covering medical
devices and biotechnological inventions and the scope of claims made under such
patents are still developing. For this reason, the Company cannot guarantee any
of the following:
1. that patent applications will result in the issuance of
patents in foreign countries;
2. that any patents licensed to the Company will be free from
challenge and that if challenged, they would be held to be
valid;
3. that any such patents will provide commercially significant
protection to the Company's technology, products, and
processes; or
4. that others will not develop substantially equivalent
proprietary information that is not covered by patents to
which the Company owns rights, or that others will not
otherwise obtain access to the Company's know-how.
The Company has not received any notices alleging, and is not aware of,
any infringement by the Company of any other entity's patents. However, because
of the volume of patents issued and patent applications filed relating to
medical devices, the Company cannot guarantee that current and potential
competitors and other third parties have not filed or will not file patent
applications, or have not received or will not receive patents, relating to
materials or processes it uses or propose to use. Accordingly, the Company
cannot guarantee that its products do not infringe any patents or proprietary
rights of third parties.
If another party claims subject matter identical to or overlapping with
subject matter Dr. Jacobson has claimed in a United States patent or patent
application, the Company may decide or be required to participate in
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention. Loss of such an interference proceeding would
deprive the Company of patent protection sought or previously obtained by Dr.
Jacobson. Participating in such proceedings could result in substantial costs,
regardless of whether the eventual outcome is favorable.
In addition to patent protection, the Company relies on trade secrets,
proprietary know-how, and confidentiality and assignment of invention agreements
with its consultants and
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medical advisors to protect its intellectual property. The Company cannot say
with certainty that any intellectual property that it has will provide it with a
competitive advantage or will not be challenged or circumvented by its
competitors. The Company cannot say with certainty that its confidentiality and
assignment of invention agreements will not be breached or that it would have
adequate remedies for any such breach. Finally, the Company cannot say with
certainty that its proprietary know-how and intellectual property will not
become known or be independently discovered by others.
Litigation may be necessary to defend against claims of infringement,
to enforce patents and copyrights issued or licensed to the Company, or to
protect trade secrets. If the Company must litigate such issues, it may be
forced to incur substantial costs and to devote substantial resources and time.
The Company furthermore cannot guarantee that it would prevail in such
litigation, should it arise. In addition, if any relevant claims of third-party
patents are upheld as valid and enforceable, the Company could be prevented from
selling its products or otherwise be required to obtain licenses from the owners
of such patents. The Company cannot guarantee that such licenses would be
available or, even if available, would be on acceptable terms to it. If the
Company is forced to incur substantial costs in litigation or fails to obtain a
license, its business, financial condition, results of operations, and cash
flows may be materially and adversely affected.
Competition
The development of electromedical and electrotherapeutic medical
devices that can emit a weak electromagnetic field in resonance with the human
body's electromagnetic field is in its infancy. To the Company's knowledge,
there are only two groups of scientists in the world that are dealing with the
pico tesla magnetic-fields.
One group is at Democrition University of Thrace, Alexandroupolis,
Greece. They are primarily engaged in research, but some treatment is being
performed for epilepsy and Parkinson's Disease. The supervising professor is Dr.
Photios Anninos, the Director of Medical Physics for Democrition University, who
is also a member of the Company's Scientific Advisory Board.
The only other known party working on force-fields this weak is Dr.
Reuven Sandyk, a medical physician in Long Island, New York. Dr. Sandyk is a
neurologist and he has been treating patients with Parkinson's, Alzheimer's and
Multiple Sclerosis. To the Company's knowledge, Dr. Sandyk has not secured an
FDA registration number for his resonator device and does not appear to be
inclined to go into commercial production with this apparatus. His resonator is
merely an extension of his neurological practice .
Both Dr. Sandyk and Dr. Anninos engage in exploratory research as an
extension of their respective practices. Dr. Sandyk, the only U.S.-based group,
does not appear to be inclined to navigate the time-consuming and expensive
route of securing FDA approval for his apparatus, which is a mandatory
precondition for pursuing commercial production of the device. Dr. Anninos, on
the other hand, limits his focus predominantly to epilepsy. Both Dr. Sandyk and
Dr.
11
<PAGE>
Anninos employ devices with multiple small coils producing heterogeneous fields
which, in the opinion of Dr. Jacobson, is not the correct approach.
Dr. Richard Markoll has established around the world about 150 clinics
focusing primarily on the treatment of osteoarthritis using magnetic
force-fields that are approximately one million to ten million times more
powerful than the force-fields emitted by the Jacobson Resonator. Dr. Markoll
seems to be content with limiting himself to this area. These clinics have been
in operation for many years. Dr. Markoll has secured a CE Mark but he has not
obtained FDA approval.
Finally, there is a company in Japan called Nikken, which produces
permanent magnets. These are very strong magnets which emit force-fields that
are millions and even billions of times stronger than the force-fields emitted
by the Jacobson Resonator. These magnets claim to improve circulation or to
treat pain. To the Company's knowledge, these claims have not been medically
substantiated and the FDA has never passed on the validity of these treatments.
The Company does not regard these permanent magnets as a true competitor.
In sum, the Jacobson Resonator does not appear to face direct
competition in either the United States of America or abroad.
Employees
The Company has four full-time employees three of whom are executive
officers. They are Dr. Jerry I. Jacobson, Ms. Debra Jacobson and Mr. Frank
Chaviano. There are no collective bargaining agreements and no employment
contracts in force.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Plan of Operation
The Company is in the development stage and has not had any significant
revenue from operations to date. However, the Company anticipates FDA approval
of its 18-inch clinical Jacobson Resonator for treatment of chronic pain from
osteoarthritis of the knee and CE-Mark approval of its 18-inch and seven-foot
clinical Jacobson Resonators for treatment of the whole spectrum of chronic pain
in the fourth quarter of 1999. Receipt of those approvals will allow the
Company's licensees to make, market, distribute and sell those clinical products
on a commercial basis in the United States of America and Europe. In addition,
the Company's licensees are currently gearing up to make, market, distribute and
sell the Company's portable Jacobson resonators on a commercial basis. The
foregoing combination of events is expected to generate ongoing revenue for the
Company and thereby bring it out of the development stage into the operating
stage during the calendar year 2000.
Other possible sources of revenue for the Company during the rest of
1999 and/or calendar year 2000 include the following:
12
<PAGE>
1. Licensing revenue from a larger medical products company for
the development, marketing and distribution rights in
connection with the use of Jacobson Resonance in the treatment
of cardiac arrhythmias. The Company thinks that interest in
such a licensing arrangement will be generated by the
publication of the results of the completed research in
cardiac pacing at the University of Oklahoma Health Sciences
Center that Jacobson Resonance is effective in the treatment
of cardiac arrhythmias in dogs.
2. Licensing revenue from Real Pure Beverage Group, LLC, of
Jackson, Mississippi, for the use of Jacobson Resonance in
multiple water and beverage product lines, including exclusive
marketing and distribution. The Company has a letter of intent
with Real Pure and is currently negotiating a definitive
license arrangement.
3. Licensing revenue from O2 Marketing Group, Inc., a
manufacturer of consumer-oriented oxygen products for the
cosmetics, nutraceutical and pharmaceutical industries,
for an exclusive license to use Jacobson Resonance for not
less than ten years covering the Republic of South Africa. The
Company has a letter of intent with O2 and is currently
negotiating a definitive license arrangement.
4. Increases in revenue from its existing licensees for the
clinical Jacobson Resonators because of additional FDA and
CE-Mark approvals. After receipt of the currently pending
applications for FDA and CE-Mark approvals, the Company plans
to seek additional FDA approvals for the other three clinical
models of the Jacobson Resonator and for treatment of the
entire chronic pain spectrum, not just osteoarthritis of the
knee. It also plans to seek CE-Mark approval of the other two
clinical models of the Jacobson Resonator. These approvals
would broaden the product line in both the United States of
America and Europe and would broaden the applications for the
clinical Jacobson Resonators in the United States of America.
The Company will continue both use and product research and development
for Jacobson Resonance. The Company estimates that the ongoing university
research described in the part of Item 1 entitled "Description of Business-
Research and Development" will require about $200,000 of the Company's funds
through the middle of 2000. It anticipates continued prototyping of additional
models of the Jacobson Resonator for varying uses. It estimates that the costs
to the Company of such prototyping will be approximately $100,000 through the
middle of 2000.
13
<PAGE>
Liquidity and Capital Resources as of June 30, 1999
The Company's cash on hand at September 30, 1999, was $725,664, as
compared to $642,680 at December 31, 1998. Revenues for the first nine months of
1999 were $18,556, as compared to $53,981 for the first nine months of 1998. The
Company had a net loss of $3,185,014 for the first nine months of 1999, as
compared to a net loss of $716,933 for the first nine months of 1998, an
increase of $2,468,081. Of that amount, $2,089,099 comes from a one-time,
non-cash interest expense as a result of the Company's sale of convertible
debentures and warrants to purchase common stock in early June 1999; only
$378,982 of the increase is attributable to an increase in total operating
expenses.
The Company's primary source of funds during the first nine months of 1999
was a private offering of $999,100 in original principal amount of 2%
Convertible Debentures Due June 2, 2004, and warrants to purchase 900,000 shares
of its common stock at $.001 per share. The debentures are convertible at the
option of the holders at any time, and shall be converted at their maturity,
into shares of common stock at the lesser of (1) $3.00 per share or (2) 75% of
the average closing bid price per share for the five trading days immediately
preceding the conversion date, subject to a minimum conversion price of $0.50
per share. Interest on the debentures is payable at conversion or maturity and
can be in the form of either cash or shares of common stock, at the option of
the Company. The Company received net offering proceeds of $891,390. As of the
current date, all of the debentures, plus accrued interest, have been converted
into 1,862,876 shares of common stock and all of the warrants have been
exercised.
The Company anticipates that its existing resources will be sufficient
to fund its plan of operation through the middle of 2000. By that time, the
Company expects to be generating sufficient revenue to fund its plan of
operation after then. However, if the Company by that time is not generating any
revenue or is generating insufficient revenue for such funding, then the Company
may have to seek additional funds through either debt or equity financing.
Liquidity and Capital Resources as of December 31, 1998
The Company's cash on hand at December 31, 1998, was $642,680, as
compared to $3,802 at the end of 1997. Revenues for 1998 dropped slightly to
$58,846, as compared to $66,286 for 1997. The Company had a net loss of $952,276
for 1998, as compared to a net loss of $315,319 for 1997.
The Company completed two private placements during 1998, which were
the Company's primary source of funds. In the first offering, the Company sold
4,675,850 shares of common stock at $0.15 per share and received net offering
proceeds of $663,970. In the second offering, the Company sold 2,017,999 units
at $0.35 per unit and received net offering proceeds of $692,174. Each unit
consisted of one share of common stock and a four-year warrant to purchase an
additional share of common stock for $0.45 per share.
14
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company is currently renting office space in Boca Raton, Florida,
pursuant to a lease that will expire on July 31, 2003, and in Juno Beach,
Florida, pursuant to a lease that will expire on August 31, 2000. The Boca Raton
office has 2,900 square feet of space and a current annual rent of $90,228. The
Juno Beach office has 325 square feet of space and a current annual rent of
$12,396.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 12, 1999, the beneficial
ownership of the voting securities of the Company by each person beneficially
owning more than 5% of such securities, by each of the directors and executive
officers of the Company, and by the directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of Class
of Beneficial Owner (1) of Beneficial Ownership (2) Outstanding
- ----------------------- --------------------------- -----------------
<S> <C> <C>
Dr. Jerry I. Jacobson 45,000 shares of Series A
Convertible Preferred Stock (3) 100.0%
10,709,685 shares of
common stock (4) 29.8%
Alfonso Serrato 1,726,352 (5) 4.7%
Debra M. Jacobson 391,906 (6) 1.1%
Frank A. Chaviano 387,572 (7) 1.1%
All directors and executive officers 13,215,515 (8) 36.0%
as a group (4 persons)
</TABLE>
- ---------------
(1) The address of each person named in the table is c/o Jacobson Resonance
Enterprises, Inc., 9960 Central Park Boulevard, Suite 302, Boca Raton,
Florida 33428.
(2) For all entries in the table other than the one for Dr. Jerry I.
Jacobson, the figures represent beneficial ownership of shares of the
Company's common stock.
(3) Each share of the Series A Convertible Preferred Stock is entitled to
1,000 votes on all matters submitted to a vote of the Company's
shareholders. As a result, Dr. Jacobson controls 69.0% of the combined
voting power of the Company's outstanding shares of preferred and
common stock. The Series A Convertible Preferred Stock is not entitled
to any dividends and has a liquidation preference equal to its par
value, which is a total of
15
<PAGE>
$45.00. At the option of Dr. Jacobson, up to one-third of the
outstanding shares of the Series A Convertible Preferred Stock can be
converted into shares of the Company's common stock beginning in May of
each of the years 2000, 2001 and 2002. The conversion ratio is 1,000
shares of common stock for each share of preferred stock.
(4) This figure does not include beneficial ownership of shares of the
Company's common stock by Debra M. Jacobson, the wife of Dr. Jacobson,
as to which shares Dr. Jacobson disclaims any beneficial interest. Ms.
Jacobson's beneficial ownership is separately listed in the table.
Together Dr. and Ms. Jacobson beneficially own 11,101,591 shares, or
30.8%, of the Company's common stock. This figure also excludes 200,000
shares owned of record by the Perspectivism Foundation, of which Dr.
Jacobson is the founder and a director. Dr. Jacobson disclaims any
beneficial interest in those shares.
(5) This figure represents 1,167,495 shares owned of record by Mr. Serrato,
542,857 shares subject to warrants held by Mr. Serrato, and 16,000
shares subject to options granted to Mr. Serrato. It excludes 28,571
shares owned of record by Mr. Serrato's wife and 28,571 shares subject
to warrants held by her. Mr. Serrato disclaims any beneficial interest
in those shares.
(6) This figure represents 311,906 shares owned of record by Ms. Jacobson
and 80,000 shares subject to options granted to Ms. Jacobson. It does
not include beneficial ownership of shares of the Company's common
stock by Dr. Jerry I. Jacobson, the husband of Ms. Jacobson, as to
which shares Ms. Jacobson disclaims any beneficial interest. Together
Dr. and Ms. Jacobson beneficially own 11,101,591 shares, or 30.8%, of
the Company's common stock. This figure also excludes 200,000 shares
owned of record by the Perspectivism Foundation, to which Ms. Jacobson
donated the shares and of which Ms. Jacobson is a director. Ms.
Jacobson disclaims any beneficial interest in those shares.
(7) This figure represents 307,572 shares owned of record by Mr. Chaviano
and 80,000 shares subject to options granted to Mr. Chaviano.
(8) This figure represents 12,496,658 shares owned of record by the
Company's directors and executive officers as a group, 176,000 shares
subject to options granted to them and 542,857 shares subject to
warrants held by them. Taking into account the 45,000 shares of the
Company's Series A Convertible Preferred Stock owned by Dr. Jacobson,
the Company's directors and executive officers collectively control
71.3% of the combined voting power of the Company's outstanding shares
of preferred and common stock.
16
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the directors and
executive officers and directors of the Company, as well as the positions held
by such persons:
<TABLE>
<CAPTION>
Name Age Position (1)
---- --- ------------
<S> <C> <C>
Dr. Jerry I. Jacobson (2) 53 Chairman of the Board, President
and Chief Executive Officer
Alfonso Serrato 55 Director
Debra M. Jacobson (2) 48 Senior Vice President, Treasurer, Secretary
and Director
Frank A. Chaviano 51 Senior Vice President
</TABLE>
- ----------------
(1) All directors and officers are elected for terms of for one year and until
their successors have been elected and qualified. Vacancies in the existing
board are filled by majority vote of the remaining directors. Board members are
serving without compensation. Officers serve at the pleasure of the Board.
(2) Dr. Jerry I. Jacobson and Debra M. Jacobson are husband and wife.
Dr. Jerry I. Jacobson has been the Chairman, President and Chief
Executive Officer of the Company since June 1996 and of its privately-held
predecessor since March 1995. Dr. Jacobson holds a Bachelor of Arts degree in
Philosophy from Brooklyn College of the City University of New York and D.D.S.
and D.M.D degrees from Temple University. He has also received extensive
informal training in physics after auditing 25 courses at different universities
in the New York City metropolitan area. Dr. Jacobson has also been a student of
Albert Einstein's work throughout his life. Since his discovery of a new law of
nature, Dr. Jacobson has focused his science, denoted as Jacobson Resonance, on
medical therapy for more than a decade. His publishing credits include more than
60 articles, more than 15 abstracts, three book chapters and two books. He holds
seven issued, allowed or pending United State of America patents, for three of
which there are currently patents issued or pending in 75 foreign countries.
Alfonso Serrato has been a director of the Company since June 1998. Mr.
Serrato worked for Medtronic, Inc., a New York Stock Exchange company that is a
leading manufacturer and distributor of medical devices around the world, from
1978 until 1996 in various capacities. His positions included Vice President of
Worldwide Manufacturing and Vice President of Pacing Operations. He is the
controlling person of Serrato Enterprises, L.L.C., a licensee of the Company and
the entity that is spearheading the Company's European initiatives.
Debra M. Jacobson has been a director, the Treasurer and the Secretary
of the Company since August 1996 and Senior Vice President of the Company since
September 1999. She has
17
<PAGE>
been married to Dr. Jacobson and served as his private secretary for
approximately 25 years. As Dr. Jacobson has suffered from glaucoma for over 20
years, Ms. Jacobson has been invaluable as a research assistant and editor.
Previously, Ms. Jacobson worked as a flight attendant for Eastern Airlines and
as a secretary. She is a graduate of the prestigious Katherine Gibbs Secretarial
School in New York, New York.
Frank A. Chaviano joined the Company as Vice President in 1997 and
subsequently became Senior Vice President and Chief Operating Officer.
Previously, Mr. Chaviano served from 1996 to 1997 as Senior Vice President of
American Healthcorp responsible for physician practice management and
development. From 1994 until 1996, he was Senior Vice President of Integrated
Health Services, Inc., and from 1992 until 1994, he was Senior Vice President of
Integracare, Inc. In those positions Mr. Chaviano assisted with the acquisition
and development of more than 100 medical practices.
ITEM 6. EXECUTIVE COMPENSATION
Dr. Jacobson, the Company's Chief Executive Officer, does not receive
any cash or non-cash compensation from the Company. None of the executive
officers of the Company received more than $100,000 in annual salary and bonus
in any of the last three full fiscal years of the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is the exclusive licensee of Jacobson Resonance from Dr.
Jacobson, who is the sole owner of all patents issued or filed. Dr. Jacobson is
also the sole owner of all relevant Jacobson Resonance intellectual property.
The Company has the exclusive rights to pursue whatever applications of Jacobson
Resonance that it wants through October 2004. In return, the Company is
obligated to pay Dr. Jacobson a 3% or 4% royalty on revenues, depending upon the
application.
The Company in March 1999 entered into a ten-year license agreement
with Serrato Enterprises L.L.C., an entity controlled by Alfonso Serrato, a
director of the Company, for the marketing and distribution of the Company's
chronic pain reduction products in Europe, Africa and the Middle East, excluding
Israel and the nations that formerly constituted the Union of Soviet Socialist
Republics. The stated term of the agreement runs through the year 2008 and
contains two automatic renewals thereafter of five year each, but is subject to
earlier termination by either party upon at least 90 days' prior written notice
to the other party. The Company is to receive a sales royalty of 16% of gross
sales payable on a quarterly basis within 30 days after the end of each calendar
quarter. The Company is also to receive a manufacturing license override fee of
$1,000 for each 18" and 22" Jacobson Resonator and $1,500 for each seven foot
Jacobson Resonator ordered by and delivered to the licensee. These fees are
payable within 45 days of initial shipment of the product from the manufacturing
facility.
Mr. Serrato in November 1998 made a $60,000 one-year loan to the
Company with interest at 7% per annum. He had the option at any time to convert
the loan and any accrued
18
<PAGE>
interest into shares of the Company's common stock at $0.21 per share, which
approximated the fair market value of the Company's common stock at the time the
loan was made. In March 1999, he converted the loan and accrued interest into
291,305 shares of the Company's common stock.
From time to time since late 1997 on approximately a quarterly basis,
the Company has issued shares of its common stock to its executive officers
either in lieu of cash compensation or as bonuses. For more information on these
issuances, please see Item 4 of Part II entitled "Recent Sales of Unregistered
Securities." Debra Jacobson, a director as well as an executive officer of the
Company, has received stock in most of these issuances. The following table sets
forth pertinent information on the issuances to Ms. Jacobson:
<TABLE>
<CAPTION>
Number of Value per Aggregate
Date Shares Share Value
---- ------ ----- -----
<S> <C> <C> <C> <C>
November 1997 5,000 $0.15 $ 750
July 1998 83,334 0.35 29,167
October 1998 25,000 0.25 6,250
December 1998 30,000 0.25 7,500
March 1999 98,572 0.35 34,500
May 1999 200,000 0.35 70,000
September 1999 100,000 0.21 21,000
</TABLE>
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorize the issuance of 100
million shares of Common Stock, $.001 par value per share, of which 35,753,900
shares were outstanding as of September 30, 1999. The Company's Articles of
Incorporation also authorize the issuance of five million shares of preferred
stock, $.001 par value per share, including 45,000 shares of Series A
Convertible Preferred Stock. As of September 30, 1999, all of the 45,000 shares
of Series A Convertible Preferred Stock were outstanding. None of the other
shares of preferred stock were outstanding as of that same date.
Common Stock
Holders of shares of Common Stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of Common Stock
have no cumulative voting rights. Holders of shares of Common Stock are entitled
to share ratably in dividends, if any, as may be declared from time to time by
the Board of Directors in its discretion, from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of Common Stock have
no preemptive rights to purchase the Company's common stock. There are no
conversion rights or redemption or sinking fund provisions with respect to
19
<PAGE>
the common stock. All of the outstanding shares of Common Stock are fully paid
and non-assessable.
Preferred Stock
The Company's Board of Directors has authority, without action by the
shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series.
The holder of shares of the Series A Convertible Preferred Stock is
entitled to 1,000 votes for each share on all matters to be voted on by the
stockholders. The holder of the Series A Convertible Preferred Stock has no
cumulative voting rights. The Series A Convertible Preferred stock is not
entitled to any dividends and has a liquidation preference equal to its par
value, which is a total of $45.00. At the option of the holder, up to one-third
of the outstanding shares of the Series A Convertible Preferred Stock can be
converted into shares of the Company's Common Stock beginning in May of each of
the years 2000, 2001 and 2002. The conversion ratio is 1,000 shares of common
stock for each share of Series A Convertible Preferred Stock.
Transfer Agent
The transfer agent for the Common Stock is Florida Atlantic Stock
Transfer, Inc., located at 7130 Nob Hill Road, Tamarac, Florida 33321.
20
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board(R) under
the Symbol "JRSE." The following table sets forth the range of the high and low
sales prices for the Common Stock on the OTC Bulletin Board(R) for each of the
first two calendar quarters of 1999 and each calendar quarter of 1998 and 1997.
The source of the following information is AOL Online quotation services. These
prices reflect inter-dealer prices, without retail markup, mark-down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
Quarter Ending High Low
-------------- ---- ---
<S> <C> <C> <C>
September 30, 1999 $1.56 $0.23
June 30, 1999 3.12 1.53
March 31, 1999 2.60 0.21
December 31,1998 0.50 0.18
September 30, 1998 0.6875 0.28
June 30, 1998 1.375 0.38
March 31, 1998 1.50 0.33
December 31, 1997 0.55 0.25
September 30, 1997 0.56 0.38
June 30, 1997 1.125 0.4375
March 31, 1997 2.06 1.00
</TABLE>
As of October 12, 1999, the Company had 619 shareholders of record.
The Company has not declared or paid any dividends on its Common Stock.
The Company currently intends to retain future earnings to fund the development
and growth of its business, and therefore does not anticipate paying any cash
dividends in the foreseeable future. Any future determination to declare and pay
dividends will be made by the Board of Directors of the Company in light of the
Company's earnings, financial position, capital requirements, credit agreements
and such other factors as the Board of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
21
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In June 1996, the Company issued 57,220,000 shares of its common stock
to the sole shareholder of Jacobson Resonance Machines, Inc., in connection with
its acquisition of that company. The Company relied upon the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act") for this stock issuance.
In May 1997, the Company converted 45,000,000 shares of its common
stock held by Dr. Jerry I. Jacobson, the Chairman, President and Chief Executive
Officer of the Company, into 45,000 shares of Series A Convertible Preferred
Stock. The Company relied upon the exemption from registration contained in
Section 4(2) of the Securities Act for this stock conversion.
In July 1996, the Company issued 10,000,000 shares of its common stock
to private investors at $0.10 per share for a total offering price of
$1,000,000. The Company relied upon the exemption from registration contained in
Rule 504 promulgated pursuant to the Securities Act for this stock issuance. The
Company later reacquired 3,000,000 of these shares in consideration for
cancellation of the corresponding subscription receivable.
In June through December 1997, the Company issued 760,000 shares of its
common stock to three accredited investors for gross offering proceeds of
$140,000. One of the three investors also received 5,000 shares of the Company's
common stock valued at $934 for financial advisory services rendered. The
Company relied upon the exemption from registration contained in Section 4(2) of
the Securities Act for these stock issuances.
In March 1998, the Company raised $660,700 in a private placement by
selling 4,404,663 shares of its common stock at $0.15 per share to accredited
investors. The Company also issued 271,187 shares of its common stock for
payment of commissions in connection with this offering. The Company relied upon
the exemption from registration provided by Rule 506 of Regulation D promulgated
pursuant to the Securities Act for this offering.
In June 1998, the Company completed a second private placement to
accredited investors and issued 2,017,999 shares of its common stock at $0.35
per share, or an aggregate of $706,300. The Company also issued warrants to
purchase 2,107,999 shares at a price of $0.45 per share that can be exercised
until December 2002. The Company paid $14,126 in commissions with respect to
this offering. The Company relied upon the exemption from registration provided
by Rule 506 of Regulation D promulgated pursuant to the Securities Act for this
offering.
In March 1999, the Company issued 291,305 shares of its common stock to
one of its directors in satisfaction of a loan in the amount of $60,000 made to
the Company by that director. The conversion price was $0.21 per share, which
approximated the fair market value of the Company's common stock at the time
when the loan was made. The Company relied upon the exemption from registration
contained in Section 4(2) of the Securities Act for this stock issuance.
In June 1999, the Company made a private offering of $999,100 in
original principal amount of 2% Convertible Debentures Due June 2, 2004, and
warrants to purchase 900,000 shares of its common stock at $.001 per share. The
debentures are convertible at the option of
22
<PAGE>
the holders at any time, and shall be converted at their maturity, into shares
of common stock at the lesser of (1) $3.00 per share or (2) 75% of the average
closing bid price per share for the five trading days immediately preceding the
conversion date, subject to a minimum conversion price of $0.50 per share.
Interest on the debentures is payable at conversion or maturity and can be in
the form of either cash or shares of common stock, at the option of the Company.
The Company received net offering proceeds of $891,390. To date, $874,280 in
principal amount of the debentures, plus accrued interest, have been converted
into 1,611,003 shares of common stock and all of the warrants have been
exercised. The Company relied upon the exemption from registration provided by
Rule 504 of Regulation D promulgated pursuant to the Securities Act for this
offering.
From time to time since late 1997 on approximately a quarterly basis,
the Company has issued shares of its common stock to its executive officers
either in lieu of cash compensation or as bonuses. The Company has relied upon
the exemption from registration contained in Section 4(2) of the Securities Act
for these stock issuances. The following table sets forth pertinent information
on these issuances:
<TABLE>
<CAPTION>
Number of Number of Value per Aggregate
Date Recipients Shares Share Value
---- ---------- ------ ----- -----
<S> <C> <C> <C> <C>
November 1997 4 20,000 $0.15 $3,000
April 1998 2 170,000 0.15 25,500
July 1998 3 138,335 0.35 48,417
October 1998 3 100,000 0.25 25,000
December 1998 3 90,000 0.25 22,500
March 1999 3 250,716 0.35 87,751
May 1999 2 275,000 0.35 96,250
September 1999 2 200,000 0.21 42,000
</TABLE>
In October 1996 and February 1997, the Company issued 18,857 shares and
4,114 shares, respectively, of its common stock to an unaffiliated medical
equipment vendor at a mutually agreed value of $1.75 per share, or an aggregate
of $33,000 and $7,200, respectively, for the acquisition of medical research
equipment. The Company relied upon the exemption from registration contained in
Section 4(2) of the Securities Act for these stock issuances.
In December 1997 and January and June 1999, the Company issued 2,000
shares, 40,000 shares and 7,133 shares, respectively, of its common stock valued
at $0.15 per share, $0.22 per share and $1.88 per share, respectively, or an
aggregate of $300, $8,800 and $13,410, respectively, to an unaffiliated attorney
for legal services rendered. The Company relied upon the exemption from
registration contained in Section 4(2) of the Securities Act for these stock
issuances.
In October 1998, the Company issued 94,880 shares of its common stock
at a contractually agreed value of $0.35 per share, or $33,211 in the
aggregate, to four members of its Sports Legends Committee for services. The
Company also granted these individuals options to purchase an aggregate of
142,857 shares of the Company's common stock at $0.35 per share for a three-year
period. The Company relied upon the exemption from registration provided by Rule
701 promulgated pursuant to the Securities Act for these securities issuances.
23
<PAGE>
From time to time, the Company has issued shares of its common stock to
members of its Scientific Advisory Board for services rendered. The Company has
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act for these stock issuances. The following table sets forth
pertinent information on these issuances:
<TABLE>
<CAPTION>
Number of Value per Aggregate
Date Shares Share Value
---- ------ ----- -----
<S> <C> <C> <C> <C>
February 1997 4,000 (1) $0.15 $600
November 1997 5,000 (1) 0.15 750
January 1998 2,000 0.15 300
July 1998 750 0.35 525
July 1998 750 0.35 525
October 1998 10,000 0.25 2,500
October 1998 1,500 (1) 0.25 375
February 1999 1,300 (1) 0.55 715
May 1999 750 (1) 0.35 263
June 1999 650 (1) 1.88 1,222
August 1999 1,000 (1) 0.27 2,700
</TABLE>
- ------------------
(1) One member of the Scientific Advisory Board received all of these stock
issuances for services rendered.
In October 1998, the Company issued 3,000 shares of its common stock
valued at $0.25 per share, or $750 in the aggregate, to an individual for
clinical research services rendered. The Company relied upon the exemption from
registration contained in Section 4(2) promulgated pursuant to the Securities
Act for this stock issuance.
24
<PAGE>
In December 1998, the Company issued 1,000 shares to each of two
individuals for services rendered. The shares were valued at $0.25 per share, or
$500 in the aggregate. The Company relied upon the exemption from registration
contained in Section 4(2) of the Securities Act for these stock issuances.
In June 1999, the Company issued 75,000 shares of its common stock
valued at $1.00 per share, or $75,000, to an individual unaffiliated with the
Company as compensation for investor relations services rendered. The Company
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act for this stock issuance.
In August 1999, the Company issued 6,818 shares of its common stock
valued at $0.438 per share, or $2,986 in the aggregate, to an individual for
clinical research services rendered. The Company relied upon the exemption from
registration contained in Section 4(2) promulgated pursuant to the Securities
Act for this stock issuance.
In August 1999, the Company issued 2,000 shares, 2,500 shares and 2,500
shares, respectively, of its common stock valued at $0.27 per share, or an
aggregate of $540, $675 and $675, respectively, to an unaffiliated individual
and the two principals of QRTI for prototyping services rendered. The Company
relied upon the exemption from registration contained in Section 4(2) of the
Securities Act for these stock issuances.
In August 1999, the Company issued 2,000 shares and 1,500 shares,
respectively, of its common stock valued at $0.27 per share and $0.50 per share,
respectively, or an aggregate of $540 and $750 respectively, to an unaffiliated
individual and an employee for services rendered. The Company relied upon the
exemption from registration contained in Section 4(2) promulgated pursuant to
the Securities Act for these stock issuances.
In November 1998, the Company granted options to purchase an aggregate
of 608,500 shares of its common stock at $0.35 per share to 17 grantees
pursuant to its 1998 Stock Option Plan. The grantees consisted of three
executive officers, one non-employee director, eight members of the Company's
Scientific Advisory Board and five persons who provided services to the Company.
The exercise period for all of the options is five years from date of grant. The
options vest 50% upon issuance, 30% one year from date of issuance, 10% two
years from date of issuance and 10% three years from date of issuance. The
Company relied upon the exemption from registration provided by Rule 701
promulgated pursuant to the Securities Act for these securities issuances.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation eliminate the personal
liability of a director or officer to the Company or its stockholders for
damages for breach of fiduciary duty as a director or officer, except for (1)
acts or omission that involve intentional misconduct, fraud or a knowing
violation of law or (2) the payment of distributions in violation of the
applicable provisions of the Nevada General Corporation Law. The Company's
bylaws and the applicable provisions of the Nevada General Corporation Law
permit indemnification of the Company's directors and officers so long as the
statutory requirements for such indemnification are met. In addition, the
Company's maintains $1,000,000 of directors' and officers' liability insurance
coverage.
PART F/S
The unaudited financial statements of the Company as of September 30,
1999, and for the nine months ended Setpember 30, 1999 and 1998, are included in
this report at Pages F-1 through F- 6. The audited financial statements of the
Company as of December 31, 1998, and for the two years ended December 31, 1998
and 1997, are included in this report at Pages F-7 through F-17.
25
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
BALANCE SHEET
(Unaudited)
Sept. 30,
1999
-----------------
<S> <C>
CURRENT ASSETS
Cash $ 725,664
Prepaid Expenses 17,675
-----------
Total Current Assets 743,339
Property and Equipment, at Cost, (Net of Accumulated
Depreciation of $12,375) 53,452
Patent Costs 96,809
Deferred Debt Costs (Net of Accumulated Amortization of $7,241) 12,769
Deposits 3,995
-----------
Total Assets $ 910,364
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 22,143
Customer Deposit 16,000
-----------
Total Current Liabilities 38,143
-----------
LONG TERM LIABILITIES
Debentures Payable 124,820
-----------
STOCKHOLDERS' EQUITY
Preferred Stock $.001 Par Value, 5,000,000 Shares Authorized;
Issued and Outstanding, 45,000 Shares 45
Common Stock, $.001 Par Value, 100,000,000 Shares Authorized;
Issued and Outstanding, 35,753,900 Shares 35,754
Additional Paid in Capital 5,500,992
Deficit Accumulated During the Development Stage (4,744,934)
Treasury Stock Common (381,682 Shares) (382)
Subscriptions Receivable (44,074)
-----------
Total Stockholders' Equity 747,401
-----------
Total Liabilities and Stockholders' Equity $ 910,364
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENTS OF OPERATIONS
(Unaudited)
For the Period
from Inception
to Sept. 30,
For the Nine Months Ended September 30, 1999
-------------
1999 1998
------------ -----------
<S> <C> <C> <C>
REVENUES $ 18,556 $ 53,981 $ 143,688
------------ ------------ ------------
COSTS AND EXPENSES:
General and Administrative 933,312 611,394 2,154,082
Research and Development 196,204 169,090 677,140
------------ ------------ ------------
Total Operating Expenses 1,129,516 780,484 2,831,222
------------ ------------ ------------
Other Income (Expense)
Interest Income 22,845 9,920 39,849
Interest Expense (2,096,899) (350) (2,097,249)
------------ ------------ ------------
NET LOSS $ (3,185,014) $ (716,933) $ (4,744,934)
============ ============ ============
PER SHARE INFORMATION:
Net Loss Per Share:
Basic $ (0.10) $ (0.02)
============ ============
Diluted $ (0.10) $ (0.02)
============ ============
Shares Used to Compute Net Loss Per Share
Basic 33,109,136 29,221,646
============ ============
Diluted 33,109,136 29,221,646
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception to September 30, 1999
(Unaudited)
COMMON STOCK PREFERRED STOCK
--------------------------- -------------------------- '
ISSUED AMOUNT ISSUED AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C>
Issuance of Founders Stock at Par $.001 57,220,000 $ 57,220 -- $ --
Recapitalization - June 4, 1996 4,905,000 4,905 -- --
Issuance of Common Stock at $.10 Per Share 10,000,000 10,000 -- --
Issuance of Common Stock at $1.75 Per Share 18,857 19 -- --
Purchase of Treasury Stock at Cost -- -- -- --
Conversion of Common Stock to Preferred Stock (45,000,000) (45,000) 45,000 45
Net Loss -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1996 27,143,857 27,144 45,000 45
Issuance of Common Stock for Services Rendered at
Prices Between $.15 and $1.75 Per Share 40,114 40 -- --
Issuances of Common Stock from Private Placement at
Prices Between $.15 and $.25 Per Share 760,000 760 -- --
Issuances of Common Stock out of Proceeds of
Subscription Receivable -- -- -- --
Net Loss -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1997 27,943,971 27,944 45,000 45
Reacquisition of Common Shares and (3,000,000) (3,000) -- --
Collection of Subscription Receivable
Cash Collection of Subscription Receivable -- -- -- --
Issuance of Common Stock from Private
Placement at a Price of $.15 per Share 4,675,850 4,676 -- --
Issuance of Common Stock from Private
Placement at a Price of $.35 per Share 2,017,999 2,018 -- --
Issuance of Common Stock for Services
Rendered at Prices between $.15 and $.35 per share 663,223 663 -- --
Fair Value of Options Issued to Consultants -- -- -- --
Net Loss -- -- -- --
----------- ----------- ----------- -----------
Balance December 31, 1998 32,301,043 32,301 45,000 45
[restubbed table]
DEFICT
ACCUMULATED
ADDITIONAL DURING
PAID-IN DEVELOPMENT SUBSCRIPTION TREASURY STOCKHOLDERS
CAPITAL STAGE RECEIVABLE STOCK EQUITY
----------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of Founders Stock at Par $.001 $ (57,220) $ -- $ -- $ -- $ --
Recapitalization - June 4, 1996 (4,905) -- -- -- --
Issuance of Common Stock at $.10 Per Share 990,000 -- (526,550) -- 473,450
Issuance of Common Stock at $1.75 Per Share 32,981 -- -- -- 33,000
Purchase of Treasury Stock at Cost -- -- -- (600) (600)
Conversion of Common Stock to Preferred Stock 44,955 -- -- -- --
Net Loss -- (292,325) -- -- (292,325)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 1,005,811 (292,325) (526,550) (600) 213,525
Issuance of Common Stock for Services Rendered at
Prices Between $.15 and $1.75 Per Share 12,744 -- -- -- 12,784
Issuances of Common Stock from Private Placement at
Prices Between $.15 and $.25 Per Share 139,240 -- -- -- 140,000
Issuances of Common Stock out of Proceeds of
Subscription Receivable -- -- 5,000 -- 5,000
Net Loss -- (315,319) -- -- (315,319)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 1,157,795 (607,644) (521,550) (600) 55,990
Reacquisition of Common Shares and (450,000) -- 450,000 -- (3,000)
Collection of Subscription Receivable
Cash Collection of Subscription Receivable -- -- 27,476 -- 27,476
Issuance of Common Stock from Private
Placement at a Price of $.15 per Share 659,294 -- -- -- 663,970
Issuance of Common Stock from Private
Placement at a Price of $.35 per Share 690,156 -- -- -- 692,174
Issuance of Common Stock for Services
Rendered at Prices between $.15 and $.35 per share 176,415 -- -- -- 177,078
Fair Value of Options Issued to Consultants 2,063 -- -- -- 2,063
Net Loss -- (952,276) -- -- (952,276)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 2,235,723 (1,559,920) (44,074) (600) 663,475
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception to September 30, 1999
(Unaudited)
COMMON STOCK PREFERRED STOCK
---------------------------- --------------------------
ISSUED AMOUNT ISSUED AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 32,301,043 $ 32,301 45,000 $ 45
Issuance of Common Stock for Services
Rendered at Prices between $.22 and $2.69 per Share 650,549 651 -- --
Issuance of Common Stock for Repayment
of Debt 291,305 291 -- --
Issuance of Common Stock for Conversion
of Warrants 900,000 900 -- --
Beneficial Conversion Feature on
Convertible Debentures -- -- -- --
Issuance of Common Stock for Conversion
of Debentures 1,611,003 1,611 -- --
Issuance of Common Stock for Services
Rendered at Prices between $.21 and $.50 per
Share from Treasury -- -- -- --
Net Loss -- -- -- --
----------- ----------- ----------- -----------
Balance, September 30, 1999 35,753,900 $ 35,754 45,000 $ 45
=========== =========== =========== ===========
[restubbed table]
DEFICIT
ACCUMULATED
ADDITIONAL DURING
PAID-IN DEVELOPMENT SUBSCRIPTION TREASURY STOCKHOLDERS'
CAPITAL STAGE RECEIVABLE STOCK EQUITY
------------ ------------- ------------ ------------ --------------
<S> > <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 2,235,723 $(1,559,920) $ (44,074) $ (600) $ 663,475
Issuance of Common Stock for Services
Rendered at Prices between $.22 and $2.69 per Share 282,761 -- -- -- 283,412
Issuance of Common Stock for Repayment
of Debt 60,883 -- -- -- 61,174
Issuance of Common Stock for Conversion
of Warrants 1,754,100 -- -- -- 1,755,000
Beneficial Conversion Feature on
Convertible Debentures 333,332 -- -- -- 333,332
Issuance of Common Stock for Conversion
of Debentures 785,974 -- -- -- 787,585
Issuance of Common Stock for Services
Rendered at Prices between $.21 and $.50 per
Share from Treasury 48,219 -- -- 218 48,437
Net Loss -- (3,185,014) -- -- (3,185,014)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 $ 5,500,992 $(4,744,934) $ (44,074) $ (382) $ 747,401
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Period
from Inception
For the Nine Months Ended September 30, to September 30,
1999 1998 1999
---------------- ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Loss $(3,185,014) $ (716,933) $(4,744,934)
Adjustments to Reconcile Net Loss to Net Cash Flows
Used in Operating Activities:
Depreciation 4,634 1,252 12,375
Amortization 7,241 -- 7,241
Fair Value of Common Stock Issued for Services Rendered 331,849 91,510 521,711
Fair Value of Common Stock Issued for Interest Expense 3,628 -- 3,628
Stock Issued for Conversion of Warrants Attributed to Interest 1,753,200 -- 1,753,200
Beneficial Conversion Feature of Debentures 333,333 -- 333,333
Fair Value of Options Issued -- -- 2,063
Changes is Operating Assets and Liabilities:
Prepaid Expenses 2,959 460 (17,675)
Accounts Payable (21,633) 20,100 22,143
Interest Payable -- -- 350
Deposits 16,000 (320) 12,005
----------- ----------- -----------
Net Cash Flows Used in Operating Activities (753,803) (603,931) (2,094,560)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (49,592) (6,752) (65,827)
Patent Costs (5,011) (23,225) (96,809)
----------- ----------- -----------
Net Cash Flows Used in Investing Activities (54,603) (29,977) (162,636)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock -- -- (600)
Proceeds from Note Payable -- -- 60,000
Proceeds From Issuance of Debentures 890,490 -- 890,490
Proceeds From Exercise of Warrants 900 -- 900
Proceeds from Issuance of Common Stock
from Subscriptions Receivable -- 1,383,620 653,976
Proceeds from Issuance of Common Stock -- -- 1,378,094
----------- ----------- -----------
Net Cash Flows Provided by Financing Activities 891,390 1,383,620 2,982,860
----------- ----------- -----------
Net Increase in Cash and Cash Equivalents 82,984 749,712 725,664
Cash - Beginning of Period 642,680 3,802 --
----------- ----------- -----------
Cash - End of Period $ 725,664 $ 753,514 $ 725,664
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Income Taxes $ -- $ -- $ --
=========== =========== ===========
Interest $ -- $ -- $ --
=========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock for Repayment of Debt $ 60,350 $ -- $ --
=========== =========== ===========
Subscriptions Receivable for Issuance of Common Stock $ -- $ -- $ 698,050
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Jacobson Resonance
Enterprises, Inc., have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 1999, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information refer to the financial statements and footnotes for the year ended
December 31, 1998 included elsewhere herein.
NOTE 2 - STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1999, the Company issued 868,867 (of
which 218,318 shares was issued from the treasury) common shares for services.
The services were charged to operations and have been recorded at the quoted
market value at the date of issuance or per an agreement which aggregated
$331,858.
The Company issued 291,305 common shares for the repayment of debt of $60,350
and interest expense of $824.
The Company issued $1,000,000 in 2% convertible debentures due June 2, 2004, and
warrants to purchase 900,000 shares of its common stock at $.001 per share. The
Company received net proceeds of approximately $890,000 after costs which are
being amortized over the life of the debentures. As a result of the conversion
feature (75% of the quoted market of the common stock) and the beneficial aspect
to the recipient, the Company recognized an interest charge of $333,332. The
debentures were immediately convertible and the $333,332 of interest has been
charged to operations in June 1999.
Additionally, warrants to purchase 900,000 shares of the Company's common stock
were exercised for $900 when the market price was $1.95 a share. As these
warrants were issued and exercised at the time of the issuance of the
debentures, the difference between the market value and the warrant exercise
price was also considered a beneficial conversion price for accounting purposes.
Accordingly, this transaction resulted in a $1,754,100 charge to interest
expense in June 1999.
During July and August 1999, $874,280 of the 2% convertible debentures were
converted into common stock. On July 16, 1999, $100,000 of principal plus
interest was converted into 144,645 shares of common stock, on July 22, 1999,
$225,000 of principal plus interest was converted into 363,892 shares of common
stock and on August 6, 1999 $549,280 of principal plus interest was converted
into 1,102,466 shares of common stock for an aggregate of 1,611,003 shares.
Subsequent to September 30, 1999, the remaining debentures were converted into
251,873 of the Company's common stock.
F-6
<PAGE>
To the Board of Directors
Jacobson Resonance Enterprises, Inc.
Boca Raton, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Jacobson Resonance
Enterprises, Inc. (a development stage enterprise) as of December 31, 1998 and
1997, and the related statements of operations, changes in stockholders' equity,
and cash flows for the years ended December 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jacobson Resonance Enterprises,
Inc. (a development stage enterprise) as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for the years ended December 31,
1998 and 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has no significant revenue from operations. It is utilizing technology
which may require substantial expenditures to successfully market. The Company
must successfully complete its product development and marketing efforts. As a
result the Company may need additional funds. These factors raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of the foregoing uncertainties.
Millward & Co. CPAs
Fort Lauderdale, Florida
January 29, 1999
F-7
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
BALANCE SHEETS
December 31,
--------------------------------
1998 1997
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 642,680 $ 3,802
Prepaid Expenses 20,634 6,675
----------- -----------
Total Current Assets 663,314 10,477
Property and Equipment, at Cost, (Net of Accumulated Depreciation of
$7,741 and $2,898 at December 31, 1998 and 1997, respectively) 8,494 3,690
Patent Costs 91,798 50,190
Deposits 3,995 3,675
----------- -----------
Total Assets $ 767,601 $ 68,032
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note Payable $ 60,350 $ --
Accounts Payable 43,776 12,042
----------- -----------
Total Current Liabilities 104,126 12,042
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock $.001 Par Value, 5,000,000 Shares Authorized;
Issued and Outstanding, 45,000 Shares in 1998 and
45,000 Shares in 1997 45 45
Common Stock, $.001 Par Value, 100,000,000 Shares Authorized;
Issued and Outstanding, 32,301,043 Shares in 1998
and 27,943,971 Shares in 1997 32,301 27,944
Additional Paid in Capital 2,235,723 1,157,795
Deficit Accumulated During the Development Stage (1,559,920) (607,644)
Treasury Stock Common (600,000 Shares) (600) (600)
Subscriptions Receivable (44,074) (521,550)
----------- -----------
Total Stockholders' Equity 663,475 55,990
----------- -----------
Total Liabilities and Stockholders' Equity $ 767,601 $ 68,032
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENTS OF OPERATIONS
For the Year Ended For the Period
December 31, from Inception
-------------------------------------------- to December 31,
1998 1997 1998
------------- ------------ ---------------
<S> <C> <C>
REVENUES $ 58,846 $ 66,286 $ 125,132
------------ ------------ ------------
COSTS AND EXPENSES:
General and Administrative 794,977 276,958 1,220,770
Research and Development 232,799 104,647 480,936
------------ ------------ ------------
Total Operating Expenses 1,027,776 381,605 1,701,706
------------ ------------
Interest Income ( Net of Expense of $350) 16,654 -- 16,654
------------ ------------ -------------
NET LOSS $ (952,276) $ (315,319) $ (1,559,920)
============ ============ =============
PER SHARE INFORMATION:
Net Loss Per Share:
Basic $ (0.03) $ (0.01)
============ ============
Diluted $ (0.03) $ (0.01)
============ ============
Shares Used to Compute Net Loss Per Share
Basic 29,374,150 26,743,278
============ ============
Diluted 29,678,400 26,743,278
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from Inception to December 31, 1998
DEFICIT
ACCUMULATED
COMMON STOCK PREFERRED STOCK ADDITIONAL DURING
---------------------------------------------------------- PAID-IN DEVELOPMENT
ISSUED AMOUNT ISSUED AMOUNT CAPITAL STAGE
------------ ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Founders Stock at Par $.001 57,220,000 $ 57,220 -- $ -- $ (57,220) $ --
Recapitalization - June 4, 1996 4,905,000 4,905 -- -- (4,905) --
Issuance of Common Stock at $.10 Per Share 10,000,000 10,000 -- -- 990,000 --
Issuance of Common Stock at $1.75 Per Share 18,857 19 -- -- 32,981 --
Purchase of Treasury Stock at Cost -- -- -- -- -- --
Conversion of Common Stock to Preferred Stock (45,000,000) (45,000) 45,000 45 44,955 --
Net Loss -- -- -- -- -- (292,325
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 27,143,857 $ 27,144 45,000 $ 45 $ 1,005,811 $ (292,325)
Issuance of Common Stock for Services
Rendered at Prices Between $.15 and
$1.75 Per Share 40,114 40 -- -- 12,744 --
Issuances of Common Stock from Private
Placement at Prices Between $.15 and
$.25 Per Share 760,000 760 -- -- 139,240 --
Collection of Subscription Receivable -- -- -- -- -- --
Net Loss -- -- -- -- -- (315,319)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 27,943,971 $ 27,944 45,000 $ 45 $ 1,157,795 $ (607,644)
Reacquisition of Common Shares and (3,000,000) (3,000) -- -- (450,000) --
Collection of Subscription Receivable
Cash Collection of Subscription Receivable -- -- -- -- -- --
Issuance of Common Stock from Private
Placement at a Price of $.15 per Share 4,675,850 4,676 -- -- 659,294 --
Issuance of Common Stock from Private
Placement at a Price of $.35 per Share 2,017,999 2,018 -- -- 690,156 --
Issuance of Common Stock for Services
Rendered at Prices between $.15 and $.35
per Share 663,223 663 -- -- 176,415 --
Fair Value of Options Issued to Consultants -- -- -- -- 2,063 --
Net Loss -- -- -- -- -- (952,276)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 32,301,043 $ 32,301 45,000 $ 45 $ 2,235,723 $(1,559,920)
----------- ----------- ----------- ----------- ----------- -----------
(CONTINUED TABLE)
SUBSCRIPTION TREASURY STOCKHOLDERS'
RECEIVABLE STOCK EQUITY
----------- ------------ ------------
Issuance of Founders Stock at Par $.001 $ -- $ -- $ --
Recapitalization - June 4, 1996 -- -- --
Issuance of Common Stock at $.10 Per Share (526,550) -- 473,450
Issuance of Common Stock at $1.75 Per Share -- -- 33,000
Purchase of Treasury Stock at Cost -- (600) (600)
Conversion of Common Stock to Preferred Stock -- -- --
Net Loss -- -- (292,325)
----------- ---- -----------
Balance, December 31, 1996 $ (526,550) $ (600) $ 213,525
Issuance of Common Stock for Services
Rendered at Prices Between $.15 and
$1.75 Per Share -- -- 12,784
Issuances of Common Stock from Private
Placement at Prices Between $.15 and
$.25 Per Share -- -- 140,000
Collection of Subscription Receivable 5,000 -- 5,000
Net Loss -- -- (315,319)
----------- ----------- -----------
Balance, December 31, 1997 $ (521,550) $ (600) $ 55,990
Reacquisition of Common Shares and 450,000 -- (3,000)
Collection of Subscription Receivable
Cash Collection of Subscription Receivable 27,476 -- 27,476
Issuance of Common Stock from Private
Placement at a Price of $.15 per Share -- -- 663,970
Issuance of Common Stock from Private
Placement at a Price of $.35 per Share -- -- 692,174
Issuance of Common Stock for Services
Rendered at Prices between $.15 and $.35
per Share -- -- 177,078
Fair Value of Options Issued to Consultants -- -- 2,063
Net Loss -- -- (952,276)
----------- ----------- -----------
Balance December 31, 1998 $ (44,074) $ (600) $ 663,475
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
JACOBSON RESONANCE ENTERPRISES, INC.
A DEVELOPMENT STAGE ENTERPRISE
STATEMENTS OF CASH FLOWS
For the Year Ended For the Period
December 31, from Inception
------------------------------------ to December 31,
1998 1997 1998
----------------- ---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Loss $ (952,276) $ (315,319) $ (1,559,920)
Adjustments to Reconcile Net Loss to Net Cash Flows
From (Used in) Operating Activities:
Depreciation 4,843 1,932 7,741
Stock Issued for Services Rendered 177,078 12,784 189,862
Fair Value of Options Issued 2,063 -- 2,063
Changes is Operating Assets and Liabilities:
Prepaid Insurance (13,959) (2,750) (20,634)
Interest Payable 350 -- 350
Deposits (320) (2,675) (3,995)
Accounts Payable 31,734 869 43,776
----------- ----------- --------------
Net Cash Flows Used in Operating Activities (750,487) (305,159) (1,340,757)
----------- ----------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of Fixed Assets (9,647) -- (16,235)
Patent Costs (41,608) (29,628) (91,798)
----------- ----------- --------------
Net Cash Flows Used in Investing Activities (51,255) (29,628) (108,033)
----------- ----------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds From Note Payable 60,000 -- 60,000
Purchase of Treasury Stock -- -- (600)
Proceeds from Issuance of Common Stock 903,144 140,000 1,378,094
Proceeds from Issuance of Common Stock from Subscription Receivable 477,476 176,500 653,976
----------- ----------- --------------
Net Cash Flows Provided by Financing Activities 1,440,620 316,500 2,091,470
----------- ----------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 638,878 (18,287) 642,680
Cash - Beginning of Period 3,802 22,089 --
----------- ----------- --------------
Cash - End of Period $ 642,680 $ 3,802 642,680
=========== =========== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
- -----------------------------------
Cash paid for:
Income Taxes $ -- $ -- $ --
=========== =========== ==============
Interest $ -- $ -- $ --
=========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on March 6, 1988, in the State of Nevada. The
Company is in the development stage and its intent was to locate suitable
business ventures to acquire. On June 4, 1996, the Board of Directors of Pioneer
Services International, Ltd. voted to acquire 100% of the outstanding shares of
Jacobson Resonance Machines, Inc. in exchange for the issuance of 57,220,000
shares of its common stock. The Company and Jacobson Resonance Machines, Inc.
had no activity prior to the acquisition. In 1998 the Company changed its name
to Jacobson Resonance Enterprises, Inc.
As a result of the exchange of stock, the former stockholders of Jacobson
Resonance Machines, Inc. owned 57,220,000 restricted common shares or 92% after
the recapitalization of the Company. Accordingly, this transaction has been
treated, for financial reporting purposes, as a reverse acquisition in which
Jacobson Resonance Machines, Inc. was recapitalized by providing 4,905,000
shares of Pioneer Services International, Ltd. Common stock to its existing
stockholders. The 1996 shareholders' equity section reflects the change in the
capital structure due to the reverse acquisition. As a result, $4,905 was
transferred to common stock from additional paid-in capital (see Note 7).
The Company is a bio-tech and bio-medical company involved in the development of
resonance and electro-magnetic equipment, process and applications. Applications
for the use of resonance technology in the medical, food, agricultural,
recreational, pharmaceutical, and environmental industries are currently being
pursued.
Basis of Presentation
The Company is in the development stage and the Company's operations are subject
to all of the risks inherent of an emerging business enterprise. The Company has
incurred an operating loss of $952,276 and $315,319 for the years ended December
31, 1998 and 1997, respectively. No assurance exists that the Company will not
encounter substantial delays and expenses related to financing its successful
completion of its product development and marketing efforts and/or other
unforeseen difficulties. The Company will be required to expand its management
and administrative capabilities in order to manage the aforementioned items as
well as respond to competitive conditions. These and other factors may require
additional funds and the Company may seek such funds through additional equity
financings, debt financings, collaborative arrangements or from other sources.
Such funds may not be available on terms acceptable to the Company. Based on the
Company's current plans and assumptions, the Company believes its cash on-hand
and subsequent financing will be sufficient to fund its anticipated operations
through fiscal 1999 (see Notes 2 and 7).
Per Share Data
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128), which establishes new standards for computing
and presenting earnings per share ("EPS") effective for periods ending after
December 15, 1997. FAS 128 requires a dual presentation of basic and diluted
EPS. Because of losses from continuing operations, the effect of stock options
and warrants is antidilutive. Accordingly, the Company's presentation of diluted
earnings per share is the same as that of basic earnings per share in all
periods presented.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and other highly liquid debt
instruments with an original maturity of less than three months.
F-12
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Property and Equipment
Computers and equipment are stated at cost. Depreciation is charged to
operations over the estimated useful lives of 3-5 years.
Depreciation expense for the years ended December 31, 1998 and 1997 amounted to
$4,843 and $1,932, respectively.
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.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income taxes are determined based upon the difference between
the financial statement carrying amount and the tax basis of assets and
liabilities using tax rates expected to be in effect in the years in which the
differences are expected to reverse.
As of December 31, 1998, the Company has net operating losses amounting to
approximately $952,276 which the Company has elected to carry forward for tax
purposes and accordingly, the loss may be carried forward and used to offset
taxable earnings of future years. The net operating loss carryover will expire
in the year 2013 if not used in any intervening years. The operating losses may
be limited to the extent an "ownership" change occurs. As the utilization of
such operating loss for tax purposes is not assured, the deferred tax asset has
been fully reserved through the recording of a 100% valuation allowance.
Research and Development
Research and development costs are charged to operations when incurred and are
included in operating expenses.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" in
1996. SFAS 123 allows either the adoption of a fair value method of accounting
for stock-based compensation plans or continuation of accounting under
Accounting Principles Board ("APB") Opinion No. 25 Accounting For Stock Issued
To Employees, and related interpretations with supplemental disclosures. The
Company has chosen to account for all stock based arrangements under which
employees receive shares of the Company's stock under APB 25 and make the
related disclosures under SFAS 123.
F-13
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Financial Instruments and Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company invests its
excess cash in high quality short-term liquid money market instruments with
major financial institutions and the carrying value approximates market value.
The Company does not have significant trade receivables.
The Company believes it is not exposed to any significant credit risk on cash
and/or notes receivable.
NOTE 2 - SUBSCRIPTION RECEIVABLE
During the year the Subscription Receivable was reduced by $450,000, which
represented the remarketing of 3,000,000 common shares. The Company received a
note receivable as security for the outstanding balance. The balance on the note
receivable at December 31, 1998 was $44,074.
NOTE 3 - PATENT COSTS
Patent costs represent legal expenses associated with the application to obtain
certain patents. Upon obtaining these patents, they will be amortized and
charged to operations over their estimated useful lives.
NOTE 4 - NOTE PAYABLE
On November 30, 1998, the Company received a short-term loan in the amount of
$60,000 from a related party. This loan is due and payable on November 30, 1999,
together with interest which accrues at 7% per annum. The holder of the note has
been given an option to convert the note and any accrued interest at any time
prior to maturity into fully-paid shares of the Company's common stock, par
value $.001 per share equal to $.21 per share.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
(A) Operating Lease
The Company is currently renting office space in Boca Raton, Florida and Juno
Beach, Florida, pursuant to operating leases which expire July 31, 2003 and
August 31, 1999, respectively. Rent expense for the years ended December 31,
1998 and 1997 amounted to $81,676 and $44,689, respectively.
F-14
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)
Future minimum lease payments for the non-cancelable operating lease are:
Year Ended December 31,
1999 $ 53,227
2000 44,959
2001 44,959
2002 44,959
2003 26,226
Thereafter -
-----------
$ 214,330
===========
NOTE 6 - 1998 STOCK OPTION PLAN
In November, 1998, the Company's board of directors approved the 1998 Stock
Option Plan (the Plan). The Plan authorizes the granting of both incentive stock
options and non-statutory stock options up to a total of 10,000,000 shares. The
Plan authorizes the granting of both incentive stock options and non-statutory
stock options. The option price for non-statutory stock options may be less
than, equal to, or greater than the fair market value on the date the option is
granted, whereas for incentive stock options, the price will be at least 100% of
the fair market value. Compensation expense, representing the difference between
the exercise price and the fair market value at date of grant, is recognized
over the vesting or service period. For all the periods presented substantially
all of the options were granted at an exercise price equal to the fair market
value of the Company's common stock at the date of grant. The board of directors
granted 608,500 options to eligible persons. The right to exercise the options
shall vest annually as follows:
(1) The right to exercise the options and to acquire 50% of the shares of
stock underlying the option vests as the date granted.
(2) The right to exercise the option and acquire 30% of the shares of stock
one year after the date it is granted.
(3) The right to exercise the option and acquire 10% of the shares of
stock two years after the date it is granted.
(4) The right to exercise the option and acquire 10% of the shares of stock
three years after the date it is granted.
F-15
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1998
NOTE 6 - 1998 STOCK OPTION PLAN (continued)
Had compensation expense for the Company's stock option plans been determined
based on the fair value of the underlying common stock at the grant dates,
consistent with Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation, the Company's net loss and net loss per share
would have been as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net loss:
As reported ($ 952,276) ($ 315,319)
Pro forma ($ 1,043,551) ($ 315,319)
Basic and diluted
Loss per share:
As reported ($.03) ($.01)
Pro forma ($.04) ($.01)
</TABLE>
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the year ended December 31, 1998 risk-free interest rate of
5.5%, dividend yield of 0%, volatility factor of the expected market price of
the Company's common stock of 131.09%, and an expected life of the option of 5
years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
NOTE 7- STOCKHOLDERS' EQUITY
During May 1997, the Company's Board of Directors authorized the conversion of
45,000,000 shares of its common stock into 45,000 shares of its Preferred Stock,
these shares belong to The Company's President. The shares were converted at a
conversion rate of 1 share of Series A Preferred stock for 1,000 Shares of
Common Stock. Each share of Preferred Stock is convertible into 1,000 shares of
Common Stock as follows: 1/3 at the option of the holder beginning three years
from issuance, 1/3 at the option of the holder, beginning four years from
issuance, and the final 1/3 beginning five years from issuance. The May 1997
conversion has been accounted for as if it had occurred as of December 31, 1996.
In 1997, the Company issued 40,114 shares of common stock for services with a
fair value of $12,784. The Company completed a private placement of 760,000
shares of common stock for net proceeds of $140,000.
F-16
<PAGE>
JACOBSON RESONANCE ENTERPRISES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 1998
NOTE 7- STOCKHOLDERS' EQUITY (continued)
The Company completed two private placements during 1998. In March, 1998, the
Company issued 4,075,850 shares of common stock pursuant to a private placement
for a price of $.15 per share. In connection with this private placement, the
Company issued 271,187 shares for commissions.
In June, 1998, there was a second private placement whereby the Company issued
2,017,999 shares for a price of $.35 per share. Each share includes a warrant to
purchase additional common shares at a price of $.45 per share for a four-year
period ended December, 2002. Fees paid relating to this private placement were
$14,126 and have been charged to additional paid in capital. In addition, 40,360
warrants were issued to purchase 40,360 common shares at $.35 per share. The
warrants expire December, 2002, and were issued for services relating to the
private placement.
The Company reacquired 3,000,000 common shares issued in 1996 and cancelled a
subscription receivable in the amount of $450,000 for the purchase of such
shares and received a note receivable in the amount of $71,550. During the year
$27,476 was collected from the note receivable which will be recorded at a value
of $.35 when earned.
During the year the Company issued 663,223 common shares for services. The
services were charged to operations and have been recorded at the quoted market
value at the date of issuance. Included in the shares are 94,888 shares
pursuant to a continuing agreement at a quoted market value of $.35 per share.
The continuing agreement requiring personality endorsements provides for the
issuance of shares at future dates of the following shares:
1999 195,000 shares
2000 205,000 shares
In addition, the Company issued and aggregated 142,857 options to purchase
common shares at $.35 per share (the quoted market value) for a three-year
period ended October 15, 2001. The value of the options using the Black-Scholes
formula amounted to $37,142 and is being amortized over a three-year period
commencing in November, 1998. Amortization during 1998 amounted to $2,063 and
has been charged to operations.
NOTE 8- SUBSEQUENT EVENT
Patent litigation involving Dr. Jerry I. Jacobson, Chief Executive Officer of
Jacobson Resonance Enterprises, Inc., and other parties were settled. The
settlement was approved by all parties and the court. As part of the settlement,
the Company agreed to issue warrants to the other parties and/or Dr. Jacobson to
purchase common shares of the Company. The Company will receive an exclusive
license to certain patents of Dr. Jacobson, and an employment and
non-competition agreement from Dr. Jacobson.
F-17
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit Number Exhibit Description
- -------------- -------------------
2.1 Articles of Incorporation, as amended *
2.2 Bylaws, as amended *
3.1 Specimen Common Stock Certificate *
3.2 Specimen Series A Convertible Preferred Stock
Certificate *
3.3 Specimen 1998 Warrant Agreement *
3.4 Specimen 1998 Placement Agent Warrant Agreement *
3.5 Specimen 2% Convertible Debenture *
6.1 Patent License Agreement Dated October 6, 1999,
Between Dr. Jerry I. Jacobson and the Company *
6.2 License Agreement Dated February 23, 1999, Between
the Company and Serrato Enterprises L.L.C. *
6.3 1998 Stock Option Plan *
- ------------------------
* Previously filed.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
JACOBSON RESONANCE ENTERPRISES, INC.
Date: November 23, 1999 By: /s/ Jerry I. Jacobson
------------------------------------------
Jerry I. Jacobson, Chief Executive Officer
and President
