<PAGE>
As filed with the Securities and Exchange Commission on September 21, 2000
Registration No.
==========================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
RETRAC MEDICAL, INC.
(Name of small business issuer in its charter)
DELAWARE 3841 13-3887676
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
22 SOUTH MAIN STREET
NEW CITY, NEW YORK 10956
(914) 639-9598
(Address and telephone number of principal executive offices
and principal place of business)
--------------------------------------
THOMAS SASSONE
22 SOUTH MAIN STREET
NEW CITY, NEW YORK 10956
(914) 639-9598
(Name, address and telephone number of agent for service)
-----------------
COPIES TO:
DANIEL K. DONAHUE, ESQ.
MARC A. INDEGLIA, ESQ.
OPPENHEIMER WOLFF & DONNELLY LLP
500 NEWPORT CENTER DRIVE, SUITE 700
NEWPORT BEACH, CA 92660
(949) 823-6000
-----------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
-----------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
----------------------------------------------------
CALCULATION OF REGISTRATION FEE
=============================== ======================== ====================== ===================== =================
TITLE OF EACH CLASS OF PROPOSED PROPOSED
SECURITIES AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
------------------------------- ------------------------ ---------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,300,000 Shares (1) $12.00 $27,600,000 $7,286.40
------------------------------- ------------------------ ---------------------- --------------------- -----------------
Common Stock, $.01 par value 230,000 Shares (2) $14.40 $ 3,312,000 $ 874.37
------------------------------- ------------------------ ---------------------- --------------------- -----------------
Total $8,160.77
=============================== ======================== ====================== ===================== =================
</TABLE>
(1) Includes shares the underwriters will have the option to purchase solely to
cover over-allotments, if any.
(2) Includes shares issuable upon exercise of underwriter's warrant.
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE>
Subject to completion, dated September ___, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
PROSPECTUS
2,000,000 Shares
RETRAC MEDICAL, INC.
Common Stock
We are offering 2,000,000 shares of our common stock. This is our
initial public offering and no public market currently exists for our shares. We
have applied to list our common stock on the American Stock Exchange under the
symbol "_____ ." We expect the public offering price to be between $8 and $12
per share.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 3 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
Per Share Total
----------- -----------
Public offering price.......................... $ $
Underwriting discount.......................... $ $
Proceeds, before expenses, to us............... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters have an option to purchase an additional 300,000 share
from us to cover over-allotments. Centex Securities expects to deliver the
shares to the purchasers on or about _____________, 2000.
CENTEX SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS IS ________, 2000
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
ALL SHARE AMOUNTS IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO GIVE EFFECT
TO A 2 FOR 3 REVERSE SPLIT OF OUR OUTSTANDING COMMON SHARES EFFECTED IN
SEPTEMBER 2000. DISCLOSURE CONCERNING THE TOTAL NUMBER OF COMMON SHARES
OUTSTANDING AS OF THE DATE OF THIS PROSPECTUS INCLUDES 571,450 COMMON SHARES
THAT WE HAVE PREVIOUSLY AGREED TO ISSUE TO CERTAIN THIRD PARTIES SUBJECT TO AND
CONDITIONED UPON OUR INITIAL PUBLIC OFFERING.
OUR COMPANY
We are an emerging medical technologies company that intends to
develop, market and distribute a line of proprietary medical devices for use by
healthcare professionals, medical institutions and other individual users. Our
initial product is the Stat-Trak(TM) Safety Syringe, a cost-effective safety
syringe for medical healthcare professionals and facilities. This product
incorporates patented technology into a traditional syringe which enables
healthcare professionals to retract the needle permanently into the barrel of
the syringe after use. As a result, the syringe is rendered unusable and can be
safely and conveniently disposed of without the risk of injury from accidental
needlesticks. Future products will include a system of needle-free devices, the
Stat-Link(TM) Universal Connection, the Stat-Link(TM) "Y" Socket and
Stat-Vial(TM), which are intended to eliminate the need for a hypodermic needle
in an intravenous line by allowing the medication to be drawn into a syringe and
then injected without the use of a needle.
As of the date of this prospectus, we have not commenced revenue
producing operations. We have completed the design, development and testing of
the Stat-Trak(TM) Safety Syringe, however, we do not expect to commence the full
scale manufacturing or marketing of the product until the fourth quarter of
2001. We recently acquired the technology and patent rights underlying our
needle-free devices, however, as of the date of this prospectus we are
commencing the design and development of the Stat-Link(TM) Universal Connection,
the Stat-Link(TM) "Y" Site and Stat-Vial(TM). Subject to the successful design,
development and testing of the needle-free devices, we expect to commence the
marketing of those products in the fourth quarter of 2001.
Our safety syringes and needle-free infusion devices will be designed
to meet all the important safety requirements mandated by legislation. We also
intend to offer our products at a cost substantially lower than products
currently offered by our competitors. Because of their expected low cost, we
believe that our safety syringes will be well positioned to take advantage of
pending legislation that will require the phasing out of all non-safety sharps
devices. Legislation already in place in five states requires hospitals and
other healthcare providers to phase out their purchases of traditional
non-safety syringes in favor of safety syringes that reduce the threat of
needlestick injuries. We expect most other states to follow with similar
legislation. We believe that our safety syringes will be well positioned to take
advantage of this changing marketplace because their design is both
cost-effective and user-friendly when compared to other safety syringes
currently on the market.
Our executive offices are located at 22 South Main Street, New City,
New York 10956, and our telephone number is (914) 639-9598.
-1-
<PAGE>
THE OFFERING
Common stock outstanding prior to
this offering....................... 4,917,146 shares(1)
Common stock offered................ 2,000,000 shares
Common stock to be outstanding
after the offering................ 6,917,146 shares
Use of proceeds..................... We intend to use the net proceeds from
the offering for repayment of
indebtedness, equipment and capital
expenditures and working capital.
Dividend policy..................... We do not plan to pay dividends in the
foreseeable future. Because we are an
emerging enterprise, we will use all
earnings to fund our ongoing operation
and the growth of the business.
Proposed AMEX symbol................ "___"
----------------
(1) Does not include 1,256,099 common shares issuable upon exercise of
outstanding options and warrants, common shares issuable upon exercise of
the underwriters overallotment option or warrants, 17,250 unvested shares
reserved for issuance under a consulting agreement, or approximately
871,604 common shares issuable upon conversion of outstanding convertible
promissory notes.
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- ----------------------------
1998 1999 1999 2000
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ -- $ -- $ -- $ --
Operating expenses................... 1,603,572 1,600,932 381,367 2,429,988
Net loss............................. (1,851,849) (4,604,829) (563,992) (4,567,545)
Basic earnings (loss) per share...... (0.28) (0.60) (0.08) (0.53)
Weighted average shares outstanding.. 6,703,916 7,695,044 7,302,571 8,638,093
</TABLE>
JUNE 30, 2000
---------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
(UNAUDITED) (UNAUDITED)
---------------------------------
Working capital (deficit)............ $ (6,682,000) $ 7,568,520
Total assets......................... 2,970,047 10,521,728
Total liabilities.................... 8,008,319 2,000,000
Stockholders' equity (deficit)....... (5,038,272) 8,521,728
----------------
(2) As adjusted to give effect to the sale of 2,000,000 shares of common stock
sold by us at an assumed initial public offering price of $10 per share,
after deducting underwriting discounts and estimated offering expenses, our
application of the net proceeds as described under "Use of Proceeds," and
$3,500,000 of debt we incurred and $437,836 of accrued salary forgiven in
connection with Martin Kelly's agreement to cancel 4,000,000 of our common
shares, which took place after June 30, 2000.
-2-
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high
degree of risk. You should carefully consider the following risk factors and the
other information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to any
of these risks, and you may lose part or all of your investment.
WE ARE A DEVELOPMENT STAGE COMPANY AND HAVE NO SIGNIFICANT OPERATING
HISTORY. We were founded in 1996 and acquired the patents to our safety syringes
in July 1998. We are a development stage company and we have no significant
operating history. As of the date of this prospectus, we have not commenced
either the manufacturing or marketing of our safety syringes nor otherwise
commenced revenue producing operations. We believe at this time that we are six
to nine months from operations. As a result, we have no operating history upon
our current market in which you can evaluate our business. The limited amount of
information about us makes it difficult for you to predict whether we will be
successful.
As a new company, we are subject to all of the risks, expenses, and
uncertainties frequently encountered by start-up and development stage
companies. Any unanticipated expenses, problems, or technical difficulties may
result in material delays both in the completion of the manufacturing and
marketing of our safety syringes and needle-free devices and in offering our
products to the market. Our management has made several assumptions concerning
future events and circumstances which they believe to be significant to our
operations and upon which our financial results will depend. Some assumptions
will invariably not materialize and some unanticipated events and circumstances
occurring subsequent to the date of this prospectus may affect other
assumptions. If our assumptions about our future operations are wrong, we may
not be able to operate in a profitable manner.
OUR INDEPENDENT AUDITORS' REPORT RAISES SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN. Our independent auditors have prepared
their report on our 1999 financial statements assuming that we will continue as
a going concern. Their report has an explanatory paragraph which states that our
recurring losses from operations, our inability at December 31, 1999 to fund our
then-current liabilities, our accumulated deficit, our stockholders' deficit,
our negative working capital, our delinquency on payroll taxes and defaults on
certain of our liabilities raise substantial doubt about our ability to continue
as a going concern without a significant debt or equity financing in the
immediate future.
WE HAVE A HISTORY OF LOSSES, EXPECT TO INCUR ADDITIONAL LOSSES, AND MAY
NEVER ACHIEVE PROFITABILITY. Through June 30, 2000, we incurred cumulative
losses of $13.7 million, and we expect to continue to incur losses in the
future. If we do not become profitable, the value of our stock will decrease. We
anticipate that we will have large fixed expenses, and we plan to incur
significant and increasing sales and marketing, manufacturing, and general and
administrative expenses. We do not expect to ship our first product until the
second half of the year 2001. In order for us to become profitable, we will need
to generate and sustain significant revenue while maintaining reasonable cost
and expense levels.
WE HAVE LIMITED SOURCES OF FINANCING AND MAY REQUIRE ADDITIONAL CAPITAL
TO SUPPORT OUR GROWTH. We believe that the net proceeds of this offering will be
sufficient to fulfill our needs through December 31, 2001. However, we may
require additional capital before or after that time in order to fund marketing,
research and development and general administrative expenses relating to our
safety syringes and needle-free devices. If we are unable to obtain additional
financing in sufficient amounts or on acceptable terms, our operating results
and prospects will be adversely affected.
WE HAVE NO CURRENTLY AVAILABLE PRODUCT AND, IF OUR ANTICIPATED
PRODUCTS, OUR STAT-TRAK SAFETY SYRINGE AND OUR NEEDLE-FREE INFUSION DEVICES, ARE
NOT COMMERCIALLY SUCCESSFUL, OUR REVENUE WILL NOT GROW AND WE MAY NOT ACHIEVE
PROFITABILITY. If our potential customers do not purchase our safety syringes or
our needle-free infusion devices in large numbers, our revenue will not grow and
our business, financial condition and results of operations will be seriously
harmed. Since the market for our products is relatively new, future demand for
our products is uncertain and will depend on the speed of adoption of safety
syringes and needle-free devices. Even if hospitals and health providers
purchase our products in large amounts initially, our products may not operate
as expected. This could delay or prevent their adoption as a standard in the
healthcare industry.
-3-
<PAGE>
WE FACE SIGNIFICANT COMPETITION THAT COULD PREVENT US FROM GROWING AND
COULD PREVENT US FROM BECOMING PROFITABLE. The market for syringes is marked
with intense competition, and we expect additional new competitors to emerge in
the future. We are aware of a number of companies that currently manufacture and
market disposable safety syringes. Many of these companies have existing
relationships with health care providers and hospitals, making it more difficult
to for us to sell our products to these potential customers. In addition, many
of the healthcare institutions to whom we intend to sell our products to are
tied into buying groups that contract with major suppliers of traditional
syringes. These contracts will limit our ability to sell our safety syringes to
certain healthcare institutions. We believe that most major healthcare group
purchasing organizations will separate contracts involving safety syringes from
contracts involving standard syringes thereby allowing smaller companies like us
to compete, but there is no assurance they will do so. Also, to the extent these
healthcare group purchasing organizations also enter into contracts to purchase
safety syringes from our competitors, our ability to compete could be
substantially limited.
Some of our current and potential competitors are large public
companies, including Becton Dickenson and Sherwood Medical, and have longer
operating histories, significantly greater financial, technical and marketing
resources, wider customer relationships and a broader product line than we do.
Consequently, these competitors are able to devote greater resources to the
development, promotion, sale and support of their products. These large public
companies are better positioned than we are to acquire companies and new
technologies that may displace our products or make them obsolete. Any of these
acquisitions could give the acquiring competitor a strategic advantage. Unlike
these large public companies, we have limited ability to provide
vendor-sponsored financing, which may influence the purchasing decisions of
prospective customers.
OUR SAFETY SYRINGES AND NEEDLE-FREE SYSTEMS ARE SUBJECT TO EXTENSIVE
GOVERNMENTAL REGULATION. Clinical testing, manufacture and sale of our safety
syringes and needle-free systems are subject to regulation by numerous
governmental authorities, principally the U.S. Food and Drug Administration and
comparable state and foreign regulatory agencies. The regulatory process can be
expensive and time-consuming. We have received FDA notification on our safety
syringes through a pre-market notification filing under Section 510(k) of the
Food, Drug and Cosmetics Act. Applicants under the Section 510(k) procedure must
prove that the device for which notification is sought is substantially
equivalent to devices on the market prior to the Medical Device Amendments of
1976 or devices reviewed thereafter pursuant to the Section 510(k) procedure.
Any new products we may develop or acquire or any improvements to our existing
products will also be subject to FDA review. The failure to receive requisite
FDA notification for any of our future products, or significant delays in
obtaining such notification, would prevent us from commercializing our products
as anticipated and may have a materially adverse effect on our business. We have
not received FDA notification under Section 510(k) with respect to our
needle-free devices, and there can be no assurances that we will.
IF WE ARE UNABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WE MAY BE UNABLE TO COMPETE EFFECTIVELY. We own a series of U.S. five
patents and seven European patents for our disposable safety syringes. We have
an exclusive license for four patents relating to our needle-free devices, and
we own an additional U.S. patent on a needle-free device. We also own a U.S.
trademark for the name "Stat Trak." We regard these elements of our products as
proprietary and attempt to protect them by relying on patent, trademark and
service mark laws. However, any steps we take to continue to protect our
intellectual property may be inadequate, time consuming and expensive.
Furthermore, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property, which could harm
our business.
It is possible that no patents will be issued from our currently
pending or future patent applications. Moreover, any issued patents may not
provide us with any competitive advantages over, or may be challenged by, third
parties. Several of the patents we do own will expire within the next five to
twelve years, and any proprietary rights we have under the patents will expire.
This may adversely affect any competitive edge we may have as a result of those
patents.
WE HAVE PLEDGED OUR PATENTS AS COLLATERAL FOR A LOAN TO ONE OF OUR
DIRECTORS. We obtained a loan from Perry Rowan Smith, one of our directors, and
we pledged the patents covering our safety syringes as collateral for the loan.
We have previously defaulted on the loan, but Mr. Smith agreed to extend the due
date of the loan until 2001. However, unless and until we repay the principal
and interest on the loan to Mr. Smith, there is a risk that another default may
occur and Mr. Smith will obtain ownership of the patents covering our safety
syringes. We intend to repay the principal and interest of this loan out of the
proceeds of this offering.
-4-
<PAGE>
WE HAVE ALSO GRANTED AN EXCLUSIVE LICENSE TO COMMERCIALLY EXPLOIT OUR
PATENTS IN CERTAIN COUNTRIES TO ONE OF OUR DIRECTORS. Pursuant to a license
agreement, we granted Perry Rowan Smith, one of our directors, an exclusive
license to our safety syringes in several countries throughout Europe, Asia,
North America, South America, the Middle East and Africa. While we receive a
royalty on any sales made in these countries, we cannot directly market or sell
our product in these regions. This will reduce the amount of revenue which we
can receive from sales in these markets for the ten year term of the license.
THE INVENTOR OF OUR PRODUCTS IS NOT OUR EMPLOYEE AND HAS NO OBLIGATION
TO PERFORM ANY SERVICES FOR US. Michael Haining is the inventor of our safety
syringes and needle-free devices. He has sold or licensed to us the patents
which cover these products. However, he is not our employee and he has no
obligation to provide any services to us, such as consulting , engineering or
research and development. Our business relies on technology and innovations made
by Mr. Haining, but we will not be able to rely on Mr. Haining to assist us in
further developing this technology or any future development of this technology
or development on new product lines. This may hamper our ability to compete in
the future if there are rapid advances in our core technology.
IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
OR IF WE LOSE KEY PERSONNEL, WE MAY BE UNABLE TO MANAGE OR GROW OUR BUSINESS. If
we are unable to identify, attract or retain qualified personnel or to retain
the services of key personnel, especially sales personnel, it would be difficult
for us to manage our business, make timely product introductions and increase
sales. We intend to continue to hire many sales, marketing and support
personnel. Competition for these employees may be intense, and we may not be
successful in attracting and retaining qualified personnel.
CONTROL BY OUR MANAGEMENT MAY LIMIT YOUR ABILITY TO INFLUENCE THE
OUTCOME OF DIRECTOR ELECTIONS AND OTHER TRANSACTIONS REQUIRING STOCKHOLDER
APPROVAL. Upon the completion of this offering, our present directors and
executive officers will beneficially own approximately 27.9% of our outstanding
common stock. As a result, management, if they act together, will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, and may have veto power over any stockholder action or approval
requiring a majority vote.
WE HAVE NO IMMEDIATE PLANS TO PAY CASH DIVIDENDS. We have never
declared or paid cash dividends on our capital stock and we do not expect to
declare or pay any cash dividends for the foreseeable future. Earnings, if any,
will be retained to fund development and expansion. Any future determination to
pay cash dividends will be at the discretion of the board of directors and will
be dependent upon our financial condition, results of operations, capital
requirements, general business condition and such other factors as the board of
directors may deem relevant.
YOU WILL EXPERIENCE IMMEDIATE DILUTION FOLLOWING THIS OFFERING. Because
our common stock has in the past been sold at prices substantially less than the
public offering price that you will pay, you will suffer immediate dilution of
$9.10 per share in pro forma net tangible book value. The exercise of
outstanding options and warrants and the conversion of convertible promissory
notes may result in, further dilution.
A SIGNIFICANT PORTION OF THE PROCEEDS OF THIS OFFERING WILL BE USED TO
REPAY EXISTING INDEBTEDNESS. We anticipate using approximately $8 million to
repay outstanding principal and interest on debt we have incurred and current
liabilities. We believe that there will be enough additional capital remaining
from this offering in order to commence operations. However, our decision to use
a substantial portion of the proceeds of this offering to pay our indebtedness
creates a risk that this allocation will cause a shortage of working capital in
the future.
-5-
<PAGE>
BECAUSE WE HAVE NO SPECIFIC PLANS FOR A PORTION OF THE PROCEEDS, WE MAY
NOT ALLOCATE THE PROCEEDS TO USES YOU CONSIDER DESIRABLE. Approximately $4.3
million of the net proceeds from the offering are allocated toward working
capital. As a result, our management will have the discretion to allocate a
large portion of the net proceeds of this offering to uses the stockholders may
not deem desirable.
THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK BEFORE THIS
OFFERING, AND THE INITIAL PUBLIC OFFERING PRICE MAY NOT REFLECT THE TRUE MARKET
VALUE OF OUR SHARES. There was no public market for our common stock prior to
this offering. The initial public offering price of the common stock will be
determined through our negotiations with the underwriters and does not
necessarily relate to our book value, assets, past operating result, financial
condition or other established criteria of value. Since the market price after
the offering may be less than the initial public offering price, you may be
unable to resell the shares you purchase at or above the initial public offering
price.
OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE, WHICH MAY CAUSE OUR
STOCK TO BE VOLATILE. Our revenues and operating results may fluctuate
significantly from quarter to quarter, which can lead to significant volatility
in our stock's price and volume. Factors which lead to such fluctuations include
the following, many of which are beyond our control:
o our ability to attract and retain new customers and maintain
customer satisfaction;
o new products and product lines introduced by us or by our
competitors;
o price competition;
o decreases in the level of use of safety syringes and other
safety medical devices;
o our ability to upgrade and develop our products; and
o government regulations related to use of safety syringes and
other safety medical devices.
In addition, stock markets have experienced extreme price and volume
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities of many smaller public companies for reasons
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of our common stock.
SHARES ELIGIBLE FOR FUTURE SALE COULD DEPRESS THE PRICE OF OUR COMMON
STOCK. No prediction can be made as to the effect, if any, that future sales of
shares of our common stock, or the availability of shares of our common stock
for future sale, will have on the market price for our common stock prevailing
from time to time. Sales of substantial amounts of our common stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for shares of our common stock. Upon completion of the offering, based on
shares outstanding on September 15, 2000, we will have outstanding 6,917,146
shares of common stock. Approximately 2,246,555 shares will be tradable without
restriction or further registration under the 1933 Act by persons other than our
"affiliates," including shares which will be eligible for immediate sale in the
public market without restriction pursuant to Rule 144(k) under the 1933 Act.
As of the closing of this offering, the remaining approximately 4,670,591 shares
of common stock outstanding prior to the closing will be "restricted securities"
(as defined in Rule 144 under the 1933 Act), and may be sold under Rule 144
subject to the holding period, volume limitations and other restrictions under
Rule 144.
PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND OUR
BYLAWS COULD DELAY OR PREVENT A TAKEOVER OF US, WHICH COULD PREVENT YOU FROM
REALIZING A PREMIUM OVER THE MARKET PRICE OF OUR COMMON STOCK. Certain
provisions of our certificate of incorporation, bylaws, and Delaware law may be
deemed to have an anti-takeover effect. Such provisions may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in that stockholder's best interests. For example, our certificate of
incorporation allows our board of directors to issue additional shares of common
stock.
In addition, we are subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law which prohibits a publicly-held
Delaware corporation from engaging in certain business combination with
interested stockholders for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
-6-
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations, estimates and
projections about our industry, our beliefs and our assumptions. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "except," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. They are not
guarantees of future performance and are subject to risks, uncertainties and
other factors, some of which are beyond our control and difficult to predict and
could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risks Factors." Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness of
the forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,000,000 shares
of common stock that we are offering will be approximately $17.06 million, based
on an assumed initial public offering price of $10.00 per share and after
deducting underwriting discounts and estimated offering expenses.
We intend to repay approximately $8 million in outstanding indebtedness
with a portion of the net proceeds. In addition, under an agreement with our
former chairman and chief executive officer, Martin Kelly, we are obligated to
pay him $1.5 million upon completion of an initial public offering. We intend to
pay Mr. Kelly this amount with a portion of the net proceeds. Under the license
agreement for the rights to the patents on our needle-free devices, we have
agreed to pay the licensor $375,000 upon completion of an initial public
offering. We intend to pay the licensor this amount with a portion of the net
proceeds.
We intend to use approximately $2.9 million of the net proceeds for
tooling and equipment to produce our safety syringes and needle-free devices. We
intend to use the balance of the net proceeds (approximately $4.3 million) for
working capital. We currently have no commitments or agreements with respect to
any acquisitions or investments. We have not determined the amounts we plan to
spend on any of the uses described above or the timing of these expenditures.
Pending our use of the net proceeds, we intend to invest them in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our capital
stock. We currently intend to retain any future earnings to finance the growth
and development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business condition and such other factors as our board of
directors may deem relevant.
-7-
<PAGE>
DILUTION
As of June 30, 2000, our net tangible book value (deficit) per share
was ($2.20) based upon our unaudited consolidated balance sheet as of June 30,
2000, without giving any effect to any changes after June 30, 2000, except for
$3,500,000 of debt we incurred and $437,836 of accrued salary forgiven in
connection with Martin Kelly's agreement to cancel 4,000,000 of our common
shares. "Net tangible book value (deficit)" per share represents the amount of
our tangible assets, less the amount of liabilities, divided by the number of
shares of common stock outstanding. After deducting the estimated offering
expenses payable by us, the pro forma net tangible book value per share at June
30, 2000, will be approximately $0.90. The current stockholders will thus
benefit from an immediate increase in net tangible book value per share of
$3.10. There will be an immediate dilution to new investors of approximately
$9.10 per share.
The following table illustrates the dilution to investors in this
offering on a per share basis as of June 30, 2000 assuming the sale of offered
shares at $10.00 per share:
Offering price per share...................................... $ 10.00
Net tangible pro forma book value
(deficit) per share before offering........................... $ (2.20)
Increase per share
attributable to payments made by new investors................ $ 3.10
-------
Pro forma net tangible book value
per share after offering...................................... $ 0.90
-------
Dilution in net tangible book
value per share offered hereby................................ $ 9.10
The following table summarizes the difference between the number of
shares purchased from us by existing shareholders for cash, including the total
consideration paid and the average price per share paid by those parties, and by
those persons purchasing the shares in this offering. The table:
o assumes the conversion of approximately $3,462,122 of
convertible debt into 871,604 of common shares;
o includes our past issuance of common shares in cancellation of
outstanding loans;
o does not take into account the issuance of any shares issuable
upon exercise of the underwriters' over-allotment option or
warrants;
o does not take into account 17,250 unvested shares reserved for
issuance under a consulting agreement; and
o does not take into account the issuance of 1,256,099 shares
of common stock issuable upon exercise of outstanding options
and warrants at a weighted average exercise price of $7.67 per
share.
<TABLE>
<CAPTION>
Percent Percent Average
Shares of Total of Total Consideration
Purchased Shares Consideration Consideration Per Share
------------ ----------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Present stockholders 5,788,750 74% $ 4,020,070 17% $ .69
New investors 2,000,000 26% $ 20,000,000 83% 10.00
Total 7,788,750 100% $ 24,020,070 100%
</TABLE>
-8-
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000
on an actual basis, and on a pro forma basis as adjusted to reflect:
o the sale of 2,000,000 shares offered by us at an assumed
public offering price of $10.00 per share, after deducting
underwriting discounts and estimated offering expenses payable
by us; and
o the application of the net proceeds towards the repayment of
$8,000,000 of debt.
This table excludes:
o 1,256,099 common shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of
$7.67 per share as of June 30, 2000;
o 17,250 common shares to be issued upon the completion of this
offering pursuant to a consulting agreement;
o 17,250 unvested common shares reserved for issuance under a
consulting agreement;
o the effect of the cancellation of 4,000,000 of our common
shares after June 30, 2000; and
o shares issuable upon exercise of the underwriters'
over-allotment option or warrants.
You should read this table in conjunction with our consolidated
financial statements and the notes relating to those statements appearing
elsewhere in the prospectus.
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Current maturities of long term debt...................................... $ 4,772,785 $ ---
Long term debt, net of current maturities................................. 1,080,650 ---
Shareholders' equity:
Common stock, $.01 par value:
25,000,000 shares authorized, actual and as adjusted; 8,899,896
shares issued and outstanding actual; and 10,899,896 shares issued
and outstanding, as adjusted........................................ 91,866 111,866
Additional paid in capital................................................ 8,530,221 25,570,221
--------------- ---------------
Accumulated deficit....................................................... (13,660,059) (13,660,059)
Treasury Stock............................................................ (300) (300)
--------------- ---------------
Total shareholders' equity (deficit)................................. (5,038,272) 12,021,728
--------------- ---------------
Total capitalization............................................. $ 815,163 $ 12,021,728
=============== ===============
</TABLE>
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
We are a development stage company that intends to develop, market and
distribute a line of proprietary medical devices for use by healthcare
professionals, medical institutions and other individual users. Our first
product is the Stat-Trak(TM) Safety Syringe, a cost-effective safety syringe for
medical healthcare professionals and facilities. As of the date hereof, we have
acquired the patents and have obtained FDA notification to market the Stat-Trak
Safety Syringe in the United States, however, we have not commenced either the
manufacturing or marketing of our safety syringes. We expect to commence
manufacturing and marketing of our safety syringes in the fourth quarter of
2001. Future products are expected to include a line of needle-free infusion
devices designed to eliminate the use of a hypodermic needle in administering
medication through an intravenous line. As of the date hereof, we have acquired
exclusive the world-wide rights to commerically exploit our needle-free infusion
devices pursuant to a license on four patients and our outright ownership of a
fifth patient. However, we have only recently commenced the design and
development of those products. We expect to commence manufacturing and marketing
of needle-free infusion devices in fourth quarter 2001.
Our plan of operations over the next 12 months includes the
commencement of manufacturing and marketing of our disposable safety syringes
and needle-free devices. Our plan assumes the completion of this offering in the
fourth quarter of 2000 and includes:
o the design, development and testing of our needle-free
infusion devices;
o the establishment of marketing and distribution channels for
our disposable safety syringes and needle-free devices;
o the establishment of contract manufacturing arrangements with
third parties who will produce and package for shipment our
disposable safety syringes and needle-free devices; and
o production of molds and purchase of equipment required to be
purchased by us for the production of our products.
Since our inception in 1996, we have financed our activities to date
through the sale of our securities. As of June 30, 2000, we had a working
capital deficit of ($6,682,000). We believe that the net proceeds of this
offering will be sufficient to satisfy our working capital requirements for the
next 12 months, and will allow us to commence the manufacturing and marketing of
our disposable safety syringes and needle-free devices. However, our
expectations are based on certain assumptions concerning the costs involved in
the manufacture of our products and time and expense involved in commencing
revenue producing operations. These assumptions concern future events and
circumstances which our officers believe to be significant to our operations and
upon which our working capital requirements will depend. Some assumptions will
invariably not materialize and some unanticipated events and circumstances
occurring subsequent to the date of this prospectus may affect other
assumptions. As a result, our actual working capital requirements may vary from
our presently anticipated working capital requirements, and the variations may
be material. In the event that we require additional working capital, there can
be no assurance that we will be able to obtain sufficient additional capital in
order to fund our working capital requirements in a timely manner.
-10-
<PAGE>
BUSINESS
GENERAL
We are an emerging medical technologies company that intends to
develop, market and distribute a line of proprietary medical devices for use by
healthcare professionals, medical institutions and other individual users. Our
first product is the Stat-Trak(TM) Safety Syringe, a cost-effective safety
syringe for medical healthcare professionals and facilities. The Stat-Trak(TM)
Safety Syringe incorporates patented technology into a traditional syringe which
enables healthcare professionals to retract the needle permanently into the
barrel of the syringe after use, rendering the syringe unusable and allowing for
the safe and convenient disposal of the device without the risk of injury from
accidental needlesticks. Future products are expected to include a system of
needle-free devices, including the Stat-Link(TM) Universal Connector, the
Stat-Link(TM) "Y" Socket and Stat-Vial(TM), which will eliminate the need for a
hypodermic needle in intravenous injections by allowing the medication to be
drawn into a syringe and then injected without the use of a needle.
We believe that our safety syringes and needle-free infusion devices
will meet all the important safety requirements mandated by legislation. We also
believe that our product will be offered at a lower cost lower than products
currently offered by our competitors. Because of their expected low cost, we
believe that our safety syringes will be well positioned to take advantage of
pending legislation that will require the phasing out of all non-safety sharps
devices. Legislation has been adopted in five states which requires hospitals
and other healthcare providers to phase out their purchases of traditional
non-safety syringes in favor of safety syringes that reduce the threat of
needlestick injuries. We believe that most states will pass similar legislation
within the next few years. We believe our safety syringes are well positioned to
take advantage of this changing marketplace because their design is both
cost-effective and user-friendly when compared to other safety syringes
currently on the market.
OUR MARKET OPPORTUNITY
ACCIDENTAL NEEDLESTICK INJURIES. An injection using a hypodermic
syringe provides an effective method for delivery of health-giving and life
saving medications. However, this same device can become a dangerous instrument
after use. The exposed needle of a hollow-bore hypodermic syringe can harbor
more than 20 blood-borne diseases. The blood remaining on and in the needle may
contain dangerous and life-threatening viruses, including HIV or hepatitis.
According to studies published by the Theta Corporation, a Connecticut
based market research firm, approximately one million needlestick injuries to
health care workers are reported each year. In addition to these reported
injuries, the Center for Disease Control, or CDC, has estimated that only 32% of
all annual needlestick injuries are actually reported. This means that the
actual number of needlestick injuries per year could be as high as three
million. More than four million healthcare workers in the US and millions more
worldwide face the daily occupational risk of contracting life-threatening
diseases from accidental needlestick injuries. In addition, exposed needles pose
a threat to workers in the sanitation and environmental service industries.
Federal law and institutional policies require that healthcare workers properly
and safely dispose of contaminated "sharps" devices such as hypodermic needles,
however it is during this disposal process that accidental needlestick injuries
frequently occur.
DEVELOPMENT OF SAFETY SYRINGES AND NEEDLE-FREE DEVICES. Because of the
dangers posed by accidental needlestick accidents and injuries, greater industry
focus is being directed toward manufacturers who can provide safety syringes and
needle-free devices. The demand for safety syringes is being driven by
healthcare providers who desire improved safety for their workers, major
insurance carriers, and new regulatory guidelines and pressure from government
agencies. In December 1991, the Federal Occupational Safety and Health
Administration, or OSHA, adopted infection control safety regulations requiring
workers to institute universal precautions to prevent contact with blood-borne
diseases and infectious materials. These OSHA guidelines prohibits the
recapping, bending or removal of needles. These practices are estimated to be
the cause of at least one-third of all needlestick injuries and infections.
-11-
<PAGE>
In April 1992, the U.S. Food and Drug Administration issued a safety
alert to hospitals warning of the risk of needlestick injury from the use of
hypodermic needles with intravenous equipment. The safety alert stated that
although the FDA could not recommend specific products, it urged the use of a
recessed needle system with a fixed safety feature or needleless systems.
According to the alert, the FDA suggested the system used should have the
following features, all of which are incorporated in our Stat-Trak(TM) Safety
Syringe:
o Fixed safety features to provide a barrier between the hands
and needle after use;
o Safety features that allow or require the worker's hands to
remain behind the needle at all times;
o Safety features that are an integral part of the device;
o Safety features that are in effect before disassembly and
remain in effect after disposal to protect users, trash
haulers and the environment; and
o Safety features that are as simple as possible and require
little or no training in effective use.
Needlestick injuries to healthcare workers can be reduced dramatically
by the use of needles with safety features. With the addition of something as
simple as a plastic sheath, a medical worker can slide a shield over the needle
and lock it in place. Needles with sheaths and other safety features were
developed in the late 1980's but are still rarely available in medical
facilities and most do not meet current regulations established by OSHA.
COSTS OF TREATMENT AND PREVENTION. Although the cost of manufacturing
safety syringes is greater than traditional syringes, we believe that these
higher costs will be offset by the savings in healthcare expense related to the
testing and treatment of needlestick injuries. Based on a 1995 study by Rymer,
each reported needlestick injury requires follow-up testing and treatment at an
estimated cost of approximately $1,200 per injury. Based on an average of one
million reported incidents per year, the direct healthcare expense resulting
from needlestick injuries is approximately $1.2 billion annually. This figure,
however, could be as high as $3.5 billion based on the CDC's estimate that
almost two-thirds of all needlestick injuries each year are not reported
The direct costs for treatment and testing following accidental
needlestick accidents do not include all of the actual costs associated with
such injuries. These costs include productivity loss, employee counseling and
education, workers' compensation claims, absenteeism, long-term critical care
and, in some cases, death. In addition, the emotional costs involved with a
needlestick injury can lead to six months of anxiety for the injured healthcare
worker until test results and re-tests confirm whether or not a disease was in
fact transmitted.
SAFETY MEDICAL DEVICE MARKET. Becton Dickinson and Sherwood Medical
first launched hypodermic safety syringes into the U.S. market in the late
1980's. The global syringe market is approximately 12 billion units, making it a
$2 billion annualized market. The U.S. market for syringes accounts for about
one half of the global market, with nearly 6 billion units sold. Of that amount,
it is estimated that approximately 10% to 15% of all syringes sold are safety
syringes. The Theta Corporation estimates that over the next several years,
sales of safety syringes will increase to approximately 90% of the total syringe
market. We believe that we are well positioned to take advantage of this
expansion of the safety syringe market.
OUR SAFETY SYRINGES
Our initial product is the Stat-Trak Safety Syringe, a retractable
needle safety syringe for medical healthcare professionals and facilities. The
retractable needle safety syringe is a sterile plastic disposable product
intended for a single use and designed to minimize the risk of needlestick
accidents and injuries. It is designed to function similarly to an ordinary
syringe so that the user will see no difference in the function and use of the
product until after the injection is complete. Once the user gives the
injection, however, he need only press the plunger forward until an audible and
tactile click occurs. When the user pulls the plunger rearward, the needle is
drawn into the barrel of the syringe, rendering the syringe unusable.
The needle end of the Stat-Trak Safety Syringe is a separate piece
assembled and locked into the barrel of the syringe after molding. This piece of
the syringe is designed to accept any standard needle assembly either as a
friction slip fit or using the Leur lock screw threads that are well known in
the industry. After completion of the injection, the plunger locks into the rear
of the needle assembly, assuring needle retraction and preventing any attempt at
reuse. Once retracted, the plunger is designed to be broken off, thereby
eliminating the ability to push the needle assembly forward. This design assures
that the needle is retracted into the barrel of the syringe safely, with no hand
contact with the needle and with no possibility of reuse of the syringe.
-12-
<PAGE>
Although other safety syringes are currently available on the market,
we believe that most of these products either come with a higher cost or are not
as user-friendly as the Stat-Trak Safety Syringe. Most safety syringes use
springs or other mechanisms to retract the needle into the barrel of the syringe
after use. The goal of the design of our safety syringe has been to avoid the
high cost and risk of failure typically associated with these mechanisms. In
addition, our safety syringe is designed to be user friendly in that it requires
no change in the accustomed technique used to operate a standard syringe. With
the proliferation of new medical devices, medical professionals are constantly
introduced to new products which require new techniques and training
requirements. As a result, many medical professionals resist new products
because of the training that often accompanies these new techniques. To avoid
this resistance to new products, we have designed our safety syringes to avoid
any change in user technique until after the injection has been given and to
require little or no training for users familiar with traditional syringes.
OUR NEEDLE-FREE INFUSION SYSTEM
Our needle-free infusion system is designed to eliminate the need for a
hypodermic needle in intravenous injections by allowing the medication to be
drawn into a syringe and then injected without the use of a needle. The system
incorporates a valve which allows the introduction of medication into an
intravenous line without the use of a needle. Early prototyping has demonstrated
the viability of this feature. Though we believe we have achieved protection of
these products through these patents, we also believe in continuous improvement
and are currently working on additional designs to further enhance our products
and their potential in the marketplace.
The core of our needle-free infusion system is the Stat-Link(TM) "Y"
Socket, which replaces the traditional y-socket in a standard intravenous line.
Its design provides a unique and highly reliable method of eliminating
needlestick injuries by removing the need to use a needle to introduce
medication into an intravenous line. Existing products attempting to accomplish
this goal use a silicone "spring" to seal the port in the y-socket of an
intravenous line. Our needle-free system is designed to avoid the high risk of
mechanism failure associated with such products.
The needle-free infusion system eliminates the need to use a needle to
administer medication through an intravenous line by providing needle free
products at all stages of the process. Our needle-free system facilitates the
drawing of medication from medicinal vials by allowing a standard syringe
without a needle to be connected to the system in order to draw up medicine from
a medicinal vial. The system then allows the user to administer the medicine
through the standard puncture pad on a traditional y-socket in an intravenous
line. The medicine is then administered in the normal manner and the syringe is
then disconnected leaving the medical connector in place for future
administration of medicine.
A conventional I.V. line terminates with a male luer connector to which
a needle would be attached to penetrate a latex or non-latex rubber covered
injection port to make a primary or secondary I.V. connection. With the
Stat-Link(TM) Infusion system, instead of attaching a needle to the male luer, a
Stat-Link(TM) Universal Connector is used in place of the injection port and the
male luer, without a needle, is simply threaded into the Stat-Link(TM) Universal
Connector with a half turn. As the luer tip enters the Stat-Link(TM) Universal
Connector housing, it depresses the spring and plastic sealing system. Fluid
channels in the piercing element create a continuous fluid pathway from the I.V.
line, through the Stat-Link(TM) Universal Connector into the primary I.V. line
and into the catheter. The luer tip creates a tight seal preventing contaminants
from entering the fluid pathway. When the I.V. line is disconnected from the
Stat-Link(TM) Universal Connector, the spring and plastic sealing system reseal
the opening. When the Stat-Link(TM) Universal Connector is not in use, the seal
fills the opening in the housing thus completely sealing the connector and
presenting a flush surface which can be cleansed with an alcohol swab.
Emergency medications can be administered through the Stat-Link(TM)
Universal Connector by using a standard syringe without a hypodermic needle
attached. The Stat-Link(TM) Universal Connector can be used with any
conventional primary I.V. system, acute and chronic central venous I.V. system,
acute care catheter, multi-lumen catheter, peripheral catheter and a variety of
other standard devices. The durability and tight spring compression seal permits
repeated connections and disconnections without replacement.
The Stat-Link(TM) "Y" Socket is designed to be integrated directly into
primary and secondary I.V. sets, thus eliminating the need for special adapters,
pre-slit injection ports, or metal needles when making piggyback I.V.
connections. Currently, most popular I.V. connection systems that compete with
our systems require either a metal needle, a pre-slit injection port or a
special adapter to make piggyback connections. We believe the Stat-Link(TM) "Y"
Socket offers a low cost alternative to existing systems by eliminating the need
for multiple parts. The healthcare professional simply inserts the male luer of
any secondary I.V. set, without a needle, into the Stat-Link(TM) "Y" Socket and
twists to make the connection.
-13-
<PAGE>
The Stat-Vial(TM) Connector is designed to be attached directly to the
top of a standard medicinal vial. The Stat-Vial(TM) Connector incorporates the
same spring and plastic sealing system used in the Stat-Link(TM) Universal
Connector and Stat-Link(TM) "Y" Socket and a plastic canula to be inserted
through the rubber pad on the top of a medicinal vial. The healthcare
professional simply pushes the canula through the rubber pad and seats the
Stat-Vial(TM) Connector firmly on top of the vial. The health care professional
then attaches a standard syringe without a hypodermic needle attached by
attaching it to the male luer fitting on the top of the Stat-Vial(TM) Connector.
The health care professional then draws up the medicine into the syringe and
caps it for transport to the patient.
MANUFACTURING
We intend to manufacture and produce the Stat-Trak(TM) Safety Syringe
using third-party U.S. based manufacturing facilities in 1 cc, 3 cc, 5 cc and 10
cc sizes. Packaging and sterilization will also be done by a third party
supplier who will be registered with the FDA as a device manufacturer and who is
currently ISO certified. All syringe products will be molded and assembled in a
clean environment appropriate to these types of devices. To date, we have
produced prototype syringes and we believe that these prototypes have
demonstrated the viability of our product.
We have entered into an agreement with a mold making and molding
company in the United States to manufacture and produce our safety syringes. We
intend to contract with third-parties to manufacture our products for the
foreseeable future and do not have any plans at this time to invest in our own
manufacturing facilities. However, we intend to regularly review the self
manufacturing option to determine when an investment in such capability may
become feasible.
We intend to manufacture and produce our needle-free infusion system
products using third party U.S. based and possibly foreign based manufacturing
facilities.
Proof of principle prototype medical connectors were produced by a
prototype molder and have demonstrated the viability of our products. With this
complete, we intend to achieve full manufacturing and production capabilities
under formal manufacturing and production contracts.
It is our intention to establish a strategic partnership with a leading
molder and manufacturer of medical supplies. We will own and control all molds,
tooling and assembly equipment. We are also initiating the process of becoming
ISO 9001/EN46001 certified and receiving the required CE mark to assure the
ability to market products in Europe.
All needle-free infusion system products will be molded and assembled
in a clean environment appropriate to these types of devices. Packaging and
sterilization will also be done by a third party supplier who is registered with
the FDA as a device manufacturer, and who is currently ISO certified. We plan to
maintain device qualified manufacturing and quality staff to assure the highest
quality product, and to allow the use of third party manufacturing for as long
as possible. At this time, we do not see an investment in buildings and
manufacturing as an appropriate use of capital. We intend to regularly review
the self-manufacturing option to determine when an investment in such capability
may become necessary.
MARKETING
We intend to market our technology and products through long-term
partnerships and alliances as well as through licensing and distribution
agreements with major global healthcare companies. We intend to focus our
marketing efforts on creating an aggressive information campaign that highlights
the differences between our retractable Stat-Trak(TM) Safety Syringe and other
currently available syringes. We intend to market our products as follows:
o Initially focus on the US market, especially in target states
such as California where legislation is in place that
encourages the use of safety devices.
o Enter global markets where defined areas of opportunity can be
targeted for market need and accelerated growth.
o Utilize e-commerce marketing to assist partners and alliances,
create business to business opportunities, and discover new
market areas and segments.
-14-
<PAGE>
As part of our marketing strategy, we intend to seek license, joint
venture or co-marketing agreements with major device manufacturers as a means of
providing faster market penetration into both US and non-US markets. No such
agreements, however, are currently in place.
We intend to market our needle-free infusion system for use in
intravenous therapy applications as an innovative one-piece needle-free I.V.
connection device that is differentiated from existing similar products. We
believe that our connector and related devices offer the healthcare provider
safe, easy to use, cost effective devices that are superior and clearly
different from other protective I.V. connection device systems currently on the
market.
COMPETITION
Historically, competition in the healthcare industry has been
characterized by the search for technological and therapeutic innovations in the
prevention, diagnosis and treatment of disease. In recent years, the healthcare
industry has seen a consolidation of companies by large firms acquiring other
device manufacturers, which has resulted in pricing and market share pressures.
These industry trends are expected to continue.
The medical device market in general, and the hypodermic syringe and
safety medical device market in particular, is highly competitive. The leading
manufacturers of hypodermic syringes are Becton Dickinson, Sherwood Medical
Products Co. and Terumo Medical Corporation. In addition to manufacturing
standard disposable syringes, Becton Dickinson also manufactures and sells
safety syringes under the trade name Safety-Lok(R) and Sherwood Industries
manufactures and sells safety syringes under the trade name Monoject(R). These
companies combined to manufacture and sell approximately 700 million "safety"
syringes last year. ICU Medical, a leader in the needle-free safety device
market currently has sales agreements with two of the major medical device
companies, with approximately $47 million in sales in 1999.
Despite the market share of our competitors, we believe that our
retractable Stat-Trak(TM) Safety Syringe can compete and gain market penetration
against safety and non-safety syringes because of its low cost, high degree of
reliability, superior quality, and ease of use. An October 1999 safety syringe
product report which the Emergency Care Research Institute released found that
all of the safety syringes being sold by the major syringe companies have
significant limitations or are not acceptable as safety devices. Only one
product was recommended in that study and that device has a price that is two to
three times higher than the expected price of our syringes. None of our products
were reviewed in the Emergency Care Research Study. Although we believe that our
safety syringes are superior to those currently available on the market, there
can be no assurance that we will be able to compete initially or on a continual
basis with companies that are currently marketing safety syringes or those that
presently seek to enter into the safety syringe market.
In addition, many of the healthcare institutions that we intend to sell
our products to are tied into buying groups that contract with major suppliers
such as Becton Dickinson and Sherwood Medical. These contracts will limit our
ability to sell our safety syringes to certain healthcare institutions that have
these contracts with suppliers in place. We believe that most major healthcare
group purchasing organizations will separate contracts involving safety syringes
and needle-free devices from contracts involving standard syringes and devices
thereby allowing smaller companies like us to compete. However, to the extent
these healthcare group purchasing organizations also enter into contracts to
purchase safety syringes from our competitors, our ability to compete could be
substantially limited.
INTELLECTUAL PROPERTY
SAFETY SYRINGES. Our ability to compete successfully depends, in part,
on our ability to protect the proprietary technology contained in our products.
We rely upon a combination of patent, trade secret, and trademark laws, together
with non-disclosure agreements, to establish and protect proprietary rights in
our safety syringes and other technology, as well as our trade names and other
similar property. We also intend to enter into confidentiality and/or license
agreements with our employees, manufacturers, distributors, customers and
suppliers, and will limit access to and distribution of our proprietary
information. If and when implemented, these measures will only afford us limited
protection, as there can be no assurance that any steps we take will protect
these proprietary rights or will be adequate to prevent misappropriation of our
technology or the independent development by others of similar technology.
-15-
<PAGE>
We have purchased five patents in the U.S. and seven patents in Europe
for our retractable needle safety syringes. These patents, issued over a period
of several years, provide coverage of the numerous features that make these
syringes unique. Our patents cover the following features of our safety
syringes:
o the needle retraction, locking and retaining features that
hold the needle in place both before and after retraction;
o a mechanism related to the syringe plunger that eliminates
re-exposure of the needle; and
o a capping mechanism designed to further minimize risk to the
user.
We have pledged the patents covering our Stat-Trak(TM) Safety Syringe
as collateral for a loan made by one of our directors, Perry Rowan Smith. Mr.
Smith has a security interest in the patents covering our Stat-Trak(TM) Safety
Syringe. We have also agreed to pay Mr. Smith a royalty equal to 2% of all of
our gross sales of our Stat-Trak(TM) Safety Syringes. In the event that we
license any of our products to any third-party, we will pay to Mr. Smith ten
percent (10%) of any up-front consideration which we receive for such license,
and five percent (5%) of all royalties or other residual income which we
actually receive from such a license.
We have also granted to Mr. Smith an exclusive ten-year license to
commercially exploit our Stat-Trak(TM) Safety Syringe in certain specified
countries outside of the U.S. In exchange for this license, Mr. Smith has agreed
to pay us a royalty equal to ten percent (10%) of the net selling price of each
Stat-Trak(TM) Safety Syringe sold in the specified countries. Under the terms of
the license, we have a right to purchase up to ten percent (10%) of the
Stat-Trak(TM) Safety Syringes which Mr. Smith manufactures at a price equal to
one-hundred and seven percent (107%) of Mr. Smith's actual cost to manufacture
the syringes. Mr. Smith can renew the license annually for a renewal fee of
$25,000 per year. We may not compete with Mr. Smith in the sale of Stat-Trak(TM)
Safety Syringes in the specified countries.
NEEDLE-FREE DEVICES. We have also received an exclusive license for
four additional patents in the U.S., and we purchased one additional patent, for
our needle-free infusion system. The products covered by these patents include
the Stat-Link(TM) "Y" Socket, the Stat-Link(TM) Universal Connector and
Stat-Vial(TM) Connector. These products incorporate a valve which allows the
introduction of medication into an intravenous line without the use of a needle.
In addition, we have applied for trademark protection in the US for the
names "Re-Trak" and "Stat-Trak," however, there is no assurance that either of
these trademark applications will be granted.
GOVERNMENT REGULATIONS
FEDERAL FDA REGULATION. Clinical testing, manufacture and sale of our
safety syringes are subject to regulation by numerous governmental authorities,
principally the FDA, and corresponding state and foreign regulatory agencies.
Pursuant to the federal Food, Drug and Cosmetic Act, and the regulations
promulgated thereunder, the FDA regulates the clinical testing, manufacturing,
labeling, distribution and promotion of medical devices. Under the Medical
Device Act of 1976, the FDA places medical devices into one of three classes
called Class I, II, or III, on the basis of the controls deemed necessary by the
FDA to reasonably ensure their safety and effectiveness.
Before a new medical device can be introduced to the market, the
manufacturer generally must obtain FDA clearance through either a "510(k)
premarket notification" or through a premarket approval application. The
retractable Stat-Trak(TM) Safety Syringe has received approval to market from
the FDA through a 510(k) notification. With completion of a manufacturing
agreement and final testing, the product may be marketed directly to hospitals,
medical professionals and other institutions. Our needle-free devices have not
received 510(k) notification.
-16-
<PAGE>
Although we have obtained FDA approval for our safety syringes, our
products will continue to be subject to pervasive and continuing regulation by
the FDA, including various record keeping requirements and the requirement to
report adverse experiences with the use of the device. We are also subject to
inspection on a routine basis for compliance with the FDA's GMP regulations.
These regulations impose certain procedural and documentation requirements upon
us with respect to manufacturing and quality assurance activities.
STATE REGULATION. Recent legislation on the state level has been
implemented that requires the phasing out of non-safety sharps devices. This
legislation will require medical institutions and other healthcare providers to
change their purchasing practices in an attempt to avoid the injuries associated
with needlestick accidents. Legislation requiring the phasing out of non-safety
syringes has already been passed in five states (California, Maryland,
Tennessee, Texas and Hawaii) and is being considered by an additional 28 states.
In addition, safety syringe legislation has become a major focus for
healthcare employee unions and lobbying groups. In 1998, OSHA released
regulations requiring hospitals to purchase safety syringes and other safety
medical devices in order to reduce the number of needlestick injuries among
healthcare workers. Although we believe legislation mandating the use of safety
syringes will increase demand for our products, there can be no assurance that
this legislation will ever be implemented and enforced. In addition, even if
this proposed legislation is implemented and enforced, there are no assurance
that this legislation will have actually impact demand for our products.
LITIGATION
We are not party to any legal proceeding (other than routine litigation
incidental to the business) nor are any of our officers or directors or any of
our property.
EMPLOYEES
As of September 15, 2000, we had a total of seven employees. Of the
total, one was in research and development, one was in marketing, and five
were in back-office operations such as general management, finance, human
resources and administration. None of our employees are represented by a labor
union or subject to a collective bargaining agreement. We have not experienced
any work stoppages and consider our relations with our employees to be good.
PROPERTIES
Our executive offices are located in New City, New York and consist of
approximately 1,200 square feet of leased space. We lease this space pursuant to
a month-to month oral agreement, at the rate of $750 per month.
-17-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICER AND DIRECTORS
Our executive officers and directors, the positions held by them and
their ages as of September 15, 2000 are as follows:
NAME AGE POSITION
--------------------- ----- -------------------------------------------------
Graham E. Gill 68 Chairman of the Board of Directors, Executive Vice
President for Strategic Planning
Thomas Sassone 39 President, Chief Executive Officer and Director
Jack Gutierrez 45 Chief Financial Officer, Treasurer, and Director
Alexander Mulgrew 31 Secretary and General Counsel
Joseph Montuoro 66 Director
Mark Murphy 38 Director
Perry Rowan Smith 48 Director
GRAHAM GILL has been our Chairman since July 1999. Since 1993, Mr.
Graham has served as a principal with The Belgravia Fund, Ltd., a private
international investment fund.
THOMAS SASSONE has served as our President and Chief Executive Officer
since July 2000 and as a director since January 1999. Mr. Sassone also served as
our Secretary from July 1999 to July 2000, our Treasurer from July 1999 to
February 2000, and our Chief Operating Officer from February 2000 to July 2000.
Mr. Sassone is an attorney, and he has been a partner in the law firm of Seskin
& Sassone, formerly Sassone Zemanek & Girasa, since 1993.
JACK GUTIERREZ has served as our Chief Financial Officer and as a
director since April 1999. Mr. Gutierrez has also served as our Secretary and
Treasurer since July 2000. Mr. Gutierrez is a Certified Public Accountant. Since
October, 1989, Mr. Gutierrez has served as the managing partner/member of
Gutierrez & Caruccio, a certified public accounting firm.
ALEXANDER MULGREW has served as our Secretary and General Counsel since
July 2000. Mr. Mulgrew is an attorney, and he was a senior associate in the law
firm of Seskin & Sassone, formerly Sassone Zemanek & Girasa, from 1996 until
July 2000.
JOSEPH MONTUORO has been a director of Retrac since January 2000.
Before joining our board of directors, Mr. Montuoro was appointed by New Jersey
Governor Christine Whitman as chairman of the board of directors of N.J.N., the
New Jersey public broadcast station, where he served as chairman since 1995. Mr.
Montuoro has been the Commissioner of the New Jersey Sports Authority since
1994. Previously, Mr. Montuoro served as Manufacturing Representative at RPM
Sales Co. Mr. Montuoro also founded Gateway Marketing, a distributing arm for
electronics firms, and he was and was Chief Executive Officer from 1982 until
1990.
MARK MURPHY has been a director of Retrac since January 2000. Mr.
Murphy has been the President and Chief Executive Officer of Northeast Private
Client Group, a financial services firm formerly known as Comprehensive
Planning Group, since 1993.
PERRY ROWAN SMITH, JR. has been a director of Retrac since January
2000. Since 1980, Mr. Smith has been President of Texas Regional Construction,
Inc. He has been a partner of Texas Regional Properties, LLP since 1993, and he
has been a member of Texas Regional Asset Management, LLC since 1998. >From 1974
to 1980, he was Vice-President of PRS Development Corporation.
-18-
<PAGE>
BOARD OF DIRECTORS
Each director holds office until his successor is elected and qualified
or until his earlier resignation in the manner provided in our Bylaws. The
officers serve at the discretion of the Board. Mr. Sassone and Mr. Gutierrez are
brothers-in-law. Other than Mr. Sassone and Mr. Gutierrez, there are no family
relationships among our directors and officers.
BOARD COMMITTEES
The salary committee consists of Messrs. Gutierrez and Smith. The
salary committee makes recommendations to the board of directors regarding
offers of executive salaries for new hires. The New Hire committee consists of
Messrs. Montuoro and Sassone. The New Hire committee makes recommendations to
the board of directors regarding the selection of new officers and senior
management personnel. The benefits/compensation committee consists of Messrs.
Sassone and Murphy. The benefits/compensation committee administers our stock
option plan and makes decisions concerning benefits, salaries and incentive
compensation for our employees. The audit committee consists of Messrs. Smith,
Montuoro and Murphy. The audit committee assists the board of directors in
monitoring the integrity of our financial statements, the adequacy of our
internal controls, and the independence and performance of our accountants.
EXECUTIVE COMPENSATION
CASH COMPENSATION OF EXECUTIVE OFFICERS. The following table sets forth
the cash compensation paid to our executive officers for services rendered
during the fiscal years ended December 31, 1999, 1998 and 1997. Portions of the
salaries listed below have been accrued and have not yet been paid.
Mr. Kelly as our President and Chief Executive Officer until July,
2000, at which point Mr. Sassone became President and Chief Executive Officer.
No other executive officer earned in excess of $100,000 in any of our previous
fiscal years. In 1999, Mr. Kelly earned $218,625 in salary and $29,248 in
vacation accrual. Mr. Kelly has agreed to waive all in accrued salary, which was
$311,926 as of December 31, 1999, upon the closing of this offering.
In 1999, Seskin and Sassone, formerly Sassone Zemanek & Girasa, a law
firm in which Mr. Sassone is a partner, received $33,000 from us for legal
services rendered. In addition, Mr. Sassone received 100,000 shares as a
compensatory stock grant upon becoming a member of our board of directors.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- -------------------------------------
COMMON
SHARES
RESTRICTED UNDERLYING
OTHER STOCK OPTIONS
ANNUAL AWARDS GRANTED ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION ($) (# SHARES) COMPENSATION
----------------- ------- ---------- ------ ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Martin Kelly, 1999 $ 218,625 -0- $ 29,248
former President 1998 $ 165,313
and CEO 1997 $ 143,750
Thomas Sassone, 1999 $ 62,500 -0- $ 34,500
current President 1998
and CEO 1997
</TABLE>
OPTION/SAR GRANTS IN 1999 FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
--------------- ------------ -------------------- ----------- ----------
None
-19-
<PAGE>
DIRECTOR COMPENSATION
All directors receive reimbursement for reasonable out-of-pocket
expenses in attending board of directors meetings and for promoting our
business. From time to time we may engage certain members of the board of
directors to perform services on our behalf. In such cases, we compensate the
members for their services at rates no more favorable than could be obtained
from unaffiliated parties. We also agree to indemnify and hold each director
harmless for any and all liabilities that may arise from our actions before the
director joined our board. In addition, each current director has received
shares of our common stock as a one-time consideration for agreeing to join our
board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Martin Kelly founded Retrac and served as our Chairman of the Board,
President and Chief Executive Officer from inception to June 2000. In July 2000,
Mr. Kelly resigned as an officer and director of Retrac but agreed to serve as a
consultant to us for a period of 12 months at a fee of $12,000 per month. In
August 2000, Mr. Kelly also agreed with us to cancel 4,000,000 common shares of
Retrac owned by him in exchange for our agreement to pay him a total of
$3,500,000 in one payment of $1,500,000 commencing on the close of this offering
and six quarterly payments of $333,333 every ninety days commencing after the
close of the offering and grant him an option to purchase 300,000 common shares
over a three year period commencing one year after the close of the offering at
an exercise price of 120% of the initial public offering price.
In June 1996, we entered into a settlement agreement with Faithful
Investments & Holdings Ltd., or FIHL, a company controlled by Mr. Kelly. Under
the terms of the settlement agreement, FIHL agreed to terminate all agreements
between it and Safe Tech Medical Products, or STMP, and to further release all
claims against STMP. STMP's principal, Michael Haining, is the inventor of our
safety syringe and is the inventor under the patents which cover our safety
syringe. Under the settlement agreement, we agreed to deliver to FIHL a $555,000
unsecured 12% note payable to FIHL, 90,000 of our common shares, and an option
to purchase 666,667 of our common shares for $.015 per share for a period of one
year. Payment of the price on the option shall be made by reduction of the
principal balance of the note. FIHL exercised this option on November 14, 1996.
We must repay the outstanding principal and interest on the note on the earlier
of May 31, 2001 or within 15 days of completion of an initial public offering of
our common stock. We may pre-pay the entire outstanding amount at anytime
without penalty or premium. However, we must pay a minimum of $50,000 per year
to be applied first to accrued interest, and then to principal. As of June 30,
2000, there was an outstanding balance of $226,981 on the note.
Thomas Sassone, our President and Chief Executive Officer and a member
of our board of directors, is also a member of the law firm of Seskin & Sassone,
formerly Sassone Zemanek & Girasa, our general counsel since 1998. In 1999 and
1998, we paid legal fees to Seskin & Sassone in the amount of approximately
$33,000 combined. In addition, in January 1998, we issued 283,333 shares of our
common stock to a trust controlled by Mr. Sassone as partial consideration for
Seskin & Sassone's agreement to defer collection of its fees.
In July 1998, we entered into a loan and security agreement with a
trust controlled by Perry Rowan Smith, one of our directors. The agreement
consisted of a promissory note in the principal amount of $200,000 and bearing a
rate per annum of 12%, an issuance of 593,333 shares of our common stock and an
option to purchase shares of our common stock held by our former Chief Executive
Officer, Martin Kelly. The note is secured by all of our syringe intellectual
property, including our patents and patent applications.
In March 1999, we entered into a modification agreement with the trust
controlled by Mr. Smith, pursuant to which the due date of the note was
extended. In addition, we granted to the trust an exclusive license to
manufacture, produce, market and sell retractable syringes worldwide except for
the United States. We will receive 10% of all gross sales made pursuant to the
license. The license is for 10 years, and the trust has an option to renew the
license for one-year renewal periods at a fee of $25,000 per year.
-20-
<PAGE>
In October 1999, we entered into a second modification agreement with
the trust controlled by Mr. Smith, pursuant to which the due date of the note
was extended to April 1, 2000. The option granted by our former Chief Executive
Officer was cancelled, and we issued an additional 133,333 shares to the trust.
In connection with this modification, we also agreed to pay the trust controlled
by Mr. Smith a 2% royalty fee on the gross sales of all our hypodermic syringes.
In addition, if we grant a license to a third party, we will pay the trust 10%
of any up-front fee paid and 5% of any royalties received from the third party
license. We have agreed not to grant any licenses that would infringe upon the
license in favor of the trust.
INDEMNIFICATION OF DIRECTORS
As permitted by Section 145 of the Delaware General Corporation Law,
our Certificate of Incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach or alleged
breach of their fiduciary duty as directors, subject to certain exceptions. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
our Bylaws provide that we may, in our discretion: (i) indemnify our directors,
officers, employees and agents and persons serving in such capacities in other
business enterprises at our request, to the fullest extent permitted by Delaware
law; and (ii) advance expenses, as incurred, to our directors and officers in
connection with defending a proceeding.
Our policy is to enter into indemnification agreements with each of our
directors and officers that provide the maximum indemnity allowed to directors
and officers by Section 145 of the Delaware General Corporation Law and the
Bylaws as well as certain additional procedural protections.
The indemnification provisions in the Bylaws and the indemnification
agreements we enter into with our directors and officers may be sufficiently
broad to permit indemnification of our directors and officers for liabilities
arising under the Securities Act. However, we are aware that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
-21-
<PAGE>
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the shares of common stock as of September 15, 2000 by
o each person known by us to be the beneficial owner of more
than five percent (5%) of our common stock;
o each of our directors and executive officers; and
o all directors and executive officers as a group.
The following table:
o assumes that there are 4,917,146 common shares issued and
outstanding prior to the offering;
o Does not include 1,256,099 common shares issuable upon
exercise of outstanding options and warrants, common shares
issuable upon exercise of the underwriters overallotment
option or warrants, 17,250 unvested common shares reserved for
issuance under a consulting agreement, or approximately
871,604 common shares issuable upon conversion of outstanding
convertible promissory notes.
<TABLE>
<CAPTION>
PERCENT OF SHARES OUTSTANDING
---------------------------------
NAME AND ADDRESS NUMBER OF SHARES OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------- ---------------------- ---------------------------------
<S> <C> <C> <C>
Graham E. Gill(1)(2) 333,333 6.8% 4.8%
Thomas Sassone(1)(3) 350,000 7.1% 5.1%
Martin Kelly(1)(4) 813,334 16.5% 11.8%
Jack Gutierrez (1)(5) 176,667 3.6% 2.6%
Perry Rowan Smith(1)(6) 856,666 17.4% 12.4%
Mark Murphy(1) 100,000 2.0% 1.4%
Joseph Montuoro(1)(7) 100,000 2.0% 1.4%
Alexander Mulgrew(1) 10,000 (8) (8)
All officers and directors as a group 1,926,666 39.2% 27.9%
</TABLE>
--------------------
(1) Address is 22 South Main Street, New City, New York 10956.
(2) Includes 333,333 shares held in a trust controlled by Mr. Gill.
(3) Includes 350,000 shares held in a trust controlled by Mr. Sassone.
(4) Includes 686,667 shares held by The Kerry Investment Trust for which
Mr. Kelly is trustee.
(5) Includes 176,667 shares held by Mr. Gutierrez' wife, Sharon Gutierrez.
(6) Includes 843,333 shares held in a trust controlled by Mr. Smith and
13,333 shares held by a company controlled by Mr. Smith's wife.
(7) Includes 100,000 shares held by Mr. Montuoro's children.
(8) Less than one percent.
-22-
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 25,000,000 shares of common stock, of which,
as of September 21, 2000, 4,917,146 shares were issued and outstanding,
including 571,450 shares that we have previously agreed to issue subject to and
conditional upon our initial public offering, and held by approximately 189
recordholders, and 17,250 unvested shares are reserved for issuance under a
consulting agreement. As of the date of this prospectus, there are no
outstanding options, warrants or other securities which upon exercise or
conversion entitle their holder to acquire shares of common stock, except as set
forth below.
Holders of shares of common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting, except
in the case of certain fundamental matters in which cases Delaware law and our
bylaws require the favorable vote of at least a majority of all outstanding
shares. Stockholders are entitled to receive such dividends as may be declared
from time to time by the board of directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding up, to share
ratably in all assets remaining after payment of liabilities. The holders of
shares of common stock have no preemptive, conversion, subscription or
cumulative voting rights.
OPTIONS AND WARRANTS
As of the date of this prospectus, we have granted options and warrants
to purchase an aggregate of 1,256,099 shares at a weighted average exercise
price of $7.67 per share. None of the options or warrants have been exercised.
DIVIDENDS
We do not anticipate the payment of cash dividends on our common stock
in the foreseeable future.
TRANSFER AGENT
The Transfer Agent for our common stock is Computershare Trust Company.
ANTI-TAKEOVER PROVISIONS
GENERAL
Certain provisions of the Delaware General Corporation Law and our
certificate of incorporation and Bylaws could have the effect of delaying,
deterring or preventing a future takeover or change in control, unless such
takeover or change in control is approved by our board of directors. Such
provisions also may render the removal of directors and management more
difficult. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of the common stock. These provisions of
Delaware law and our certificate of incorporation and bylaws also may have the
effect of discouraging or preventing certain types of transactions involving an
actual or threatened change of control (including unsolicited takeover
attempts), even though such a transaction may offer our stockholders the
opportunity to sell their stock at a price above the prevailing market price.
CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the certificate of incorporation and bylaws could
have the effect of discouraging potential acquisition proposals or delaying or
preventing a change of control. In particular, the certificate of incorporation
does not include a provision for cumulative voting in the election of directors.
Under cumulative voting, a minority stockholder holding a sufficient number of
shares may be able to ensure the election of one or more directors. The absence
of cumulative voting may have the effect of limiting the ability of minority
stockholders to effect changes in the board of directors and, as a result, may
have the effect of deterring a hostile takeover or delaying or preventing
changes in control or management.
-23-
<PAGE>
Our bylaws also provide that newly created directorships resulting from
any increase in the number of directors and any vacancies on the board of
directors may be filled by the affirmative vote of a majority of the remaining
directors then in office, although less than a quorum, and not by the
stockholders unless authorized by the board of directors at a special meeting of
the stockholders.
Our bylaws may be altered or repealed and new bylaws to be adopted at
any annual or special meeting of stockholders, by the affirmative vote of a
majority of the voting stock, provided that in the case of any such stockholder
action at a special meeting of stockholders, notice of the proposed alteration,
repeal or adoption of any Bylaws must be contained in the notice of such special
meeting.
These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal and to discourage certain tactics that may be used in proxy
fights. Such provisions could have the effect of discouraging others from making
tender offers for our shares and may inhibit fluctuations in the market price of
our shares that could otherwise result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in our
management.
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware Code prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. The exceptions to that rule are as follows:
o prior to the date of the business combination, the board of directors
of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned (x) by persons who
are directors and also officers and (y) by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
o the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
-24-
<PAGE>
UNDERWRITING
The underwriters named below, represented by Centex Securities
Incorporated, subject to the terms and conditions in the underwriting agreement,
by and between us and the underwriters, to purchase from us the number of shares
of common stock indicated below opposite its name, at the public offering price
less the underwriting discount set forth on the cover page of this prospectus.
The underwriters are committed to purchase all of the shares of common stock, if
they purchase any.
Number of
Underwriters Shares
------------ -------------
Centex Securities
-------------
Total......................................... 2,000,000
=============
Centex Securities has advised us that the underwriters propose
initially to offer the shares of common stock to the public on the terms set
forth on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more that $____ per share; and the underwriters may
allow, and such dealers may reallow, a concession of not more that $____ per
share to certain other dealers. After the initial public offering, this offering
price and other selling terms may be changed by Centex Securities, but these
terms will not be changed prior to completion of the initial public offering.
The common stock is offered subject to receipt and acceptance by the
underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
We have granted the underwriters an over-allotment option, exercisable
45 days from the date of this prospectus, to purchase up to a maximum of 300,000
additional shares of common stock to cover over-allotments, if any, at the same
price per share as the initial shares to be purchased by the underwriters. To
the extent the underwriters exercise this over-allotment option, each of the
underwriters will be committed subject to conditions similar to those described
above, to purchase additional shares in approximately the same proportion as set
forth in the above table. The underwriters may exercise this over-allotment
option only to cover over-allotments made in connection with this offering.
We have agreed to pay Centex Securities a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds of the offering. We
have also agreed to sell to Centex Securities for $100 warrants to purchase up
to 230,000 shares of our common stock at a price equal to 120% of the initial
public offering price. In addition to the non-accountable expense allowance, we
will be required to pay the expenses of the offering which we estimate to be
approximately $340,000.
The underwriting agreement provides that we will indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the underwriters may be required
to make in respect thereof.
In connection with this offering, certain underwriters and selling
group members and their respective affiliates engage in transactions that
stabilize, maintain or otherwise affect the market price of our common stock.
These transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities and Exchange Act of 1934,
pursuant to which these persons may bid for or purchase our common stock for the
purpose of stabilizing its market price. The underwriters also may create a
short position for the account of the underwriters by selling more common stock
in connection with this offering than they are committed to purchase from us
and, in such case, may purchase common stock in the open market following
completion of this offering to cover all or a portion of a short position. The
underwriters also may cover all or a portion of a short position by exercising
the underwriters' over-allotment option referred to above. In addition, Centex
Securities on behalf of the underwriters may impose "penalty bids" under
contractual arrangements with the underwriters whereby it may reclaim from an
underwriter (or dealer participating in this offering) for the account of the
other underwriters, the selling concession with respect to common stock that is
distributed in this offering but subsequently purchased for the account of the
underwriters in the open market. None of the transactions described in this
paragraph may result in the maintenance of the price of our common stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
-25-
<PAGE>
Prior to this offering, there has been no public trading market for our
common stock. The initial public offering price will be determined by
negotiations between us and Centex Securities. The following factors are among
those to be considered in these negotiations:
o our history and prospects and the auction industry;
o an assessment of our management;
o past and present earnings and the trend of our earnings;
o our prospects for future earnings;
o the present state of our development,:
o the general condition of securities markets at the time of
this offering; and
o the market price of publicly traded stock of comparable
companies in recent periods.
LEGAL MATTERS
Certain legal matters with respect to the shares of common stock
offered hereby will be passed upon for us by Oppenheimer Wolff & Donnelly LLP,
Newport Beach, California.
EXPERTS
Our financial statements at December 31, 1999 and for the years ended
December 31, 1998 and 1999 appearing in this prospectus and the registration
statement have been audited by M.R. Weiser & Co. LLP, independent auditors, as
set forth in their report thereon (which contains an explanatory paragraph with
respect to the uncertainty surrounding our ability to continue as a going
concern) appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Commission, this prospectus, which is part of the
registration statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. Copies of the registration
statement and the exhibits are on file with the Commission and may be obtained
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Information on the operation of the Public Reference Room can be obtained
by calling the Commission at 1-800-732-0330. In addition, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms, our web site and the web site of the SEC referred to
above. Information on our web site does not constitute a part of this
prospectus.
-26-
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors........................................................................... F-1
Audited Consolidated Balance Sheet as of December 31, 1999
and unaudited Balance Sheet as of June 30, 2000 ......................................................... F-3
Audited Consolidated Statements of Operations for the years ended December 31, 1999 and 1998
and unaudited Consolidated Statements of Operations for the six months ended June 30, 2000 and 1999
and for the period from February 29, 1996 (inception) to June 30, 2000................................... F-4
Audited Consolidated Statements of Changes in Stockholders' Deficit for the
years ended December 31, 1999 and 1998 and unaudited Consolidated Statement of Changes
in Stockholders' Deficit for the six months ended June 30, 2000 ......................................... F-5
Audited Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and
unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 and
for the period from February 29, 1996 (inception) to June 30, 2000....................................... F-11
Notes to Consolidated Financial Statements............................................................... F-14
</TABLE>
-27-
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Retrac Medical, Inc.
(formerly Re-Track USA, Inc.)
We have audited the accompanying consolidated balance sheet of Retrac Medical,
Inc. (a development stage company) (formerly Re-Track USA, Inc.) (the "Company")
as of December 31, 1999, and the related consolidated statements of operations,
changes in stockholders' deficit and cash flows for the years ended December 31,
1998 and 1999 and the amounts included in the consolidated cumulative period
February 29, 1996 (inception) through December 31, 1999 (not separately
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Retrac
Medical, Inc. (a development stage company) (formerly Re-Track USA, Inc.) as of
December 31, 1999, and the consolidated results of its operations and its cash
flows for the years ended December 31, 1998 and 1999 and the amounts included in
the consolidated cumulative period February 29, 1996 (inception) through
December 31, 1999 (not separately presented herein) in conformity with generally
accepted accounting principles.
F-1
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in the development stage, has
suffered recurring losses from operations, is unable to currently fund its
liabilities and at December 31, 1999, has an accumulated deficit, a
stockholders' deficit, negative working capital, is delinquent in the remittance
of certain withholding of payroll taxes and has defaulted on certain obligations
which, among other things, cause the balances to become due on demand.
Furthermore, as set forth in Note 1, the Company has concluded that the
implementation of its business plan is dependent on a significant debt or equity
financing in the immediate future. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
New York, N.Y.
March 24, 2000, except for the sixth
paragraph of Note 7(H) which is as of April
1, 2000, the second paragraph under
"Operations" in Note 1 which is as of May
31, 2000, and the information under "Stock
Split" in Note 8 which is as of September 7,
2000.
F-2
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
December 31, June 30,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 144,968 $ 153,600
Cash held in escrow 93,722
Note receivable 75,000
Other current assets 17,069
------------- -------------
Total current assets 238,690 245,669
Equipment and fixtures (less accumulated depreciation of
$21,549 and $25,043, respectively) 20,337 16,843
Intangible costs (less accumulated amortization of $686,521
and $787,065, respectively) 1,083,079 2,707,535
------------- -------------
Total assets $ 1,342,106 $ 2,970,047
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Long-term debt, current maturities $ 2,141,320 $ 4,772,785
Accounts payable 675,742 386,550
Accrued liabilities 964,121 1,393,334
Payable for purchase of patent license 375,000
------------- -------------
Total current liabilities 3,781,183 6,927,669
------------- -------------
Long-term debt, less current maturities 2,951,650 1,080,650
------------- -------------
Commitments, contingencies and other matters
Stockholders' deficit:
Common stock, at $.01 par value, 25,000,000 shares
authorized; 6,933,221 shares issued and 6,646,554
shares outstanding at December 31, 1999; 7,602,888
shares issued and 7,316,221 shares outstanding at
June 30, 2000 (unaudited) 69,333 76,030
Common stock to be distributed at $.01 par value,
1,694,509 shares at December 31, 1999 and
1,583,675 shares at June 30, 2000 (unaudited) 16,945 15,836
Additional paid-in capital 3,615,809 8,530,221
Deficit accumulated during the development stage (9,092,514) (13,660,059)
------------- -------------
(5,390,427) (5,037,972)
Treasury stock (286,667 shares at cost at
December 31, 1999 and June 30, 2000) (300) (300)
------------- -------------
Total stockholders' deficit (5,390,727) (5,038,272)
------------- -------------
Total liabilities and stockholders' deficit $ 1,342,106 $ 2,970,047
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years Ended February 29,
December 31, Six Months Ended June 30, 1996 (Date of
----------------------------- ---------------------------- Inception) to
1998 1999 1999 2000 June 30, 2000
------------- ------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues $ - $ - $ - $ - $ 6,288
------------- ------------- ------------- ------------- -------------
Cost and operating expenses:
Seller repossession of inventory and cost of sales 273,238 352,776
Salaries, payroll taxes and benefits 166,987 459,218 133,604 $ 353,651 1,417,331
Professional fees 329,005 535,234 99,724 227,657 1,638,210
Loss on abandonment of intangible assets and
fixed assets 441,190 441,190
Depreciation and amortization 213,391 208,077 104,038 104,038 905,936
Patent expense 390,000
Litigation settlements 82,000 274,744 356,744
Other selling, general and administrative costs 97,761 123,659 44,001 1,744,642 2,468,351
------------- ------------- ------------- ------------- -------------
1,603,572 1,600,932 381,367 2,429,988 7,970,538
------------ ------------ ------------ ------------ ------------
Loss from operations (1,603,572) (1,600,932) (381,367) (2,429,988) (7,964,250)
------------- ------------- ------------- ------------- -------------
Other income (expenses):
Interest expense (248,277) (3,003,897) (182,625) (2,176,576) (5,735,785)
Other income 39,019 39,976
------------- ------------- ------------- ------------- -------------
(248,277) (3,003,897) (182,625) (2,137,557) (5,695,809)
------------- ------------- ------------- ------------- -------------
Net loss $ (1,851,849) $ (4,604,829) $ (563,992) $ (4,567,545) $(13,660,059)
============= ============= ============= ============= =============
Basic and diluted loss per share $ (0.28) $ (0.60) $ (0.08) $ (0.53)
============= ============= ============= =============
Weighted average number of
common shares outstanding
and to be distributed 6,703,916 7,695,044 7,302,571 8,638,093
============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-4
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<CAPTION>
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of 4,333,333 shares on
May 20, 1996 to the
president for reduction
of a note payable
($.015 per share) 4,333,333 $ 43,333 $ 21,667 $ 65,000
Issuance of 116,666 shares
on May 20, 1996 as a
bonus to officers
($.015 per share) 116,666 1,167 583 1,750
Issuance of 166,667 shares
on May 20, 1996 under
a license agreement
($.015 per share) 166,667 1,667 833 2,500
Sale of 90,000 shares on
May 20, 1996 for
reduction of a note
payable to a related
party ($.015 per share) 90,000 900 450 1,350
Sale of 100,000 shares on
November 12, 1996 for
cash to a member of the
Board of Directors
($1.50 per share) 100,000 1,000 149,000 150,000
Sale of 666,667 shares on
November 14, 1996 for
reduction of a note
payable to a related
party ($.015 per share) 666,667 6,667 3,333 10,000
Issuance of 70,600 shares on
November 16, 1996 for
legal services
($1.875 per share) 70,600 706 131,669 132,375
Sale of 58,333 shares on
December 16, 1996 for
cash (41,667 shares for
$3.00 per share and
16,666 for $1.50
per share) 58,333 583 149,417 150,000
166,667 shares to be issued
as a bonus for consulting
services under an
agreement dated March 1,
1996 ($.015 per share) 833 166,667 $ 1,667 2,500
(CONTINUED)
F-5
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Net loss inception to
December 31, 1996 $ (925,633) (925,633)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Balance as of December
31, 1996 5,602,266 56,023 457,785 166,667 1,667 (925,633) (410,158)
Cancellation on February
16, 1997 of 70,600
shares issued on
November 16, 1996
($1.875 per share) (70,600) (706) (131,669) (132,375)
16,667 shares to be
issued to a former
member of the Board
of Directors as a
bonus under an
agreement dated
February 16, 1997
($3.00 per share) 49,833 16,667 167 50,000
Sale of 8,333 shares on
February 25, 1997
for cash ($3.00
per share) 8,333 83 24,917 25,000
Sale of 23,222 shares in
March 1997 for cash
(18,333 shares for
$3.00 per share and
4,889 for $2.25 per
share) 23,222 232 65,768 66,000
Issuance of 286,666 shares
and 150,000 options
on April 9, 1997 for
the purchase of
patents ($3.00 per
share, $0.24 per option) 286,666 2,867 893,133 896,000
Cancellation on April 1, 1997
of 50,000 shares issued
on May 20, 1996 ($.015
per share) (50,000) (500) (250) (750)
Sale of 66,667 shares and
200,000 warrants on June
20, 1997 for cash ($1.35
per share and $.05 per
warrant) 66,667 667 99,333 100,000
(CONTINUED)
F-6
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Issuance of 66,667 shares
on July 1, 1997 for
distribution agreement
($3.00 per share)
valued per agreement 66,667 667 199,333 200,000
Net loss - December 31, 1997 (1,710,203)(1,710,203)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Balance as of December 31,
1997 5,933,221 59,333 1,658,183 183,334 1,834 (2,635,836) (916,486)
283,333 shares to be issued
under a retainer agreement
for legal services, dated
February 10, 1998 to a
related party ($.015 per
share) 1,417 283,333 2,833 4,250
Issuance of 40,000 shares on
July 1, 1998 for
settlement of an
obligation ($.015 per
share) 40,000 400 200 600
Issuance of 593,333 shares on
July 1, 1998 to a member
of the Board of Directors
for a loan to the Company
($.015 per share) 593,333 5,933 2,967 8,900
Issuance of 66,667 shares on
July 1, 1998 for purchase
of patents ($.015 per
share) 66,667 667 333 1,000
Cancellation of April 9, 1997
purchase of patents and
reacquisition of shares
on December 11, 1998 (860,000) 286,667 $ (300) (860,300)
Net loss - December 31, 1998 (1,851,849)(1,851,849)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Balance as of December 31,
1998 6,633,221 66,333 803,100 286,667 (300) 466,667 4,667 (4,487,685)(3,613,885)
(CONTINUED)
F-7
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Issuance of 166,667 shares
under an agreement
dated July 7, 1999 to
an individual to join
the Board of Directors
($.015 per share) 166,667 1,667 833 2,500
Issuance of 133,333 shares
to a member of the
Board of Directors on
September 1, 1999 to
extend a loan
($2.25 per share) 133,333 1,333 298,667 300,000
100,000 shares to two
Vice-Presidents of the
Company as a bonus
under a consulting
agreement, dated
September 1999
($2.25 per share) 224,000 100,000 1,000 225,000
133,333 shares as a bonus
for signing a consulting
contract signed in
January 1999
($.015 per share) 667 133,333 1,333 2,000
366,667 shares as a signing
bonus to three members
of the Board of Directors,
signed on January 4,
April 1, and July 7, 1999
($.015 per share) 1,833 366,667 3,667 5,500
143,333 shares as a bonus for
accepting employment
($.015 per share) including
76,667 shares to a member
of the Board of Directors,
dated March 15 and April 1,
1999 717 143,333 1,433 2,150
(CONTINUED)
F-8
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
28,115 shares for signing
settlement agreements
dated April 1, and June
1, 1999 ($.015 per
share) including
26,333 shares to a
former officer 141 28,115 281 422
227,694 shares to note
holders for restructuring
notes payable dated
February 10, and
August 1, 1999
($.015 per share) 1,138 227,694 2,277 3,415
228,700 shares to note
holders for issuing 12%
unsecured promissory notes
($10.00 per share) 2,284,713 228,700 2,287 2,287,000
Net loss - December 31, 1999 (4,604,829)(4,604,829)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ----------- ----------
Balance - December 31, 1999 6,933,221 69,333 3,615,809 286,667 (300) 1,694,509 16,945 (9,092,514)(5,390,727)
33,333 shares to be issued
for services under a
settlement agreement
dated January 18, 2000
($1.95 per share) 64,667 33,333 333 65,000
200,000 shares to be issued
as a signing bonus to
two members of the Board
of Directors, appointed
in January 2000
($8.00 per share) 1,598,000 200,000 2,000 1,600,000
669,667 shares distributed in
April 2000 669,667 6,697 (669,667) (6,697)
F-9
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(CONCLUDED)
Deficit
Common Stock Treasury Common Stock Accumulated
$.01 Par Value Additional Stock To Be Distributed During The
---------------------- Paid-In ---------------------- ---------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
----------- ---------- ---------- ----------- ---------- ----------- ---------- ------------ -----------
190,500 shares to note
holders for issuing
12% unsecured promissory
notes ($10.00 per share) 1,903,095 190,500 1,905 1,905,000
135,000 shares as license
fee ($10.00 per share) 1,348,650 135,000 1,350 1,350,000
Net loss June 30, 2000
(unaudited) (4,567,545) (4,567,545)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ------------ -----------
Balance - June 30, 2000
(unaudited) 7,602,888 $ 76,030 $8,530,221 286,667 $ (300) 1,583,675 $ 15,836 $(13,660,059)$(5,038,272)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ------------ -----------
NOTE: The above statement gives retroactive effect to a 2 for 3 reverse stock split occurring on September 7, 2000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-10
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended Six Months Ended February 29,
December 31, June 30, 1996 (Date of
--------------------------- --------------------------- Inception) to
1998 1999 1999 2000 June 30, 2000
------------- ------------- ------------- ------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,851,849) $(4,604,829) $ (563,992) $(4,567,545) $ (13,660,059)
Adjustments to reconcile net loss
to net cash used in operating activities:
Patent expense 390,000
Loss on abandonment of intangible assets
and fixed assets 441,190 441,190
Depreciation and amortization 213,391 208,077 104,038 104,038 905,936
Seller repossession of inventory 245,732 250,000
Stock issued for services 13,150 257,572 8,045 1,665,000 1,989,221
Noncash interest expense 600 2,646,801 58,278 1,905,000 4,552,401
Gain on settlement of notes and accounts payable (204,042) (204,042)
Changes in operating assets and liabilities:
Decrease (increase) in other current assets 13,612 (17,069) (17,069)
Increase in inventory (88,000)
Increase (decrease) in accounts payable 308,404 3,053 56,408 (124,169) 551,573
Increase in accrued liabilities 504,915 480,708 219,703 441,231 1,865,855
------------- ------------- ------------- ------------- ---------------
Net cash used in operating activities (110,855) (1,008,618) (117,520) (797,556) (3,022,994)
------------- ------------- ------------- ------------- ---------------
Cash flows from investing activities:
Issuance of note receivable (75,000) (75,000)
Purchase of equipment and fixtures (64,035)
Purchase of license agreement and patents (200,000) (212,600)
------------- ------------- ------------- ------------- ---------------
Net cash used in investing activities (200,000) (75,000) (351,635)
------------- ------------- ------------- ------------- ---------------
(CONTINUED)
F-11
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended Six Months Ended February 29,
December 31, June 30, 1996 (Date of
--------------------------- --------------------------- Inception) to
1998 1999 1999 2000 June 30, 2000
------------- ------------- ------------- ------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock 491,000
Purchase of treasury stock (300) (300)
Payments on notes payable (27,442) (165,034) (290,168)
Proceeds from notes payable 262,000 1,274,750 150,000 952,500 3,327,697
Deposits in escrow fund (93,722) (32,480) 93,722
------------- ------------- ------------- ------------- ---------------
Net cash provided by financing activities 261,700 1,153,586 117,520 881,188 3,528,229
------------- ------------- ------------- ------------- ---------------
Net (decrease) increase in cash (49,155) 144,968 8,632 153,600
Cash at beginning of year/period 49,155 144,968
------------- ------------- ------------- ------------- ---------------
Cash at end of year/period $ - $ 144,968 $ $ 153,600 $ 153,600
============= ============= ============= ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the year/period for:
Interest $1,000 $ 94,384 $ 11,564 $51,145 $ 182,385
</TABLE>
Supplemental disclosures of non-cash financing and investing activities:
Period from February 29, 1996 (date of inception) to December 31, 1996:
1. Purchase of license agreement through assumption of notes payable for
$1,830,370 and issuance of 166,667 shares of Common Stock for $.015 per
share.
2. Reduction of notes payable for $76,350 for issuance of 5,090,000 shares
of Common Stock.
(CONTINUED)
F-12
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
Year ended December 31, 1997:
1. Purchase of inventory through assumption of a non-interest bearing note of
$162,000.
2. Purchase of distribution rights and patents in exchange for 353,333 shares
and 150,000 options of Common Stock ($1,096,000).
Year ended December 31, 1999:
1. Reclassification of accrued interest of $460,502 to principal balance of
debt.
For the six months ended June 30, 1999 (Unaudited):
1. Reclassification of accrued interest of $309,362 to principal balance of
debt.
For the six months ended June 30, 2000 (Unaudited):
1. Reduction of accounts payable for issuance of 33,333 shares of common stock
($65,000) and by settlement of $165,023.
2. Purchase of license agreement for future payment of $375,000 and $1,350,000
in common stock of the Company once an IPO is completed.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
F-13
<PAGE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO DATES AND PERIODS SUBSEQUENT TO DECEMBER 31, 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 IS UNAUDITED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS:
Retrac Medical, Inc. (the "Company") (formerly Retrack USA, Inc.), a
development stage company, was incorporated in the state of Delaware on
February 29, 1996. The Company is a medical technology company that plans
to market a range of high quality, patented safety syringes for use by
health care professionals, medical institutions and other end users.
On May 31, 2000, the Company changed its name to Retrac Medical, Inc.
FINANCIAL CONDITION:
The Company has not commenced revenue producing activities, and,
accordingly, is considered in the development stage. Since inception, the
Company has incurred recurring losses from operations, and is unable to
currently fund its liabilities, has an accumulated deficit of
approximately $9.1 million and $13.7 million, a stockholders' deficit of
approximately $5.4 million and $5.0 million and negative working capital
of approximately $3.5 million and $6.7 million at December 31, 1999 and
June 30, 2000 (unaudited), respectively, and has limited financial
resources. In addition, the Company is delinquent in the remittance of
certain withholding of payroll taxes and has defaulted on certain
obligations which has caused them to be due on demand. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern.
The implementation of the Company's business plan is dependent on a
significant debt or equity financing event in the immediate future. The
Company continues to work both directly and through its consultants to
secure such financing which is required to develop operations while a
significant recurring revenue stream is developed. There can be no
assurance that the Company will be successful with its efforts to raise
additional capital. The inability of the Company to secure additional
financing in the near term could adversely impact the Company's business,
financial position and prospects.
In addition, see "Risks and Uncertainties" below.
F-14
<PAGE>
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
RISKS AND UNCERTAINTIES:
The Company is in the development stage and does not have an operating
history and its prospects are subject to the risks, expenses and
uncertainties frequently encountered by companies in the business of
exploiting medical supplies patents. These risks and uncertainties
include, but are not limited to, the following: the competitive nature of
the business and the potential for competitors with greater resources to
enter such business; the Company's limited operating history and need for
additional financing; consumer acceptance of the safety syringes; patents
infringement; rapid technological change in the medical supply industry;
governmental regulation and legal uncertainties, as well as other risks
and uncertainties. In the event that the Company does not successfully
implement its business plan, certain assets may not be recoverable.
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its 95% owned subsidiary FX USA, Inc. and its 80% owned subsidiary
Health Watch, Inc. Both FX USA, Inc. and Health Watch, Inc. are dormant
companies. All significant intercompany balances and transactions have
been eliminated.
INTERIM FINANCIAL INFORMATION (UNAUDITED):
The financial statements and accompanying financial information as of
June 30, 1999 and 2000, and for the six months ended June 30, 1999 and
2000, are unaudited but include all adjustments (consisting solely of
normal recurring accruals) which the Company considers necessary for a
fair presentation of the financial position at June 30, 1999 and 2000,
and the operating results and cash flows for the six month periods ended
June 30, 1999 and 2000. Results for interim periods are not necessarily
indicative of results for the entire year.
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 the
estimates used.
F-15
<PAGE>
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
The Company maintains its cash balances with certain financial
institutions. Accounts at the institutions are insured by the Federal
Deposit Insurance Corporation up to $100,000. Uninsured balances
aggregate to approximately $138,690 at December 31, 1999 and $53,600 at
June 30, 2000 (unaudited).
EQUIPMENT AND FIXTURES:
Equipment and fixtures are stated at cost and depreciated on a
straight-line basis over five and seven years.
INTANGIBLE ASSETS:
Intangible assets consist of a series of patents to be used for safety
syringes and a license agreement for a needle-free infusion system and
connector for the injection of medication into an intravenous attachment.
Costs incurred to establish and acquire such patents and license
agreements are capitalized. The patents and license agreement are carried
at cost less accumulated amortization calculated on the straight-line
basis over the remaining life of the assets ranging from 5-9 years.
LONG-LIVED ASSETS:
The Company's policy is to evaluate long-lived assets and certain
identifiable intangibles for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets
may not be recoverable. This evaluation is based on a number of factors,
including expectations for operating income and undiscounted cash flows
that will result from the use of such assets. At December 31, 1999 and
June 30, 2000 the Company has not identified any such impairment of
assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of the Company's financial instruments, including note
receivable, accounts payable, accrued liabilities and current maturities
of long-term debt, approximates the fair values due to their relatively
short maturities.
The fair value of each of the Company's long-term debt instruments is
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The carrying amounts approximate the
estimated fair value at December 31, 1999 and June 30, 2000. No
consideration is given to liquidity issues in valuing the long-term debt.
F-16
<PAGE>
STOCK-BASED COMPENSATION:
The Company applies Statement of Financial Accounting Standards No.
("SFAS") 123 "Accounting for Stock Based Compensation," in accounting for
stock based compensation. As permitted by SFAS No. 123, the Company
applies Accounting Principles Board Opinion No. 25 and related
interpretations for expense recognition.
ADVERTISING COSTS:
Advertising costs are expensed as incurred.
RESEARCH AND DEVELOPMENT COSTS:
Research and development costs are expensed as incurred. During the year
ended December 31, 1999 and for the period ended June 30, 2000
(unaudited), amounts charged to research and development amounted to
$2,040 and $12,627, respectively.
START-UP COSTS:
In June 1998, the Company adopted Statement of Position ("SOP") 98-5
"Reporting on the Costs of Start-Up Activities." Start-up activities
include (i) one-time activities relating to the introduction of a new
product or service, conducting business in a new territory, conducting
business with a new class of customer or commencing a new operation and
(ii) organization costs. Start-up activities are expensed as incurred.
EARNINGS (LOSS) PER SHARE:
The Company has adopted SFAS No. 128, "Earnings Per Share." Basic
earnings (loss) per share excludes dilution and is computed by dividing
earnings (loss) available to common shareholders by the weighted average
number of common shares outstanding and to be distributed for the period.
Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common
shares outstanding and to be distributed for the period adjusted to
reflect potentially dilutive securities. Due to losses, the options and
warrants are not included in the computation of diluted earnings (loss)
per share because the effect would be to reduce the loss per share.
F-17
<PAGE>
INCOME TAXES:
At December 31, 1999 and June 30, 2000 (unaudited), the Company has
available approximately $6,174,000 and $7,248,000, respectively, of
unused operating loss carryforwards that may be applied against future
taxable income, if any, and that expire in various years from 2015 to
2019. Since the "more likely than not" criteria of SFAS 109 was not met
at December 31, 1999 and June 30, 2000 (unaudited), the valuation
allowance of $2,470,000 and $2,900,000, respectively was equal to the
deferred tax asset.
The availability of the net operating loss carryforwards to offset income
in future years, if any, may be limited by Internal Revenue Code Section
382 as a result of certain changes in ownership that may occur in the
future.
INVENTORY:
In 1998, the Company wrote off the carrying amount (approximately
$245,000) of its inventory because the seller took possession of the
inventory. As of June 30, 2000 the Company is in the process of suing the
seller to recover the value of the inventory and damages.
NEW PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Financial Instruments and Hedging Activities." SFAS 133 establishes
accounting and reporting standards of derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137. "Deferral
of the Effective Date of SFAS 133," which amends SFAS 133 by deferring
the effective date to fiscal years beginning after June 15, 2000. The
adoption of SFAS 133 is not expected to have a material impact on the
Company's reported results of operations, financial position or cash
flows.
In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This
statement, which is effective for fiscal years beginning after December
15, 1998, requires that certain costs of developing or obtaining software
for internal use be capitalized. The adoption of SOP 98-1 is not expected
to have a material impact on the Company's reported results of
operations, financial position or cash flows.
F-18
<PAGE>
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. SAB 101 is not a rule or interpretation of the
SEC, however, it represents interpretations and practices followed by the
Division of Corporation Finance and the Office of the Chief Accountant in
administering the disclosure requirements of the Federal securities laws.
At the time the Company commences revenue producing activities it intends
to fully comply with the interpretations outlined in SAB 101.
2. NOTE RECEIVABLE:
On June 15, 2000, the Company loaned $75,000 to the inventor and licensor
of the patents and his company. The note bears interest at 18% per annum
and is payable on demand. The note is collateralized by the four patents
underlying the license agreement for the needle-free infusion system (see
Note 3d.).
3. LICENSE AGREEMENTS, PATENTS AND OTHER DISTRIBUTION AGREEMENTS:
a. In 1996, the Company entered into a License Agreement with the
inventor and his company (the "Licensor") for the exclusive
rights to exploit the patents of various medical devices
including retractable hypodermic and dental syringes. The
License Agreement initially provided for a license fee of
$4,000,000. As partial payment, the Company assumed various
debt obligations of the Licensor totaling $1,830,370. In
addition, the Company issued 166,667 shares of its Common
Stock valued at $.015 per share to the licensor. The license
agreement was recorded at the estimated fair value of the
assumed debt, plus cash paid ($12,600) and Common Stock
issued, for a total of $1,845,470.
In 1998, the Company paid an additional $200,000, returned two
of the licenses to the licensor in exchange for the outright
ownership of the patents and issued an additional 66,667
shares of its Common Stock valued at $.015 per share for legal
fees paid on behalf of the licensor. The shares carry
piggyback registration rights. As a result of this additional
consideration and modifications, the adjusted cost of the two
remaining patents amounted to $1,769,600.
b. In June 1997, the Company entered into a Stock Purchase
Agreement and a Distribution Agreement to sell certain
lubricant products which were owned by a subsidiary. As
consideration for the Distribution Agreement, the Company
issued 66,667 shares of its Common Stock valued at $3.00 per
share. In addition, in connection with the Stock Purchase
Agreement, the Company issued 66,667 shares of its Common
Stock valued by the agreement at $1.35 per share and 200,000
Warrants valued at $10,000 with an exercise price of $1.00 per
share. The Warrants expired unexercised in June 1999.
F-19
<PAGE>
During 1997, the Company purchased inventory valued at
$250,000 for $88,000 in cash and a non-interest bearing
promissory note in the principal amount of $162,000. (See Note
7F.) In January 1998, the Distribution Agreement was
terminated. The Company wrote-off the inventory and
distribution rights.
c. In April 1997, a subsidiary of the Company entered into an
Asset Purchase Agreement for certain trademarks and patents.
The Company issued 286,666 shares of its Common Stock valued
at $3.00 per share and 150,000 options valued at $0.24 per
share for a total value of $896,000 to the Seller. In December
1998, the Company repurchased the shares for $300, returned
the trademarks and patents and reversed the transaction by
reversing $860,000 of the cost of the patents which were
originally recorded in 1997 and expensing the remaining
balance associated with the patents of $36,000. The options
were cancelled in February 2000 by entering into a mutual
general release agreement.
d. On June 15, 2000, the Company entered into a License Agreement
with the inventor and his company for the worldwide exclusive
rights to exploit certain patents for a needle-free infusion
system and connector for the injection of medication into an
intravenous attachment.
The License Agreement provided for a license fee of $1,725,000
payable within 30 days of an IPO as follows: $375,000 cash and
restricted Common Stock valued at $1,350,000.
The Company has recorded liabilities of $375,000 and an
increase in stockholders' equity of $1,350,000 for the license
agreement.
The Company has determined the number of shares to be
distributed (135,000 shares) by using an estimated IPO price
of $10.00 per share.
In addition, the Company shall pay the licensor 9% of the
gross profit as defined in the License Agreement during the
first 5 years and 8% thereafter.
F-20
<PAGE>
4. EQUIPMENT AND FIXTURES:
Equipment and fixtures consists of the following:
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
Equipment and fixtures $ 41,886 $ 41,886
Less accumulated depreciation (21,549) (25,043)
------------- -------------
$ 20,337 $ 16,843
============= =============
5. INTANGIBLE COSTS:
Intangible costs consists of the following:
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
Patents $ 1,769,600 $ 1,769,600
License agreement 1,725,000
------------- -------------
1,769,600 3,494,600
Less accumulated amortization (686,521) (787,065)
------------- -------------
$ 1,083,079 $ 2,707,535
============= =============
F-21
<PAGE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable consists of the following:
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
Payable to related parties $ 244,000 $ 177,200
Payable to a former member of the
Board of Directors 100,365
Payable to others 331,377 209,350
------------- -------------
$ 675,742 $ 386,550
============= =============
Accrued liabilities consists of the following:
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
Accrued compensation:
Payable to the President
(See Note 16) $ 311,926 $ 437,836
Payable to members of the Board
of Directors 69,250 74,950
------------- -------------
381,176 512,786
------------- -------------
Payroll taxes, past due 126,118 163,873
------------- -------------
Accrued interest:
Payable to related parties 65,940 74,982
Payable to others 279,887 468,193
------------- -------------
345,827 543,175
------------- -------------
Other liabilities:
Payable to related parties 111,000 153,500
Payable to others 20,000
------------- -------------
111,000 173,500
------------- -------------
$ 964,121 $ 1,393,334
============= =============
F-22
<PAGE>
7. LONG-TERM DEBT:
Long-Term debt consists of the following:
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
A. 12% Unsecured Note Payable, due on
May 31, 2001 $ 359,016 $ 226,981
B. 7% Unsecured Convertible Notes Payable
to individuals, due 2002 131,250 131,250
C. 12% Unsecured Convertible Promissory
Notes to individuals, due July 2001 565,000 565,000
D. 8% Unsecured Convertible Promissory
Notes to individuals, due July 2001 484,400 424,400
E. 7% Unsecured Convertible Units payable
to individuals, due February 2001 2,009,538 2,009,538
F. Noninterest bearing Note payable to a
corporation, due June 2001 162,000 162,000
G. 12% Unsecured Units, due 2000 1,143,500 2,096,000
H. Loan and Security Agreement, due 2000 238,266 238,266
------------- -------------
5,092,970 5,853,435
Long-term debt, current maturities
(including debt to related parties at
December 31, 1999 and June 30, 2000
(unaudited) of $618,283 and $486,248,
respectively) 2,141,320 4,772,785
------------- -------------
Long-term debt (including debt to related
parties at December 31, 1999 and June
30, 2000 (unaudited) of $-0- and $-0-,
respectively), less current maturities $ 2,951,650 $ 1,080,650
============= =============
F-23
<PAGE>
Following are maturities of long-term debt for each of the years in which
the debt matures:
For The Year For The Year
Ended Ended
December 31, June 30,
-------------- --------------
(Unaudited)
2000 $ 2,141,320
2001 3,129,416 $ 4,772,785
2002 131,250 999,400
2003 81,250
On September 7, 2000, the Company effected a two for three reverse stock
split of common stock. All per share amounts relating to outstanding
notes, warrants and options herein have been restated to reflect the
split.
A. 12% Unsecured Note Payable:
In June 1996, the Company issued an unsecured promissory note in the
principal amount of $555,000 to a related party with minimum annual
principal and interest payments of $50,000. The note bears interest at
12% per annum and is due on May 31, 2001 or within 15 days of
completion of an initial public offering ("IPO") that provides for a
minimum net proceeds of $5,000,000 to the Company.
B. 7% Unsecured Convertible Notes Payable:
During 1999, the Company issued 5.25 Units at a purchase price of
$25,000 per Unit. Each Unit consists of a $25,000 unsecured convertible
promissory note ("Notes"), convertible under certain conditions into
shares of Common Stock of the Company and a Warrant. Principal and
interest at 7% per annum are due in 2002. The Notes are convertible
into shares of Common Stock, at the option of the holder anytime during
the six-month period following the effective date of a registration
statement. The number of shares is computed by dividing the outstanding
principal and interest by 50% of the IPO per share price.
The Warrants represent the right to purchase shares of the Company's
Common Stock. The number of shares the Warrant holder is entitled to
purchase is computed by dividing the aggregate purchase price per Unit
($25,000) by 50% of the IPO per share price; the exercise price of the
Warrant is 120% of the IPO per share price. The Warrants expire two
years following the IPO date. The Warrants are not exercisable unless
and until the Company completes an IPO. The Warrants have anti-dilution
provisions after the completion of an IPO and certain rights in the
event of reorganization of the Company. The estimated fair value of the
Warrants were $-0- at date of issuance.
F-24
<PAGE>
C. 12% Unsecured Convertible Promissory Notes:
During 1997 through 1998, the Company issued 12% unsecured convertible
promissory notes ("12% Notes") with a face amount of $458,000.
Principal and interest were due two years from date of issuance. The
12% Notes including unpaid interest were intended to be convertible,
during the three-month period following the effective date of a
registration statement, at a rate of one Unit for each $1.50 of debt.
Each Unit consisted of one share of the Company's Common Stock and a
Common Stock purchase option ("Option").
The Option represented the right to purchase one share of the Company's
Common Stock, for an 18-month period from the completion of an IPO, at
an exercise price of $4.50 per share. The number of shares is computed
by dividing the aggregate Unit price by amounts ranging from $1.50 to
$2.25. The estimated fair value of the Options were $-0- at date of
issuance.
In August 1999, all of the 12% Notes, some which were past due, were
restructured and Units were issued. The Units consist of a $10,000
convertible unsecured promissory note ("Replacement Notes") and
Warrant. The principal balance of the Replacement Notes were increased
to reflect the principal balance of the 12% Notes plus $107,000 of
adjusted accrued interest. In addition, 59,667 shares of Common Stock
valued at $.015 per share will be issued to the note holders in order
to induce them to extend the due date. Interest in the amount of $895
was recorded in connection with the intended issuance of the shares.
Principal and interest at 12% per annum on the Replacement Notes is due
in 2001. The Replacement Notes are convertible, during the three-month
period following the effective date of registration, into Common Stock
at prices ranging from $1.50 to $2.25 per share. The number of shares
is computed by dividing the outstanding principal and interest by
amounts ranging from $1.50 to $2.25. At December 31, 1999 and June 30,
2000 (unaudited), the shares of Common Stock had not been issued and
were recorded in Stockholders' Deficit as Common Stock to be
distributed.
The Warrants are issued with the same terms as the original Options.
The Warrants have antidilution provisions and certain rights in the
event of reorganization of the Company. The estimated fair value of the
Warrants were $-0- at the date of issuance.
D. 8% Unsecured Convertible Promissory Notes:
During 1997 through 1998, the Company issued 8% unsecured convertible
promissory notes ("8% Notes") with a face amount of $425,500. Principal
and interest are due two years from date of issuance. The 8% notes are
convertible, during the three-month period following the effective date
of a registration statement, into Units at a price of $3.00 per Unit.
Each Unit is to consist of one share of the Company's Common Stock and
a Common Stock purchase option ("Option"). The number of Units to be
issued is computed by dividing the outstanding principal and interest
by $3.00.
F-25
<PAGE>
The Option provides for the right to purchase one share of the
Company's Common Stock, for a six-month period from the completion of
an IPO, at an exercise price of $10.50 per share. The estimated fair
value of the Options were $-0- at date of issuance.
In August 1999, $320,000 of the $425,500 8% Notes, some of which were
past due, were restructured and Units were issued. The Company issued
31.6 Units each of which consist of a $10,000 unsecured 8% promissory
note ("Replacement Notes") and a Warrant. Principal and interest are
due in 2001. The Replacement Notes are convertible, during the
three-month period following the effective date of a registration
statement, into Common Stock at prices ranging from $3.00 to $5.25 per
share. The number of shares is computed by dividing the outstanding
principal and interest by $3.00 and $5.25. The principal balance of the
Replacement Notes was increased to reflect the principal balance of the
8% Notes plus $64,400 of adjusted accrued interest. In addition, 26,294
shares of Common Stock valued at $.015 per share will be issued to the
note holders in order to induce them to extend the due date. Interest
in the amount of $394 was recorded in connection with the intended
issuance of the shares. At December 31, 1999 and June 30, 2000
(unaudited), the shares of Common Stock had not been issued and were
recorded in Stockholders' deficit as Common Stock to be distributed.
The Warrants represent the right to purchase 128,133 shares of the
Company's Common Stock, for a six-month period from the completion of
an IPO, at an exercise price of $10.50 per share. The number of shares
is computed by dividing the aggregate Unit purchase price by $3.00. The
Warrants are not exercisable unless the Company completes an IPO. The
Warrants have antidilution provisions and certain rights in the event
of reorganization of the Company. The estimated fair value of the
Warrants were $-0- at the date of issuance.
Notes in the principal amount of $100,000 were not restructured and
have been recorded as a current liability at December 31, 1999,
including $30,000 which are in default. In addition, $5,500 of the 8%
Notes were settled and 1,781 shares were to be distributed in
accordance with the settlement agreement.
During the six months ended June 30, 2000 (unaudited), notes in the
original principal amount of $60,000 were settled for $33,000.
E. 7% Unsecured Convertible Units:
During 1996, the Company assumed certain debt of Safe Tech Medical
Products, Inc. as partial payment under certain licensing agreements.
The Company issued 168.23 Units at a price of $10,000 per Unit. Each
Unit consisted of a $10,000 unsecured promissory note ("7% Notes")
convertible under certain conditions into shares of Common Stock of the
Company and a Warrant. Principal and interest at 7% per annum were due
in 1998.
F-26
<PAGE>
The 7% Notes were convertible into shares of Common Stock, at the
option of the holder, at any time during the six-month period following
the effective date of a registration statement. The number of shares
were computed by dividing the outstanding principal and interest by 2/3
of the IPO per share price.
In February 1999, $1,543,779 of the $1,682,317 7% Notes, some of which
were past due, were restructured and new units were issued. The Company
issued 154.4 Units which consist of a $10,000 convertible unsecured
promissory note ("Replacement Notes") and a Warrant. Principal and
interest at 7% per annum is due in 2001. The Replacement Notes are
convertible, during the six-month period following the effective date
of a registration, into Common Stock. The number of shares is computed
by dividing the outstanding principal and interest by 2/3 of the IPO
per share price. The principal balance of the Replacement Notes was
increased to reflect the principal balance of the 7% Notes plus
$327,221 of adjusted accrued interest. In addition, 141,733 shares
($.015 per share) of the Company's Common Stock will be issued to the
note holders in order to induce them to extend the due date. Interest
expense in the amount of $2,126 was recorded in connection with the
intended issuance of the shares. At December 31, 1999 and June 30, 2000
(unaudited), the shares of Common Stock had not been issued and were
recorded in Stockholders' deficit as Common Stock to be distributed. In
addition, the note holders have agreed that in the event of an IPO and
a restrictive period is required for existing stockholders, no
objection will be made by the note holders.
The Warrants represent the right for each warrant holder to purchase
the Company's Common Stock. The number of shares underlying each
Warrant is computed by dividing the aggregate Unit purchase price of
the initial warrant holder by 2/3 of the IPO price; the exercise price
is 120% of the IPO per share price. The Warrants expire two years
following the IPO date. The Warrants have antidilution provisions after
the completion of an IPO and certain rights in the event of
reorganization of the Company. The estimated fair value of the Warrants
were $-0- at date of issuance.
Notes in the principal amount of $138,538 were not restructured and
have been recorded as a current liability at December 31, 1999 and June
30, 2000 (unaudited) including $63,538 which are in default.
F. Noninterest Bearing Note:
In June 1997, the Company issued a noninterest bearing promissory note,
collateralized by the inventory stored in Canada (see Note 3b), in the
amount of $162,000 due in 1999. In 1999, the Company restructured the
note and received an extended due date. Principal payment is due on
June 26, 2001. The note holder has the right to demand that the full
outstanding balance of the promissory note be paid within 30 days of an
IPO or upon the Company obtaining private financing of at least
$3,000,000.
F-27
<PAGE>
G. 12% Unsecured Units:
In 1999, the Company issued 22.87 Units at a purchase price of $50,000
per Unit. Each Unit consists of a $50,000 unsecured promissory note
("Notes") and the right to have shares of the Company's Common Stock
issued upon repayment of the Notes. Principal and interest at 12% per
annum is payable at the earlier of nine months from the date of
issuance or the completion of an IPO. In the case of default, the Notes
become immediately due and payable and bear interest from default date
at a rate of 15% per annum.
During the six months ended June 30, 2000, the Company issued another
19.05 Units at a purchase price of $50,000 per unit (unaudited).
Upon repayment of the Notes, the Company will issue shares of the
Company's Common Stock. The number of shares to be issued is computed
by dividing the principal amount of the Notes by 50% of the IPO per
share price. The estimated balance of these shares based on the
anticipated IPO price of $10 per share has been recorded as additional
interest expense and stockholders' equity in the period the units were
issued. The Company has recorded an increase in interest expense for
the year ended December 31, 1999 and the six months ended June 30, 2000
(unaudited) of $2,287,000 and $1,905,000, respectively. The issued
shares will be restricted securities. The stockholder will have one
demand registration right with respect to the shares and have unlimited
"piggyback" registration rights at the Company's expense.
Notes in the principal amount of $120,000 are in default as of June 30,
2000 and additional notes in the principal amount of $637,500 are in
default subsequent to June 30, 2000 (unaudited).
H. Loan and Security Agreement:
In July 1998, the Company entered into a Loan and Security Agreement
("Agreement") with a trust controlled by an individual who subsequently
became a member of the Board of Directors of the Company. The Agreement
consisted of a promissory note ("Note"), issuance of the Company's
Common Stock and an Option to purchase certain shares that the Chief
Executive Officer owned. The promissory note in the amount of $200,000
bears interest at 12% per annum and was due nine months after issuance.
The Note was collateralized by all syringe technology, including all
patents and patent applications.
The Company issued 593,333 shares of its Common Stock valued at $.015
per share in accordance with the Agreement. The Company recorded
approximately $9,000 of expense for this issuance. The shares carry
piggyback registration rights, subject to an underwriters' approval.
F-28
<PAGE>
The Chief Executive Officer granted an option to the note holder to
acquire 1,625,000 shares of the Company's Common Stock that he
personally owns. The exercise price was $2.00 per share and the Option
was to expire 18 months from the date of the agreement. The fair value
of the Option was $0 at the date of issuance.
In March 1999, the Company entered into a Memorandum Agreement to renew
and extend the due date of the Note. To induce the note holder to enter
into this agreement, an Option was granted by the Chief Executive
Officer for 1,000,000 shares of the Company's Common Stock that he
personally owns. The Option was for thirty-six months at an exercise
price of $1.00. The Option contains certain anti-dilutive provisions.
The fair value of the Option was $-0- at the date of issuance. Upon
issuance of this Option, the first Option was cancelled. The Memorandum
Agreement also included an exclusive license agreement relating to the
syringe technology for certain geographic territories.
In October 1999, a second extension and Modification Agreement was
entered into. The Modification Agreement cancelled the Option
previously issued by the Chief Executive Officer and terminated the
Memorandum Agreement. The due date of the Note was extended to April 1,
2000. The noteholder has waived any and all defaults under this
agreement. The waiver will expire on January 31, 2001.
As part of such agreement, the Note has been modified to include
accrued interest of $18,266 and $20,000 in the principal balance to
induce the note holder to extend the due date. The additional principal
of $20,000 has been recorded as interest. If an IPO is completed by
April 1, 2000, the Company has the option to extend the due date for
four consecutive one-year periods, provided all accrued interest has
been paid. If the Company does not repay the Note by the due date, a
new license agreement will become effective (see below). As of April 1,
2000, and June 30, 2000 (unaudited) this note was not repaid.
As consideration for termination of the Option, the Company issued
133,333 shares of its Common Stock valued at $2.25 per share to the
note holder. The Company recorded $300,000 of expense for this
issuance. These shares carry piggyback registration rights, subject to
an underwriter's approval.
The Company agreed to pay the note holder a 2% royalty fee on the gross
sales of all hypodermic syringes. In addition, if the Company grants
other third-party licenses, the Company will pay 10% of any up-front
consideration received for such licenses and a 5% royalty on all income
received from the third party. The Company agrees not to grant any
licenses that would infringe upon the License Agreement signed by the
note holder. If the Company is substantially sold, the Company will pay
the note holder 6% of the gross proceeds. The Company valued the
royalty fee and proceeds from sale of the Company at $0.
F-29
<PAGE>
The License Agreement grants the licensee an exclusive license to
manufacture, produce, market and sell retractable syringes worldwide
except in the United States. The Company will provide all technical data,
information and other materials necessary. The licensee will pay a 10%
royalty to the Company. The agreement is for 10 years from the effective
date of the agreement plus an option by the licensee for one-year renewal
periods continuously for a fee of $25,000 per year. The Company has a
right to purchase 10% of the products produced by the licensee at cost
plus 7%. The Company valued the License Agreement at $0.
8. STOCKHOLDERS' EQUITY:
Common Stock:
The Company is authorized to issue 25,000,000 common shares with a par
value of $0.01.
Stock Split:
On September 7, 2000, the Company effected a two for three reverse stock
split of common stock. All share, per share and common stock amounts
herein have been restated to reflect the split.
1996 Transactions:
On May 20, 1996, the Company issued 4,333,333 shares of Common Stock
valued at $.015 per share to its President as a founder of the Company.
On May 20, 1996, the Company issued shares of its Common Stock valued at
$.015 per share to a member of the Board of Directors (66,666 shares) and
an officer (50,000 shares) as noncash compensation valued at $.015 per
share. The Company issued 756,667 shares of its Common Stock valued at
$.015 per share paid by a reduction in a note payable to a related party
and another 166,667 shares valued at $.015 per share under a license fee
agreement. The Company issued 70,600 shares for future legal services
valued at $1.875 per share. During 1996, 158,333 shares were sold to
individuals for $1.50-$3.00 per share.
1997 Transactions:
During 1997, 98,222 shares were sold to individuals for $1.35-$3.00 per
share. On April 9, 1997, 286,666 shares of Common Stock valued at $.015
per share were issued to purchase certain patents and 66,667 shares of
Common Stock valued at $3.00 per share were issued to enter into a
distribution agreement. In 1997, 120,600 shares (50,000 valued at $.015
per share and 70,600 valued at $1.875 per share) that were issued in 1996
were cancelled.
F-30
<PAGE>
1998 Transactions:
On July 1, 1998, the Company issued 40,000 shares of its Common Stock
valued at $.015 per share to an individual as settlement of an
obligation. During 1998, the Company issued 593,333 shares of its Common
Stock valued at $.015 per share to a note holder. (See Note 7H.) In
addition, 66,667 shares of Common Stock valued at $.015 per share were
issued in connection with the purchase of patents.
1999 Transactions:
On May 28, 1999, 166,667 shares of Common Stock valued at $.015 per share
were issued to an individual as consideration for joining the Board of
Directors. On September 1, 1999, 133,333 shares of Common Stock were
issued as consideration to a Note holder (See Note 7H). The note holder
also became a member of the Board of Directors. The Company has valued
such shares at $2.25 per share.
2000 Transactions:
In April 2000, the Company distributed 669,667 shares of Common Stock
valued at $.015 per share that were previously classified as to be
distributed (unaudited).
Treasury Stock:
In 1998, the Company purchased 286,667 shares of its Common Stock at an
aggregate cost of $300 in connection with termination of an agreement.
Common Stock To Be Distributed:
Common stock to be distributed (1,694,509 shares at December 31, 1999 and
1,583,675 shares at June 30, 2000, (unaudited) respectively) consists of
the following:
F-31
<PAGE>
December 31, June 30, 2000
1999 (Unaudited)
------------- -------------
Extension and other settlement agreements
(229,475 and 262,808 shares)
(See Notes 7 and 14) $ 2,295 $ 2,628
Consulting and legal agreement
(683,333 shares and 450,000 shares)
(See below and Note 14) 6,833 4,500
Current and former members of the
Board of Directors (409,667 shares and
316,667 shares) 4,097 3,166
Employment agreements (143,333 shares and
0 shares) 1,433
Unsecured noteholders (228,700 and 419,200
shares) (See Note 7) 2,287 4,192
License agreement (0 shares and 135,000
shares) (See Note 3d) 1,350
------------- -------------
$ 16,945 $ 15,836
============= =============
Consulting Agreements:
On April 14, 1997, the Company entered into an agreement with a
consultant to advise the Company in financial matters. The agreement is
for 2 years, started on March 1, 1996 and provided for fees of $5,000 per
month. The Company also agreed to issue 166,667 shares as a one-time
bonus. The Company recorded an expense of $2,500 for the issuance of the
shares. The agreement expired March 1, 1998 and was settled for $40,545.
At December 31, 1999 and June 30, 2000, the shares had not been
distributed.
On January 7, 1999, the Company entered into an agreement with a
consultant to advise the Company. The agreement is for one year for an
amount of $45,000. As an incentive to enter into the agreement, the
Company agreed to issue 133,333 shares of the Company's Common Stock at
$.015 per share. The Company recorded an expense of $2,000 for the
issuance of the shares. At December 31, 1999, the shares had not been
distributed. The shares were distributed in April 2000 (unaudited).
Board of Directors:
During 1996 and 1999, the Company entered into agreements to issue shares
to certain members of the Board of Directors.
F-32
<PAGE>
In May 1996, the Company entered into a consulting agreement with a
consulting firm owned by a then member of the Board of Directors. At
December 31, 1999, $100,365 was due under the agreement and was included
in accounts payable. On February 21, 2000, the Company entered into a
settlement agreement with the consulting firm. As part of the settlement
agreement, the Company agreed to issue 26,333 shares effective June 1999.
The Company recorded compensation expense in the amount of $395 for the
agreement to issue shares of Common Stock in 1999. At December 31, 1999,
the shares had not been distributed. The shares were distributed in April
2000 (unaudited).
On February 16, 1997, the Company awarded 16,667 shares of Common Stock
($3.00 per share) to a member of the Board of Directors. The Company
recorded compensation expense of $50,000 for the issuance of the Common
Stock. At December 31, 1999 and June 30, 2000 (unaudited), the shares had
not been distributed.
On January 4, 1999 and April 1, 1999, the Company appointed two people to
the Board of Directors. Although the Directors did not receive
compensation, the Company has agreed to issue 100,000 shares of Common
Stock to each Director. The Company has recorded compensation expense in
the amount of $3,000 in connection with the Agreement to issue 200,000
shares based on an estimated fair value of the stock at $.015 per share
of Common Stock. At December 31, 1999, the shares had not been
distributed. During the six months period ended June 30, 2000
(unaudited), 100,000 shares had been distributed.
On July 7, 1999, the Company entered into an employment agreement with
its Chairman of the Board which terminates on June 30, 2002. The Chairman
will receive $8,500 per month and 333,334 shares of the Company's Common
Stock. The Company recorded compensation expense in the amount of $5,000
in connection with the agreement to issue shares of Common Stock based on
an estimated fair value of the stock at $.015 per share. The Company had
not distributed 166,667 shares of Common Stock at December 31, 1999. The
shares were distributed in April 2000 (unaudited). Included in accrued
liabilities at December 31, 1999 is $51,000 and at June 30, 2000
(unaudited) is $93,500 due to the Chairman.
In January 2000, the Company appointed two people to the Board of
Directors. Although the Directors did not receive compensation, the
Company has agreed to issue 100,000 shares of Common Stock to each
Director. The Company has recorded compensation expense in the amount of
$1,600,000 in connection with the Agreement to issue 200,000 shares based
on an estimated fair value of the stock at $8.00 per share of Common
Stock. At June 30, 2000, the shares had not been distributed (unaudited).
F-33
<PAGE>
Other Employment Agreements:
During 1999, the Company entered into two employment agreements (one of
which relates to an officer/member of the Board of Directors) which
contained bonus provisions for accepting the positions. The bonuses were
in the form of an agreement to issue a total of 143,333 shares of Common
Stock at $.015 per share. These shares had not been distributed by
December 31, 1999. The shares were distributed in April 2000 (unaudited).
9. STOCK OPTIONS AND WARRANTS:
On September 7, 2000, the Company effected a two for three reverse stock
split of common stock. All share, per share and common stock amounts
relating to outstanding options and warrants at December 31, 1999 herein
have been restated to reflect the split.
The Company does not have a Stock Option Plan. The Company has sold
shares of Common Stock which included a Common Stock Purchase Option for
the same number of shares at an exercise price of $6.75 and $10.50 per
share, exercisable for a one-year period after the completion of an IPO.
At December 31, 1999, the Company had 185,000 options outstanding. The
fair value of the Options were $-0- at date of issuance.
In 1997, the Company issued an Option to purchase 100,000 shares of the
Company's Common Stock at an exercise price of $3.00 per share for a
three-year period. The Company recorded the fair value of the Option at
$36,000. The Option was cancelled in February 2000.
In 1997, the Company entered into a Stock Purchase Agreement and Warrant
Agreement. The Company issued a Warrant to purchase 200,000 shares of the
Company's Common Stock at an exercise price of $1.00 for a period of two
years. The Warrants were valued at $10,000. The Warrant expired in 1999.
F-34
<PAGE>
The Company has issued several Option and Warrant Agreements (see Notes 7
and 14) in conjunction with the issuance of debt and an investment
banking services agreement. To the extent that these options and warrants
only become exercisable and the number of shares under option and the
exercise price thereof became determinable upon the Company completing an
IPO, the Company has valued these options and warrants by using an
estimated IPO price of $10.00 per share and has included the share
information in the tabulation below summarizing information on Options
and Warrants outstanding and exercisable.
Weighted Average
Weighted Average Exercise
Number of Shares Price Per Share
---------------- ------------------
Outstanding at December 31, 1997 1,121,721 $5.98
Granted 1,652,555 $2.04
------------
Outstanding at December 31, 1998 2,774,276 $3.64
Granted 1,736,996 $4.05
Cancelled/expired (3,435,173) $3.08
------------
Outstanding at December 31, 1999 1,076,099 $6.08
Cancelled (120,000) $4.25
------------
Outstanding at June 30, 2000
(unaudited) 956,099 $6.31
============
The following tables summarize information about Stock Options
outstanding:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Number Exercisable Number
Exercise Price Life Price Outstanding Price Exercisable
-------------- ---------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$3.00 3 months $3.00 100,000 $0 0
$6.75 1 year $6.75 116,667 $0 0
$5.00 3 years $5.00 33,333 $0 0
$10.50 1 year $10.50 101,666 $0 0
----------
351,666
==========
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, 2000 (UNAUDITED)
Options Outstanding Options Exercisable
------------------------------- -----------------------------
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Number Exercisable Number
Exercise Price Life Price Outstanding Price Exercisable
-------------- ---------------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$6.75 1 year $6.75 116,667 $0 0
$5.00 3 years $5.00 33,333 $0 0
$10.50 1 year $10.50 81,666 $0 0
----------
231,666
==========
</TABLE>
The following table summarizes information about Stock Warrants
outstanding at December 31, 1999 and June 30, 2000 (unaudited):
(See Note 7)
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
-------------------------- ------------------------------
Weighted Weighted
Average Average Average
Range of Remaining Exercise Number Exercisable Number
Exercise Price Contractual Life Price Outstanding Price Exercisable
-------------- ------------------- ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$4.50 18 Months from IPO $4.50 317,778 $0 0
$10.50 6 Months from IPO $10.50 128,133 $0 0
$12.00 2 Years from IPO $12.00 278,522 $0 0
-----------
724,433
===========
</TABLE>
The fair market value of each option and warrant grant has been estimated
on the date of grant using the Black-Scholes Option Pricing Model with
the following weighted average assumptions: for 1999 and 1998 dividend
yields 0.0%, risk-free interest 5% and 6.5% and expected lives between 2
and 3 years. Volatility of the Company's common stock underlying the
options and warrants was not considered because the Company's equity was
not publicly traded.
10. RESERVE FOR SHARES TO BE ISSUED:
The following table summarizes information about the maximum potential
shares of common stock to be issued upon conversion of debt using an
estimated IPO price of $10.00 per share:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
---------------- -----------------
(Unaudited)
<S> <C> <C>
Reserve for shares to be issued:
7% unsecured convertible notes payable 27,156 shares 28,074 shares
7% unsecured convertible units 323,403 334,004
8% unsecured convertible promissory notes 148,950 154,277
12% unsecured convertible promissory notes 336,180 355,249
---------------- -----------------
835,689 shares 871,604 shares
================ =================
</TABLE>
F-36
<PAGE>
11. OTHER INCOME:
In February 2000, the Company settled notes payable with a principal
amount and accrued interest of $72,019 for $33,000.
FASB 125 requires that extinguishment of debt be recorded as an
extraordinary item. Due to the immaterial amount of the transactions, the
Company has classified these transactions as other income and not an
extraordinary item.
12. LITIGATION SETTLEMENT:
During 1997, the Company entered into an employment agreement with an
individual to market the Company's products. In 1998, the agreement was
terminated by the Company due to nonperformance by the individual. The
former employee commenced litigation against the Company for
approximately $1,000,000. In 1999, the litigation was settled for
$331,500 which was paid during the year ended December 31, 1999. Of such
amount $82,000 had been accrued in 1998. In addition, the Company had
other litigation settlements for $25,244. The litigation settlements are
presented separately in the Statements of Operations.
13. RELATED PARTY TRANSACTIONS:
The Company's former President and Chief Executive Officer is related to
a company that provided financing and services to the inventor and his
company (See Note 7A). The original note in 1996 was for $555,000 and
bears interest at a rate of 12% per year. Payments of principal and
interest made by the Company to the related party are as follows:
1998-$1,000, 1999-$114,823 and 2000-$51,145 (unaudited). Interest accrued
on the outstanding principal is as follows: 1998-$45,714, 1999-$44,398
and 2000-$2,340 (unaudited).
A relative of an officer of the Company performed consulting services
during the year ended December 31, 1999 for $2,000. As of January 1,
2000, this person became an employee.
In addition to the above, reference is made to other related party
transactions referred to in Notes 8 and 14.
F-37
<PAGE>
14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
Employment Contracts:
The Company had entered into an employment contract with the President
and Chief Executive Officer which was to expire on December 31, 2001. As
of December 31, 1999, the Company's aggregate commitment for future base
salary under this employment contract was:
2000 $252,000
2001 289,000
The contract was mutually terminated in August 2000 and the commitment
was eliminated (unaudited).
Investment Banking Services Agreement:
On October 7, 1999, an agreement was signed with an investment banker to
act as the nonexclusive investment bank to render advice on general
financial and business matters. The term of the agreement is for one year
with a one-year extension unless cancelled by either party.
As consideration to enter into this agreement, the Investment Banker will
be given 33,333 options or warrants to purchase shares of Common Stock at
an exercise price equal to 50% of the opening stock price after the IPO
and which will expire within three years of the date of issuance. The
Options will have public registration rights.
In addition, the investment banker, has agreed to underwrite a $2,000,000
bridge loan. The bridge loan will bear interest at 12% per annum with
principal to be repaid from the proceeds of the IPO. In February and
April 2000, $36,000 was paid to the investment banker (unaudited).
F-38
<PAGE>
Corporate Retainer Agreement:
In February 1998, Sassone Zemanek & Girasa, attorneys at law ("SZG"), and
the Company entered into an agreement for SZG to serve as the lead
corporate counsel. The Agreement was cancelled in June 1999. Prior to
June 1999, SZG received a monthly retainer payment of $10,000 which will
be accrued until the Company is in the position to make payments. In
addition, 283,333 shares (at an estimated fair value of $.015 per share)
of Common Stock will be distributed by the Company. The Company recorded
an expense of $4,250 relating to the issuance of the shares. At December
31, 1999 and June 30, 2000 (unaudited), the shares are included in Common
Stock to be Distributed in the accompanying statement of Stockholders'
Deficit. On January 4, 1999, a principal of SZG was elected to the Board
of Directors. Furthermore, on July 7, 2000 he was appointed President of
the Company. At December 31, 1999, the Company has accrued $237,000 and
expensed $130,000 and $134,250 for the years ended December 31, 1998 and
1999, respectively, under the agreement. At June 30, 2000, the Company
has accrued $176,000 (unaudited).
Marketing and Manufacturing Commitments:
On September 15, 1999, Marketing Sciences, Inc. d/b/a Papciak Associates
Atlanta ("PAA") and Pennington Enterprises, Inc. d/b/a TA Management
("TAM") entered into an agreement with the Company to provide consulting
services in the marketing and manufacturing field, which expires on
September 14, 2000 unless otherwise given written notification. PAA and
TAM are each paid $10,000 per month. They are also each entitled to
deferred compensation of $20,000 and a one-time payment of $10,000
payable no later than September 15, 2000. PAA and TAM will also each be
issued 50,000 shares ($2.25 per share) of Common Stock as a signing
bonus. The Company recorded an expense of $225,000 relating to the
issuance of the shares. The value of the shares was estimated based upon
a discount from the then anticipated IPO price. At December 31, 1999,
these shares are included in Common Stock to be Distributed in the
accompanying statement of Stockholders' Deficit. The shares were
distributed in April 2000 (unaudited).
Agreement With Venture Capitalist:
Effective November 1, 1999, Mackenzie Partnership Limited ("MK") and the
Company, signed a contract to raise venture capital; the agreement
expires October 2000. MK will receive an annual retainer of $30,000 plus
2% of the consideration raised up to $8 million and 1% on the balance
raised, plus out of pocket expenses. In addition, MK will receive fees
based on the purchase price for negotiating future acquisitions.
F-39
<PAGE>
Litigation:
At December 31, 1999, the Company was a defendant in several lawsuits
relating to amounts due to certain vendors. The Company has recorded
liabilities for $343,541 at December 31, 1999 which are included in
accounts payable. During 2000, these liabilities were settled for $93,853
and 33,333 shares of Common Stock, valued at $1.95 per share to be
distributed in accordance with a settlement agreement.
The Trustee of a U.S. Bankruptcy Court is claiming significant damages in
a threatened action against an unrelated company, several other
defendants, and the former President and Chief Executive Officer of
Retrac Medical, Inc. The Company is also named as a defendant in such
action. A specified amount against the Company has not been asserted.
Outside counsel for the Company has advised that at this stage in the
proceedings it cannot offer an opinion as to the probable outcome. The
Company believes this matter is without any merit since the claimed
actions attributable to the Company are insignificant.
From time to time, the Company may be involved as a defendant in legal
actions that arise in the normal course of business. In the opinion of
the Company's management, the Company has adequate legal defense and/or
insurance coverage on all legal actions, and the results of any such
proceedings will not materially effect the financial statements of the
Company.
15. PROPOSED PUBLIC OFFERING:
On August 8, 2000, the Company signed a letter of intent with an
investment banker for a proposed public offering of the Company's
securities. The letter of intent specifies that the investment banker
will underwrite, on a firm commitment basis, shares of common stock
anticipated to be offered for gross proceeds of $20,000,000. In addition,
the agreement provides for the granting to the underwriter of an
Over-allotment Option to sell additional shares in an amount up to 15
percent of the firm shares sold in the offering. The investment banker
will receive warrants to purchase up to 10 percent of the Company's
Common Stock sold in the offering.
16. SUBSEQUENT EVENTS:
On August 17, 2000, the Company and the President signed a Redemption
Agreement. The Company will purchase 4 million shares, after giving
effect to a 2 for 3 reverse stock split, for the sum of $3,500,000. The
Company shall pay $1,500,000 upon the completion of the IPO and then six
payments of $333,333 payable quarterly 90 days after the completion of
the IPO. In addition, the Company signed a consulting agreement for a
period of twelve months payable $12,000 per month starting in August 2000
and as part of the agreement issued an option to purchase 300,000 common
shares over a three year period commencing one year after the close of
the offering at an exercise price of 120% of the IPO price. The President
waives all rights and claims to his accrued compensation. In the event
that the Company does not complete its IPO by March 1, 2001, the former
President has the right to unwind the agreement but he can keep all
monies paid to him until then.
F-40
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------- ---------------------------------------------
<S> <C>
You should rely only on the information
contained in this prospectus. We have not
authorized anyone to provide you with information
different from that contained in this prospectus.
This prospectus is not an offer to sell or a RETRAC MEDICAL, INC.
solicitation of an offer to buy our common stock
in any jurisdiction where it is unlawful. The
information contained in this prospectus is
accurate only as of the date of this prospectus
regardless of the time of delivery of this
prospectus or of any sale of common stock. 2,000,000 SHARES
COMMON STOCK
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................1
Risk Factors...................................3 ______________________
Use of Proceeds................................7
Dividend Policy................................7 PROSPECTUS
Dilution.......................................8 ______________________
Capitalization.................................9
Management's Discussion and Analysis or
Plan of Operation...........................10
Business......................................11
Management....................................18
Principal Stockholders and
Beneficial Ownership of Management..........22
Description of Securities.....................23 CENTEX SECURITIES
Anti-Takeover Provisions......................23 INCORPORATED
Underwriting..................................25
Legal Matters.................................26
Experts.......................................26
Available Information.........................26
Index to Financial Statements.................27
Until _________, 2000, 25 days after
commencement of the offering, all dealers that
buy, sell or trade shares, whether or not
participating in this offering, may be required to SEPTEMBER ___, 2000
deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with
respect to their unsold allotments or
subscriptions.
---------------------------------------------------- ---------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware Statutes
-----------------
Section 145 of the Delaware General Corporation Law, as amended,
provides for the indemnification of our officers, directors, employees and
agents under certain circumstances as follows:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
-28-
<PAGE>
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (Last amended by Ch.261,L.'94,eff.7-1-94.)"
Certificate of Incorporation
----------------------------
Our certificate of incorporation includes a provision that eliminates
the personal liability of our directors for monetary damages for breach or
alleged breach of their fiduciary duty as directors, subject to certain
exceptions. Our bylaws also contain a provision for the indemnification of our
directors.
-29-
<PAGE>
Bylaws
------
Our bylaws provide for our indemnification of our directors, officers,
employees, or agents under certain circumstances as follows:
"7.1 AUTHORIZATION FOR INDEMNIFICATION. The Corporation may indemnify,
in the manner and to the full extent permitted by law, any person (or the
estate, heirs, executors, or administrators of any person) who was or is a party
to, or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
7.2 ADVANCE OF EXPENSES. Costs and expenses (including attorneys' fees)
incurred by or on behalf of a director or officer in defending or investigating
any action, suit, proceeding or investigation may be paid by the Corporation in
advance of the final disposition of such matter, if such director or officer
shall undertake in writing to repay any such advances in the event that it is
ultimately determined that he is not entitled to indemnification. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent legal
counsel in a written opinion, or by the stockholders, that, based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the Corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
7.3 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or applicable law.
7.4 NON-EXCLUSIVITY. The right of indemnity and advancement of expenses
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. Any agreement for
indemnification of or advancement of expenses to any director, officer, employee
or other person may provide rights of indemnification or advancement of expenses
which are broader or otherwise different from those set forth herein."
Indemnity Agreements
--------------------
Our bylaws provide that we may indemnify directors, officers, employees
or agents to the fullest extent permitted by law and we have agreed to provide
such indemnification to our directors pursuant to written indemnity agreements.
-30-
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses to be incurred by us
in connection with the issuance and distribution of the shares being registered.
All such expenses are estimated except for the SEC registration fee.
SEC and NASD registration fees.................... $ 15,000
AMEX Listing Fee.................................. 25,000
Underwriter allowance............................. 600,000
Printing expenses................................. 50,000
Fees and expenses of counsel for the Company...... 125,000
Fees and expenses of accountants for Company...... 75,000
Miscellaneous..................................... 50,000
--------
*Total................................... $ 940,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
A. In 1997 and 1998, we issued to eight individuals 12% convertible
promissory notes in the principal amount of $458,000. The notes were convertible
into units consisting of common stock and common stock purchase options. There
were no underwriters or finders involved in the issuances. The issuances were
exempt under Rule 504 of the Securities Act of 1933 ("Act"). In August 1999, we
refinanced the notes and in connection therewith we issued a total of 59,667
common shares for no additional consideration.
B. In 1997 and 1998, we issued to 33 individuals 8% convertible
promissory notes in the principal amount of $425,500. The notes were convertible
into units consisting of common stock and common stock purchase options. There
were no underwriters or finders involved in the issuances. The issuances were
exempt under Rule 504 under the Act. In August 1999, we refinanced certain of
the notes and in connection therewith we issued a total of 26,294 common shares
for no additional consideration.
C. In February 1998, we issued 283,333 common shares in consideration
of legal services rendered by Seskin & Sassone, formerly Sassone Zemanek &
Girasa, a law firm in which our Chief Executive Officer, Thomas Sassone, is a
partner. The issuance was exempt under the Section 4(2) of the Act.
D. In July 1998, we issued 40,000 common shares to one individual in
cancellation of indebtedness. The issuance was exempt under the Section 4(2) of
the Act.
E. In July 1998, we issued 593,333 common shares to The Perry Rowan
Smith Revocable Trust, at the time one of our significant shareholders, in
consideration of an agreement to loan funds to us. The issuance was exempt under
the Section 4(2) of the Act.
F. In July 1998, we issued 66,667 common shares to one individual in
consideration of our acquisition of certain patent rights. The issuance was
exempt under the Section 4(2) of the Act.
G. In September 1999, we issued 133,333 common shares to The Perry
Rowan Smith Revocable Trust in connection with an extension and modification of
an agreement previously entered into between us and the Smith Trust. The
issuance was exempt under Section 4(2) of the Act.
H. In January 1999, we issued 100,000 common shares to Thomas Sassone,
our President and Chief Executive Officer, as a compensatory stock grant. The
issuance was exempt under Section 4(2) of the Act.
I. In January 1999, we issued 133,333 common shares to Peter Green, a
consultant to us, as a compensatory stock grant. The issuance was exempt under
Section 4(2) of the Act.
-31-
<PAGE>
J. In February 1999, we refinanced certain promissory notes previously
issued by us in 1996. In connection with that refinancing, we issued 141,733
issued common shares for no additional consideration. The issuances were exempt
under Section 4(2) of the Act.
K. In March 1999, we issued 66,667 common shares to Robert Bambery, our
Vice President of Administrative Services, as a compensatory stock grant. The
issuance was exempt under Section 4(2) of the Act.
L. In April 1999, we issued 176,667 common shares to Jack Gutierrez,
our Chief Financial Officer and director, as a compensatory stock grant. The
issuance was exempt under Section 4(2) of the Act.
M. In July 1999, we issued 333,333 common shares to a trust controlled
by our chairman of the board, Graham Gill, as a compensatory stock grant. The
issuance was exempt under Section 4(2) of the Act.
N. In September 1999, we issued to two officers, Thomas Alexandris and
William Papciak, 50,000 common shares each as a compensatory stock grant. The
issuances were exempt under Section 4(2) of the Act.
O. In March through October of 1999, we issued to seven individuals
5.25 units, each unit consisting of a 7% convertible promissory notes in the
principal amount of $25,000 and a common stock purchase warrant, at a price of
$25,000 per unit. There were no underwriters or finders involved in the
issuances. The issuances were exempt under Section 4(2) of the Act.
P. From September 1999 through June 2000, we issued 12% promissory
notes to 63 individuals in exchange for $2,096,000 in cash. The notes entitle
their holders to receive, for no additional consideration, 419,200 common shares
upon the close of our initial public offering. Travis Morgan Securities Inc.
acted as the placement agent in connection with the sale of some of the notes.
The issuances were exempt under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder.
Q. In January, 2000, we issued to Mark Murphy and Joseph Montuoro, both
of whom are our directors, 100,000 common shares each as compensatory stock
grants. The issuances were exempt under Section 4(2) of the Act.
R. In January 2000, we issued 33,333 common shares to one individual in
settlement of an outstanding claim. The issuance was exempt under Section 4(2)
of the Act.
S. In February 2000, we issued 28,115 common shares to three
individuals, including 26,333 shares to a former officer, Michael Garvin, in
settlement of outstanding claims. The issuances were exempt under Section 4(2)
of the Act.
T. In June 2000, we agreed to issue 135,000 common shares upon the
close of our initial public offering to a company and one of its affiliates in
consideration of certain license rights. The issuance was exempt under Section
4(2) of the Act.
U. In July 2000, we agreed to issue to Michael Garvin, the chairman of
our medical advisory board, 34,500 common shares as a compensatory stock grant,
17,250 of which are to be issued upon the close of our initial public offering.
The remaining 17,250 common shares are unvested and will vest over a three year
period. The issuance was exempt under Section 4(2) of the Act.
With respect to each of the foregoing offerings, prior to investing,
each subscriber was provided with or had access to information regarding our
company substantially similar to that included in a registration statement on
Form SB-2. In each case, we had reasonable grounds to believe, prior to
accepting the subscription of each subscriber, based in part on the subscription
agreements or investment letters executed by the subscribers, that each of the
subscribers (i) was sophisticated enough to evaluate the merits of an investment
in the securities and did not need the benefits of registration under the Act,
(ii) had a prior substantive relationship with at least one of our officers or
directors , (iii) was purchasing with investment intent and not with a view to
distribution, and (iv) had not been solicited through any form of general
solicitation. In addition, each subscriber referred to in paragraphs C, E-J,
L-O, and S-T above was reasonably believed by us to be an accredited investor
within the meaning of Rule 501(a) of the Act.
-32-
<PAGE>
ITEM 27. EXHIBITS
Exhibit
No. Description
------- -----------
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of Retrac Medical, Inc., as amended
to date
3.2 Amended and Restated Bylaws of Retrac Medical, Inc.
4.1 Specimen Certificate of Retrac Medical Inc.'s common stock
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP
10.1 [Form of] Indemnity Agreement
10.2 Loan and Security Agreement dated June 15, 2000 between Michael
Haining and Retrac Medical, Inc.
10.3 Loan and Security Agreement dated July 1, 1998, as amended,
between Re-Track USA, Inc. and P. Rowan Smith Revocable Trust
10.4 Patent License and Trademark Agreement dated June 2000 between
SafeTech Medical Products and Retrac Medical, Inc.
10.5 Settlement and Release Agreement dated April 17, 1996 between
Re-Track USA, Inc. and Faithful Investments & Holdings, Ltd.
10.6 License Agreement dated October 7, 1999 between Re-Track USA,
Inc. and P. Rowan Smith
10.7 Redemption Agreement dated August 17, 2000 between Retrac
Medical, Inc. and Martin Kelly
21.1 Subsidiaries of Retrac Medical, Inc.
23.1 Consent of Independent Public Accountants, M.R. Weiser & Co. LLP
23.2 Consent of Oppenheimer Wolff & Donnelly LLP, reference is made to
Exhibit 5.1
27.1 Financial Data Schedule.
---- ------------------------
* To be filed by amendment
-33-
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) We hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the provisions described herein, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
one of our directors, officers or controlling persons in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) We hereby undertake to provide to the underwriter at the closing specified
in the underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to each
purchaser.
(d) For determining any liability under the Securities Act of 1933, we shall
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective. For determining any liability under the
Securities Act of 1933, we shall treat each post-effective amendment that
contains a form of prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.
-34-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in New City, New York on September 21, 2000.
RETRAC MEDICAL, INC.
By: /S/ Thomas Sassone
-------------------------------------
Thomas Sassone, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ Graham Gill Chairman of the Board September 21, 2000
----------------------------------
Graham Gill
/S/ Thomas Sassone President and Chief Executive September 21, 2000
---------------------------------- Officer and Director
Thomas Sassone
/S/ Jack Gutierrez Chief Financial Officer and Director September 21, 2000
----------------------------------
Jack Gutierrez
/S/ Perry Rowan Smith Director September 21, 2000
----------------------------------
Perry Rowan Smith
/S/ Joseph Montuoro Director September 21, 2000
----------------------------------
Joseph Montuoro
/S/ Mark Murphy Director September 21, 2000
----------------------------------
Mark Murphy
</TABLE>
-35-
