<PAGE>
As filed with the Securities and Exchange Commission on January 10, 2001
Registration No. 333-46316
--------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
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 of (Primary Standard Industrial (I.R.S. Employer
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
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RETRAC MEDICAL, INC.
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 (1) 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.
-----------------------
<PAGE>
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.
Subject to completion, dated January 10, 2001
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
common shares from us to cover over-allotments. Centex Securities expects to
deliver the shares to the purchasers on or about _____________, 2001.
CENTEX SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS IS ________, 2001
<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 721,619 COMMON SHARES
THAT WE HAVE PREVIOUSLY AGREED TO ISSUE TO CERTAIN THIRD PARTIES ONLY IF WE
COMPLETE OUR INITIAL PUBLIC OFFERING.
OUR COMPANY
We are an emerging medical technologies company that is developing a
line of proprietary medical devices for use by healthcare professionals, medical
institutions and other individual users. Our products are designed to reduce the
risk of injury to healthcare professionals from accidental needlestick injuries.
Our products are further designed to comply with new laws which require health
care facilities to phase out the use of syringes and other medical devices which
have no safety mechanisms in place. As of the date of this prospectus, we have
not generated any revenue, and we do not anticipate manufacturing or marketing
our product until the fourth quarter of 2001.
Healthcare workers who use syringes are at risk of suffering a
needlestick injury. The Theta Corporation reports that one million needlestick
injuries occur each year. When these injuries occur, a healthcare worker can be
exposed to more than 20 different types of blood borne diseases, including HIV
and hepatitis. In addition, a person who suffers a needlestick injury often
suffers months of anxiety and stress while waiting for test results to determine
if a serious disease was transmitted to the person due to the needlestick
injury. Healthcare workers and major insurance carriers are seeking new medical
devices which reduce these risks, and new state and federal laws are requiring
the use of safety medical devices.
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. Our safety syringes will not require a
change in user technique. Future products will include a system of needle-free
devices 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.
Our executive offices are located at 22 South Main Street, New City,
New York 10956, and our telephone number is (845) 639-9598.
-1-
<PAGE>
<TABLE>
THE OFFERING
<CAPTION>
<S> <C>
Common stock outstanding before this offering........ 5,071,315 shares
Common stock offered................................. 2,000,000 shares
Common stock to be outstanding after the offering... 7,071,315 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................................. "___"
------------
</TABLE>
The common stock outstanding does not include 1,252,766 common shares
issuable upon exercise of outstanding options and warrants, 530,000 common
shares issuable upon exercise of the underwriters overallotment option and
underwriter warrants, 17,520 unvested shares reserved for issuance under a
consulting agreement, or approximately 885,395 common shares issuable upon
conversion of outstanding convertible promissory notes.
<TABLE>
SUMMARY FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 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 1,193,785 3,301,229
Net loss................................. (1,851,849) (4,604,829) (2,044,984) (6,660,057)
Basic (loss) per share................... (0.28) (0.60) (0.27) (0.87)
Weighted average shares outstanding...... 6,703,916 7,663,656 7,511,887 7,667,137
SEPTEMBER 30, 2000
-----------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED
(UNAUDITED) (UNAUDITED)
-----------------------------------
Working capital (deficit)................ $ (10,165,116) $ 6,763,634
Total assets............................. 3,188,483 10,241,716
Total liabilities........................ 11,752,882 1,746,115
Stockholders' (deficit) equity........... (8,564,399) 8,495,601
---------------
</TABLE>
"As Adjusted" means 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."
-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, AND THERE IS A LIMITED AMOUNT OF INFORMATION ABOUT US ON WHICH TO MAKE
AN INVESTMENT DECISION. We were founded in 1996 and acquired title to the
patents to our safety syringes in July 1998. As of the date of this prospectus,
we have begun neither the manufacturing nor marketing of our safety syringes nor
otherwise started revenue producing operations. We believe at this time that we
are six to nine months from revenue generating operations. As a result, we have
no operating history in our current market upon 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 FACE 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 September 30, 2000, we incurred cumulative
losses of $15.8 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.
THE PROCEEDS OF THIS OFFERING MAY NOT BE ENOUGH TO SUPPORT OUR GROWTH,
AND IF, UNDER SUCH CIRCUMSTANCES, WE COULD NOT OBTAIN ADDITIONAL FINANCING, WE
MIGHT CEASE TO CONTINUE AS A GOING CONCERN. 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 FROM WELL-ESTABLISHED MEDICAL DEVICE
COMPANIES 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.
THE GOVERNMENT EXTENSIVELY REGULATES OUR SAFETY SYRINGES AND
NEEDLE-FREE SYSTEMS, AND HAS THE POWER TO PROHIBIT US FROM SELLING OUR PRODUCTS
OR REQUIRE US TO INCUR ADDITIONAL, UNANTICIPATED COSTS. Numerous governmental
authorities, principally the U.S. Food and Drug Administration and comparable
state and foreign regulatory agencies, regulate the clinical testing,
manufacture and sale of our safety syringes and needle-free systems. 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 before 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 require 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.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH WOULD ALLOW COMPETITORS TO DUPLICATE OUR PRODUCTS AND REDUCE ANY
COMPETITIVE ADVANTAGE WE MIGHT HAVE AS A RESULT OF THE PATENTS. 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, AND IF WE DEFAULT ON THE LOAN, WE MAY LOSE OUR PATENTS AND THE RIGHT
TO MANUFACTURE AND SELL OUR SAFETY SYRINGE. 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>
THE INVENTOR OF OUR PRODUCTS IS NOT OUR EMPLOYEE AND HAS NO OBLIGATION
TO PERFORM ANY SERVICES FOR US, SO WE WILL NOT BE ABLE TO RELY ON HIM FOR
FURTHER RESEARCH AND DEVELOPMENT CONTRIBUTIONS. 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.
WE NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL, AND IF WE ARE UNABLE TO
DO SO, OR IF WE LOSE KEY PERSONNEL, WE MAY BE UNABLE TO MANAGE OR GROW OUR
BUSINESS. We only have, three full-time employees. 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 29.5% 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, SO YOUR ONLY
POSSIBILITY TO RECEIVE A RETURN ON YOUR INVESTMENT IS AN INCREASE IN THE PRICE
OF OUR STOCK, WHICH MAY NOT OCCUR. 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, SO THE
BOOK VALUE OF EACH SHARE YOU PURCHASE WILL BE SUBSTANTIALLY LOWER THAN THE PRICE
PER SHARE WHICH YOU PAY. 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 $9.19 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 RATHER THAN WORKING CAPITAL. We anticipate using
approximately $11.4 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 begin 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.
BECAUSE WE HAVE NO SPECIFIC PLANS FOR A PORTION OF THE PROCEEDS, WE MAY
NOT ALLOCATE THE PROCEEDS TO USES YOU CONSIDER DESIRABLE. Approximately $2.76
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 before 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.
WE DETERMINED THE OFFERING PRICE BY NEGOTIATING IT WITH THE
UNDERWRITER, AND THE OFFERING PRICE DOES NOT NECESSARILY HAVE ANY CORRELATION
WITH ANY ESTABLISHED CRITERIA OF VALUE FOR OUR COMMON STOCK. The offering price
is not necessarily related to our asset value, net worth or other established
criteria of value. While we believe that the implied value of Retrac is
commensurate with the market capitalization of similarly situated medical device
companies, we cannot make any assurance that our market capitalization will
remain comparable to such companies.
-5-
<PAGE>
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, THUS LOWERING THE VALUE OF YOUR INVESTMENT. 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 as of the date of this
prospectus, we will have outstanding 7,071,315 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 4,824,760 shares of common
stock outstanding before the closing will be "restricted securities," as that
term is defined in Rule 144 under the 1933 Act, and may be sold under Rule 144
so long as the holding period, volume limitations and other restrictions under
Rule 144 are met.
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 must comply with the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibit 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.
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.
-6-
<PAGE>
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 expect to
use the net proceeds as follows:
USE OF NET PROCEEDS AMOUNT PERCENTAGE
----------------------------------------- ------------- ------------
Reduction of Debt........................ $8,187,972 48.0%
Payment to Martin Kelly.................. 2,833,332 16.6%
Payment pursuant to License Agreement.... 375,000 2.2%
Tooling and Equipment.................... 2,900,000 17.0%
Working Capital.......................... 2,763,696 16.2%
------------- ------------
Total $17,060,000 100.0%
We intend to repay approximately $8.19 million in outstanding
indebtedness with a portion of the net proceeds. The outstanding indebtedness
has varying maturity dates and carries varying rates of interest which are set
forth in the following table:
-------------------------- ----------------------- ------------------------
AMOUNT OF INDEBTEDNESS RATE OF INTEREST MATURITY DATE
-------------------------- ----------------------- ------------------------
$216,122 12% May 2001
-------------------------- ----------------------- ------------------------
$131,250 7% 2002
-------------------------- ----------------------- ------------------------
$565,000 12% July 2001
-------------------------- ----------------------- ------------------------
$414,400 8% July 2001
-------------------------- ----------------------- ------------------------
$2,009,538 7% February 2001
-------------------------- ----------------------- ------------------------
$162,000 0% June 2001
-------------------------- ----------------------- ------------------------
$2,615,500 12% 2000 and 2001
-------------------------- ----------------------- ------------------------
$238,266 12% January, 2001
-------------------------- ----------------------- ------------------------
The balance of the $8.19 million of the outstanding indebtedness, which
is approximately $1.84 million, is comprised of accounts payable and accrued
liabilities. We incurred $2,746,750 of this debt since January 1999. We used the
proceeds of that debt to service other notes payable, to make payments in order
to settle litigation against us, and for working capital.
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, and we are obligated to pay him six
quarterly payments of $333,333 each. We intend to pay Mr. Kelly the initial $1.5
million and four of the six quarterly payments, totalling $1.32 million, 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, which will be approximately $2.76
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 September 30, 2000, our net tangible book value (deficit) per
share was ($2.26) based upon our unaudited consolidated balance sheet as of
September 30, 2000, without giving any effect to any changes after September 30,
2000. "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 September 30,
2000, will be approximately $0.81. The current stockholders will thus benefit
from an immediate increase in net tangible book value per share of $3.07. There
will be an immediate dilution to new investors of approximately $9.19 per share.
The following table illustrates the dilution to investors in this
offering on a per share basis as of September 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............................................. $ (2.26)
Increase per share attributable to payments made by new investors..... $ 3.07
--------
Pro forma net tangible book value per share after offering............ $ 0.81
--------
Dilution in net tangible book value per share offered hereby.......... $ 9.19
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 $3,512,395 of
convertible debt into 885,395 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 17,520 unvested shares reserved for
issuance under a consulting agreement; and
o does not take into account the issuance of 1,252,766 shares of
common stock issuable upon exercise of outstanding options and
warrants at a weighted average exercise price of $7.66 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 5,910,710 74% $ 4,080,767 17% $ .69
New investors 2,000,000 26% $ 20,000,000 83% 10.00
Total 7,910,710 100% $ 24,080,767 100%
</TABLE>
-8-
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2000 on an actual basis, and on a pro forma basis as adjusted to reflect the
following:
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 payment of
approximately $7.80 million of long-term debt, which includes
payment of $1.5 million to our former Chief Executive Officer.
This table includes 721,619 common shares to be issued upon completion
of this initial public offering and excludes the following:
o 1,252,766 common shares issuable upon exercise of outstanding
options and warrants at a weighted average exercise price of
$7.66 per share as of September 30, 2000;
o 17,520 unvested common shares reserved for issuance under a
consulting agreement; 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>
SEPTEMBER 30, 2000
---------------------------------
ACTUAL AS ADJUSTED
--------------- ---------------
<S> <C> <C>
Current maturities of long term debt............................... $ 8,280,029 $ 615,408
Long term debt, net of current maturities.......................... 1,261,957 1,130,707
Shareholders' equity:
Common stock, $.01 par value:
25,000,000 shares authorized, actual and as adjusted;
3,903,554 shares issued and outstanding and 1,121,761
shares to be distributed, actual; and
7,025,315 shares issued and outstanding, as adjusted........ 93,121 113,121
Additional paid in capital......................................... 9,971,047 27,011,047
Accumulated deficit................................................ (15,752,571) (15,752,571)
Treasury stock..................................................... (2,875,996) (2,875,996)
--------------- ---------------
Total shareholders' equity (deficit)......................... (8,564,399) 8,495,601
--------------- ---------------
Total capitalization......................................... $ 977,587 $ 10,241,716
=============== ===============
</TABLE>
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
We expect future products 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 commercially 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 started the design and development
of those products, pursuant to which we have completed proof of principle
prototypes. Upon completion of this offering, we intend to begin the detailed
final stages of design and engineering of our needle-free infusion devices,
including final prototype development and pre-production tooling. We expect to
begin manufacturing and marketing of needle-free infusion devices in the fourth
quarter of 2001. We also intend to investigate the viability of potential new
products, including safety modifications within existing medical product
categories, such as scalpels and other surgical instruments.
Our plan of operations over the next 12 months includes the beginning
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 the following:
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.
We have begun development of the manufacturing process for our
Stat-Trak safety syringe, including completion of a series of engineering and
design phases on our patented technology. We have also begun designing and
developing manufacturing tools, molds, assembly equipment, printing equipment
and packaging equipment, a process which takes six to nine months to complete.
Upon completion of the design and development of the manufacturing tools, we
must submit the entire manufacturing process to the FDA for approval and
validation. We expect the validation stage to take approximately two months.
Upon completion of the validation stage, which we estimate will be in the fourth
quarter of 2001, we expect to begin full scale manufacturing and marketing of
our safety syringes. We have also begun design and engineering work for varying
sizes of our safety syringe, and we intend to complete this work in the next 12
months.
Since our inception in 1996, we have financed our activities to date
through the sale of our securities. As of September 30, 2000, we had a working
capital deficit of $10,165,116. We will repay all of our existing debt
obligations, other than accounts payable incurred in the ordinary course of
business, with a portion of the net proceeds of this offering. We are required
to make payments to our former Chief Executive Officer, Martin Kelly, over the
next 18 months, and we will reserve from the net proceeds of this offering the
amounts necessary to honor such payment obligations during the next 12 month
period. We believe that the net proceeds of this offering, after repayment of
our outstanding indebtedness and the reserves made as discussed above, will be
sufficient to satisfy our working capital requirements for the next 12 months,
and will allow us to begin 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. Based
on cost estimates which we have received from our manufacturer, the price at
which we anticipate selling our product, and our analysis of the prices of our
competitors as disclosed by a 1999 study conducted by the Novation group
purchasing organization, 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 federal legislation and current Federal
Occupational Safety and Health Administration, or OSHA, regulations requiring
the phasing out of all devices which have the potential to cut a healthcare
worker but fail to have safety features designed to reduce the risk of injury.
Such devices are called "non-safety sharps." Legislation has been adopted in 17
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. Based on reports from the
Novation Group purchasing organization, 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.
We incorporated on February 29, 1996 under the name "Entertainment &
Holdings, Inc." in the state of Delaware. On May 20, 1996, we changed our name
to "Re-Track U.S.A., Inc.", and on May 31, 2000, we changed our name to "Retrac
Medical, Inc."
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. According to a 1998 report from Medical Data International, Inc., 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, estimated in 1999 that less
than 50% 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. According to the Medical Data International report, more than
four million healthcare workers in the U.S. 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. We believe that healthcare providers who desire improved
safety for their workers, major insurance carriers, and new regulatory
guidelines and pressure from government agencies are driving the demand for
safety syringes. We base this belief on reports from institutions such as the
University of Virginia Medical Center International Healthcare Worker Safety
Center. In December 1991, 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. The CDC National Institute of
Occupational Safety and Health estimates these practices be the cause of at
least one-third of all needlestick injuries and infections. In November 1999,
OSHA revised its 1991 directive to clarify its position and requirement for the
use of safety devices. In November 2000, the newly enacted Needlestick Safety
and Prevention Act modified the OSHA regulations by requiring healthcare
facilities to use engineering controls in their efforts to prevent workers from
coming in contact with blood-borne diseases and other potentially infectious
materials. The Needlestick Safety and Prevention Act amended the definition of
engineering controls by specifically adding needle-free devices and needles with
built-in safety features or mechanisms.
-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.
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 1998 study by J.
Jagger and E. Juillet, each reported needlestick injury requires follow-up
testing and treatment at an estimated cost of approximately $2,000 per
non-infectious injury and between $500,000 and $1,000,000 for needlesticks
resulting in HIV infection. 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. In November 1999, the CDC
issued a safety alert which calls on hospitals and healthcare facilities to
implement the use of devices with safety features.
The direct costs for treatment and testing following accidental
needlestick accidents do not include all of the actual costs associated with
such injuries. According to the American Hospital Association and Medical Data
International, 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. According to the Medical Data International report, 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.
-12-
<PAGE>
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.
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. We base this belief on our
pricing and cost analysis of our own product and analysis of pricing lists and
clinical studies which the Novation group purchasing organization has prepared.
According to the Novation group, 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, according to statistics which the University of Iowa Medical
Center published. 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 where injections and blood draws are done through an
intravenous line. Currently, one must repeatedly use a needle when infusing or
drawing blood from a patient through an intravenous line. The first use is when
the healthcare worker accesses the patient's vascular system by injecting a
needle through one of the patient's veins to initially establish the intravenous
line. Once the initial injection is made, the healthcare worker will use the
intravenous line to draw blood or administer medicine. To do so, the worker take
another needle and puncture a rubber seal at the end of the intravenous line
opposite to the connection to the body. A simple plastic device called a Y-site
is used where concurrent infusion is needed. The medication will flow through
the needle, through the intravenous line and into the bloodstream, and blood
will be drawn in the reverse order.
Our needle-free infusion system eliminates the need for the use of a
needle after the initial injection is made. Like our safety syringe, the
needle-free infusion system can significantly reduce a health care worker's
exposure to blood, body fluids and even toxic drugs. Our needle-free system uses
a self sealing valve to access an intravenous line while maintaining the
sophisticated requirements for cleanliness and prevention of contamination.
Using our system, a worker can attach a hypodermic syringe without the
needle to the intravenous line or Y-sites through a spring-loaded valve that
opens when the syringe is attached and reseals when the syringe is removed. This
valve can be built into or manufactured as part of each of the different access
systems. Additionally, we have developed a method of withdrawing medications
from drug vials and containers without the use of needles.
The Stat-Link(TM) Universal Connector is designed to allow needle-free
access to the standard Y-Site in a conventional intravenous line. The
Stat-Link(TM) Universal Connector attaches to the Y-Site by means of a piercing
element which is inserted directly into the rubber pad or cap on the Y-Site. A
hypodermic syringe without a needle attached is then connected to the
Stat-Link(TM) Universal Connector thereby allowing the administration of
medications or the drawing of blood to be performed without he use of a needle.
The Stat-Link(TM) Y-Site is designed to be integrated directly into
primary and secondary intravenous lines. This allows the administration of
medication and the drawing of blood in the same needle-free manner as with the
Stat-Link(TM) Universal Connector. In addition, it allows healthcare
professionals to make piggyback intravenous connections without the need for
special adapters or metal needles. This provides a low cost alternative to
existing systems by eliminating the need for multiple parts.
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 unique spring loaded valve used in the Stat-Link(TM) Universal Connector
and the Stat-Link(TM) Y-Site. The Stat-Vial(TM) Connector attaches to the top of
a medicinal vial by means of a plastic device which is inserted through the
rubber pad on the top of the vial. A healthcare professional can then draw up
medicine from the vial by attaching a hypodermic syringe without a needle in the
same manner as with the Stat-Link(TM) Universal Connector and the Stat-Link(TM)
Y-Site.
-13-
<PAGE>
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 certified in Europe as a manufacturer whose systems meet certain
quality, consistency and reliability tests. Such certification is referred to as
"ISO Certification." Current regulations require all syringe products to be
molded and assembled in a clean environment appropriate to these types of
devices, and we will require our manufacturer to comply with those regulations.
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. The
moldmaking and molding company will design and build pre-production and product
moldings for our safety syringes and to mold, assemble, print and package our
safety syringes. The term of the agreement is ten years. We 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 certified specifically for medical devices. Such certification is referred
to as ISO 9001/EN46001 certification. Once we receive such certification, we
will be allowed to place a mark called a "CE mark" on our product, which
indicates that the manufacturer is complying with high and universally accepted
standards for its product.
All needle-free infusion system products will be molded and assembled
in a clean environment appropriate to these types of devices. A third party
supplier who is registered with the FDA as a device manufacturer, and who is
currently ISO certified, will package and sterilize the needle-free infusion
system. 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.
The material which we will use for our products consist of plastics and
thermoplastic elastomers that meet minimum quality , performance and regulatory
standards for this category of medical device. We have not determined any
particular source for these materials; however, these materials are commonly
available from several large and well-established sources in the U.S. and in
other countries at competitive prices.
-14-
<PAGE>
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 U.S. 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.
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 U.S. and non-U.S. 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.
DISTRIBUTION
We intend to distribute our products through existing distribution
channels and direct sales efforts to general purchasing organizations and
end-users. We intend to make direct sales efforts to global, national, and
regional distributors, including both general and specialty product
distributors. We further intend to seek to distribute our products through
direct sales to major institutional purchasing organizations such as Novation
and Premier. Finally, we will attempt to approach our end-users directly, which
include national and international health organizations, government health
agencies, consumer goods and home-health providers, and other providers of
healthcare services.
COMPETITION
Historically, the search for technological and therapeutic innovations
in the prevention, diagnosis and treatment of disease has characterized
competition in the healthcare industry. In recent years, the healthcare industry
has seen a consolidation of companies, with large firms acquiring other device
manufacturers, resulting 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. According to
the Medical Data International report, 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, according to its 1999 annual report.
-15-
<PAGE>
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.
The Novation group purchasing organization conducted a clinical study
in late 1999. In its study, the Novation group concluded that the "single hub
manual retractable syringe design" was the most "user-friendly." Although our
safety syringe was not included in that study, it is properly classified as a
"single hub manual retractable syringe design" as described in the Novation
group 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. Based on our internal market analysis,
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, trademark, and trade secret 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.
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.
The patents for our safety syringes will expire starting in December
2007, with the last patent expiring in September 2014.
-16-
<PAGE>
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.
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.
Pursuant to the license, we have a exclusive right to make, use and sell devices
covered by these patents for the term of the patents, in exchange for which we
promised to pay $375,000 in cash and issue a number of our common shares equal
to $1,350,000 divided by the price per share in this offering. The design patent
for our needle-free device will expire in December 2004. The remaining patents
for our needle-free devices will expire starting in November 2013, with the last
patent expiring in April 2014.
TRADEMARKS. In addition, the U.S. Patent and Trademark Office has
issued to us the trademark "Stat-Trak." The registration for this mark will
expire in 2004, but is renewable for indefinite consecutive 10 year terms.
RESEARCH AND DEVELOPMENT. Through September 30, 2000, we have spent
$26,667 on research and development of our safety syringes and needle-free
devices. These research and development activities primarily consist of design
of the safety syringe pursuant to the patent specifications. We have not
classified the costs associated with acquiring and establishing patents and
license agreements relating to patents as research and development.
GOVERNMENT REGULATIONS
FEDERAL FDA REGULATION. Numerous governmental authorities, principally
the FDA, and corresponding state and foreign regulatory agencies, regulate the
clinical testing, manufacture and sale of our safety syringes. 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. Once we complete the design and
development of the manufacturing tools, we must submit the entire manufacturing
process to the FDA for final testing. In this process, the FDA must approve and
validate all parts of the syringe, all plastics tooling, all machinery, the
packaging process and the sterilization process before we may market our
product. In this process, the FDA will require us to complete a statistically
valid number of test runs, test samples and methods so that we are in full
compliance with its quality system regulations. We expect the validation stage
to take approximately two months. With completion of a manufacturing agreement
and final testing, the product may be marketed directly to hospitals, medical
professionals and other institutions.
-17-
<PAGE>
Our needle-free devices have not received 510(k) notification. We may
see to obtain either Class I or Class II medical device classification,
depending on how we sell the devices. If we sell the device solely to an
intravenous product manufacturer who will then incorporate it into another
device, the device would be Class I and require no filing with the FDA. If the
device is sold to an end-user as a sterile device, the device would be Class II,
and we would be required to file a 510K notification with the FDA. We are aware
of several products currently on the market which can be used as a predicate or
equivalent device; thus, we believe that we could obtain 510(k) notification
within a short time after filing, which we can do once we develop, engineer and
pre-produce tooling. Once we receive 510(k) notification, the process proceeds
as described above. We expect the entire process to take 12 to 18 months.
Although we have obtained FDA approval for our safety syringes, the FDA
will continue to regulate our products. We will have to comply with various
record keeping requirements and to report adverse experiences with the use of
the device. The FDA may also inspect us on a routine basis for compliance with
the its quality system 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 the following seventeen states: Alabama,
California, Connecticut, Georgia, Iowa, Maine, Maryland, Massachusetts,
Minnesota, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Tennessee, Texas
and West Virginia. Similar legislation is being considered in 4 other states and
the District of Columbia.
FOREIGN REGULATION. In order for us to sell our products in Europe,
manufacturers of our product must receive "ISO Certification," meaning that
their systems meet certain quality, consistency and reliability tests. We will
require our manufacturer to comply with the ISO certification requirements. In
addition, we are in the process of becoming ISO certified specifically for
medical devices, which is referred to as ISO 9001/EN46001 certification. Once we
receive such certification, we will be allowed to place a mark called a "CE
mark" on our product, which indicates that the manufacturer is complying with
the ISO 9001/EN46001 standards for our product.
ENVIRONMENTAL REGULATION. We are not subject to material environmental
regulation. Our products are not composed of unique or hazardous materials, and
we use no equipment or processes that are likely to create a material
environmental concern. We intend to comply with all environmental regulations
which do apply to us and the manufacturing of our product.
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 December 18, 2000, we had a total of seven employees, three of
which are full-time 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, and we have not entered into a
collective bargaining agreement with any union. 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.
-18-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICER AND DIRECTORS
Our executive officers and directors, the positions held by them and
their ages as of December 18, 2000 are as follows:
NAME AGE POSITION
------------------ ------ ------------------------------------------------
Graham E. Gill 68 Chairman of the Board of Directors, Executive
Vice President of Strategic Planning
Thomas Sassone 39 President, Chief Executive Officer and Director
Jack Gutierrez 45 Chief Financial Officer and Director
Alexander Mulgrew 32 Secretary and General Counsel
Joseph Montuoro 66 Director
Mark Murphy 38 Director
Perry Rowan Smith 48 Director
GRAHAM GILL has been our Chairman and Executive Vice President of
Strategic Planning 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 Treasurer since
July 2000. From July 2000, to August 15, 2000, Mr. Gutierrez also served as our
Secretary. 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
August 15, 2000. Mr. Mulgrew is an attorney, and he was a senior associate in
the law firm of Seskin & Sassone, formerly Sassone Zemanek & Girasa, from 1995
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 from 1995 until
January 2000. 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.
-19-
<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 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 was 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 common shares as a
compensatory stock grant upon becoming a member of our board of directors. Our
board of directors valued these shares at $1,500. These shares are classified as
a bonus in the table set forth below.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- -----------------------
COMMON
SHARES
RESTRICTED UNDERLYING
OTHER STOCK OPTIONS
ANNUAL AWARDS GRANTED ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION ($) (# SHARES) COMPENSATION
----------------- ------- ---------- -------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <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 $ 1,500 $ 33,000
current President 1998
and CEO 1997
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1999 FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
-------------------- ----------------- ----------------------- -------------- ----------
<S> <C> <C> <C> <C>
None
</TABLE>
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<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 is the promoter and founder of Retrac, and he served as
our Chairman of the Board, President and Chief Executive Officer from inception
to June 2000. Mr. Kelly and Faithful Investments & Holdings Ltd., a company
which Mr. Kelly controls, provided promotional services for Retrac. Among other
things, Mr. Kelly and Faithful Investments negotiated our acquisition of a
license for the patents covering our safety syringe.
In June 1996, we entered into a settlement agreement with Faithful
Investments. Under the terms of the settlement agreement, Faithful Investments
agreed to terminate all agreements between it and Safe Tech Medical Products, or
Safe Tech, and to further release all claims against Safe Tech, including a
release of a note payable to Faithful Investments in the principal amount of
$620,000. Safe Tech's principal, Michael Haining, is the inventor of our safety
syringe and is the inventor under the patents which cover our safety syringe.
We agreed to deliver to Faithful Investments a $555,000 unsecured 12%
note payable to Faithful Investments, 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 was to be made by reduction of the
principal balance of the note. Faithful Investments 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 September 30, 2000, there was an outstanding balance of
$216,122 on the note.
In connection with the settlement, Safe Tech agreed to license to us
the exclusive rights to make, use and sell the safety syringes covered by the
patents which Safe Tech then held, in exchange for 166,667 of our common shares.
In consideration for Mr. Kelly's negotiation of the transaction and acquisition
of the license for the safety syringe patents, we issued 4,333,333 common shares
to Mr. Kelly. The issuance of these shares reduced our note payable to Faithful
Investments from $620,000 to $555,000.
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 in several countries
throughout Europe, Asia, North America, South America, the Middle East and
Africa. This license was cancelled in November 2000 for no additional
consideration.
-21-
<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.
In July 2000, Mr. Kelly resigned as an officer and director of Retrac.
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. Mr. Kelly also
agreed to serve as a consultant to us for a period of 12 months at a fee of
$12,000 per month.
In December 2000, the trust controlled by Mr. Smith purchased 3.1 units
at a purchase price of $50,000 per unit. Each unit consists of a $50,000
unsecured promissory note and the right to have 31,000 common shares issued upon
repayment of the note.
We believe that the foregoing transactions were in our best interests.
Consistent with Section 144 of the Delaware General Corporation Law and the
rules of the American Stock Exchange, it is our current policy that all
transactions between us and our officers, directors and their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested directors, are approved by vote of the shareholders, or are fair
to us as a corporation as of the time it is us at is authorized, approved or
ratified by the board. We will conduct an appropriate review of all related
party transactions on an ongoing basis, and, where appropriate, we will utilize
our audit committee for the review of potential conflicts of interest.
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, with 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.
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<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 the date of this
prospectus by the following persons:
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 assumes that there are 5,071,315 common shares
issued and outstanding immediately before this offering and that there are
7,071,315 common shares outstanding immediately following completion of this
offering; however, common shares which are subject to options that are currently
exercisable or exercisable within 60 days of the date of this prospectus are
deemed to be outstanding and to be beneficially owned by the person holding the
options for the purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Except as indicated in
the footnotes to this table and pursuant to applicable community property laws,
each shareholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such shareholder's name.
<TABLE>
<CAPTION>
PERCENT OF SHARES OUTSTANDING
----------------------------------
NAME AND ADDRESS (1) NUMBER OF SHARES OWNED BEFORE OFFERING AFTER OFFERING
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Graham E. Gill (2) 333,333 6.6% 4.7%
Thomas Sassone (3) 350,000 6.9% 4.9%
Martin Kelly (4) 813,334 16.0% 11.5%
Jack Gutierrez (5) 176,667 3.5% 2.5%
Perry Rowan Smith (6) 1,019,333 19.6% 14.2%
Mark Murphy 100,000 2.0% 1.4%
Joseph Montuoro (7) 100,000 2.0% 1.4%
Alexander Mulgrew 10,000 (8) (8)
All officers and directors as a group 2,089,333 41.2% 29.5%
</TABLE>
---------------
(1) Unless otherwise indicated, the address for the following shareholders
is c/o Retrac Medical, Inc., 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, 13,333
shares held by a company controlled by Mr. Smith's wife, 116,667 shares
which may be issued within 60 days after December 18, 2000 upon
exercise of options which Mr. Smith holds, and 31,000 shares to be
issued upon the completion of this offering.
(7) Includes 100,000 shares held by Mr. Montuoro's children.
(8) Less than one percent.
-23-
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 25,000,000 shares of common stock, of which,
as of the date of this prospectus, 5,071,315 shares were issued and outstanding,
including 721,619 shares that we have previously agreed to issue only if we
complete our initial public offering and are to be held by approximately 195
recordholders, and 17,520 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 1,252,766 shares at a weighted average exercise
price of $7.66 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.
-24-
<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 before 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 completion 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 started,
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 reserved for issuance under 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) with 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.
-25-
<PAGE>
UNDERWRITING
The underwriters named below, represented by Centex Securities
Incorporated, on the terms and conditions in the underwriting agreement by and
between us and the underwriters, agree 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 before completion of the initial public offering. The
common stock is offered only if the underwriters acknowledge receipt and
acceptance and only if certain other conditions, including the right to reject
orders in whole or in part, are met.
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, on 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.
-26-
<PAGE>
Before 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 be required to comply with
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.
-27-
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
<S> <C>
Report of Independent Auditors..................................................... F-1
Audited Consolidated Balance Sheet as of December 31, 1999 and unaudited Balance
Sheet as of September 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 nine
months ended September 30, 2000 and 1999 and for the period from February 29,
1996 (inception) to September 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 nine months ended September 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 nine
months ended September 30, 2000 and 1999 and for the period from February 29,
1996 (inception) to September 30, 2000............................................. F-11
Notes to Consolidated Financial Statements......................................... F-14
</TABLE>
-28-
<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
ASSETS
<CAPTION>
December 31, September 30,
1999 2000
-------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 144,968 $ 241,668
Cash held in escrow 93,722
Note receivable 75,000
Other current assets 9,141
-------------- --------------
Total current assets 238,690 325,809
Equipment and fixtures (less accumulated depreciation of
$21,549 and $27,082, respectively) 20,337 71,812
Deferred offering costs 160,000
Intangible costs (less accumulated amortization of
$686,521 and $873,738, respectively) 1,083,079 2,630,862
-------------- --------------
Total assets $ 1,342,106 $ 3,188,483
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Long-term debt, current maturities $ 2,141,320 $ 8,280,029
Accounts payable 675,742 687,900
Accrued liabilities 964,121 1,147,996
Payable for purchase of patent license 375,000
-------------- --------------
Total current liabilities 3,781,183 10,490,925
-------------- --------------
Long-term debt, less current maturities 2,951,650 1,261,957
-------------- --------------
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; 8,190,221
shares issued and 3,903,554 shares outstanding at
September 30, 2000 (unaudited) 69,333 81,903
Common stock to be distributed at $.01 par value,
1,694,509 shares at December 31, 1999 and
1,121,761 shares at September 30, 2000 (unaudited) 16,945 11,218
Additional paid-in capital 3,615,809 9,971,047
Deficit accumulated during the development stage (9,092,514) (15,752,571)
-------------- --------------
(5,390,427) (5,688,403)
Treasury stock (286,667 shares at cost at December 31,
1999 and 4,286,667 shares at September 30, 2000
(unaudited)) (300) (2,875,996)
-------------- --------------
Total stockholders' deficit (5,390,727) (8,564,399)
-------------- --------------
Total liabilities and stockholders' deficit $ 1,342,106 $ 3,188,483
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-3
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
February 29,
Years Ended Nine Months Ended 1996 (Date of
December 31, September 30, Inception) to
---------------------------- ---------------------------- September 30,
1998 1999 1999 2000 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 166,987 459,218 278,490 501,070 1,564,749
Professional fees 329,005 535,234 410,838 701,403 2,111,955
Loss on abandonment of intangible assets and
fixed assets 441,190 441,190
Depreciation and amortization 213,391 208,077 156,057 192,750 994,648
Patent expense 390,000
Litigation settlements 82,000 274,744 274,744 356,744
Other selling, general and administrative costs 97,761 123,659 73,656 1,906,006 2,629,717
------------- ------------- ------------- ------------- -------------
1,603,572 1,600,932 1,193,785 3,301,229 8,841,779
------------- ------------- ------------- ------------- -------------
Loss from operations (1,603,572) (1,600,932) (1,193,785) (3,301,229) (8,835,491)
------------- ------------- ------------- ------------- -------------
Other income (expenses):
Interest expense (248,277) (3,003,897) (851,199) (3,397,847) (6,957,056)
Other income 39,019 39,976
------------- ------------- ------------- ------------- -------------
(248,277) (3,003,897) (851,199) (3,358,828) (6,917,080)
------------- ------------- ------------- ------------- -------------
Net loss $ (1,851,849) $ (4,604,829) $ (2,044,984) $ (6,660,057) $(15,752,571)
============= ============= ============= ============= =============
Basic and diluted loss per share $ (0.28) $ (0.60) $ (0.27) $ (0.87)
============= ============= ============= =============
Weighted average number of
common shares outstanding
and to be distributed 6,703,916 7,663,656 7,511,887 7,667,137
============= ============= ============= =============
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 ($1.50 per
share) 100,000 1,000 149,000 150,000
Issuance of 666,667 shares on
November 14, 1996 upon
exercise of option by a
related party ($.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
</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>
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
</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>
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
</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
$.01 Par Value Additional Stock To Be Distributed During The
------------------- Paid-In ----------------------- ------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
---------- -------- ----------- ---------- ------------ ---------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 166,667 shares
under an agreement dated
July 7, 1999 to an
individual to join the
Board of Directors ($.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
</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
$.01 Par Value Additional Stock To Be Distributed During The
------------------- Paid-In ----------------------- ------------------- Development
Shares Amount Capital Shares Amount Shares Amount Stage Total
---------- -------- ----------- ---------- ------------ ---------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28,115 shares for signing
settlement agreements dated
April 1, and June 1, 1999
($.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)
(CONTINUED)
F-9
</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>
294,400 shares to note holders
for issuing 12% unsecured
promissory notes ($10.00
per share) 2,941,056 294,400 2,945 2,944,001
135,000 shares as license fee
($10.00 per share) 1,348,650 135,000 1,350 1,350,000
17,519 shares to be issued
under consulting agreement
dated July 2, 2000 ($10
per share) 175,015 17,519 175 175,190
Issuance of 4,000 shares
under a consulting
agreement dated July 12,
2000 ($10 per share) 4,000 40 39,960 40,000
Purchase of treasury stock
and issuance of stock
option under agreement
dated August 17, 2000 with
former president 187,890 4,000,000 (2,875,696) (2,687,806)
583,333 shares distributed
in July 2000 583,333 5,833 (583,333) (5,833)
Net loss September 30, 2000
(unaudited) (6,660,057) (6,660,057)
---------- -------- ----------- ---------- ------------ ---------- -------- ------------- ------------
Balance - September 30, 2000
(unaudited) 8,190,221 $81,903 $9,971,047 4,286,667 $(2,875,996) 1,121,761 $11,218 $(15,752,571) $(8,564,399)
========== ======== =========== ========== ============ ========== ======== ============= ============
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>
February 29,
Years Ended Nine Months Ended 1996 (Date of
December 31, September 30, Inception) to
---------------------------- ---------------------------- September 30,
1998 1999 1999 2000 2000
------------- ------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,851,849) $ (4,604,829) $ (2,044,984) $ (6,660,057) $(15,752,571)
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 213,391 208,077 156,057 192,750 994,648
Seller repossession of inventory 245,732 250,000
Stock issued for services 13,150 257,572 257,545 1,815,190 2,139,412
Noncash interest expense 600 2,646,801 658,931 2,987,283 5,634,684
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 (9,141) (9,141)
Increase in inventory (88,000)
Increase (decrease) in accounts payable 308,404 3,053 68,524 242,181 917,923
Increase in accrued liabilities 504,915 480,708 505,664 654,716 2,079,339
------------- ------------- ------------- ------------- -------------
Net cash used in operating activities (110,855) (1,008,618) (398,263) (981,120) (3,206,558)
------------- ------------- ------------- ------------- -------------
Cash flows from investing activities:
Issuance of note receivable (75,000) (75,000)
Purchase of equipment and fixtures (57,008) (121,043)
Purchase of license agreement and patents (200,000) (10,000) (222,600)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (200,000) (142,008) (418,643)
------------- ------------- ------------- ------------- -------------
(CONTINUED)
F-11
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
February 29,
Years Ended Nine Months Ended 1996 (Date of
December 31, September 30, Inception) to
---------------------------- ---------------------------- September 30,
1998 1999 1999 2000 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) $ (185,894) (311,028)
Proceeds from notes payable 262,000 1,274,750 $ 483,750 1,472,000 3,847,197
Deferred offering costs (160,000) (160,000)
Deposits in escrow fund (93,722) (85,487) 93,722
------------- ------------- ------------- ------------- -------------
Net cash provided by financing activities 261,700 1,153,586 398,263 1,219,828 3,866,869
------------- ------------- ------------- ------------- -------------
Net (decrease) increase in cash (49,155) 144,968 96,700 241,668
Cash at beginning of year/period 49,155 - 144,968 -
------------- ------------- ------------- ------------- -------------
Cash at end of year/period $ - $ 144,968 $ - $ 241,668 $ 241,668
============= ============= ============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year/period for:
Interest $ 1,000 $ 94,384 $ 37,824 $ 64,776 $ 196,016
Supplemental disclosures of noncash 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
</TABLE>
<PAGE>
<TABLE>
RETRAC MEDICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(FORMERLY RE-TRACK USA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
<CAPTION>
<S> <C>
Year ended December 31, 1997:
1. Purchase of inventory through assumption of a noninterest 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 nine months ended September 30, 1999 (Unaudited):
1. Reclassification of accrued interest of $401,398 to principal balance of debt.
For the nine months ended September 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.
3. Purchase of treasury stock, recorded at a cost of $2,875,696, upon issuance of options with an estimated fair value in the
amount of $187,890, issuance of a note payable at a discounted present value of $3,146,627 and waiver of accrued
compensation in the amount of $458,821.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-13
</TABLE>
<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 NINE MONTHS ENDED SEPTEMBER 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 $15.8 million, a stockholders' deficit of
approximately $5.4 million and $8.6 million and negative working capital
of approximately $3.5 million and $10.2 million at December 31, 1999 and
September 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.
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.
F-14
<PAGE>
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
September 30, 1999 and 2000, and for the nine months ended September 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 September
30, 1999 and 2000, and the operating results and cash flows for the
nine-month periods ended September 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.
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 $145,000 at
September 30, 2000 (unaudited).
F-15
<PAGE>
EQUIPMENT AND FIXTURES:
Equipment and fixtures are stated at cost and depreciated on a
straight-line basis over five and seven years.
DEFERRED OFFERING COSTS:
In connection with the proposed public offerings, the Company has and
will continue to incur certain costs associated with these offerings.
These costs will be deferred and offset against the proceeds from the
sale of the securities, if the offering is successful, or charged to
operations, if the offering is unsuccessful.
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 4.5-10 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
September 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 September 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 September 30, 2000
(unaudited), amounts charged to research and development amounted to
$2,040 and $24,627, 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 September 30, 2000 (unaudited), the Company has
available approximately $6,174,000 and $8,091,000, 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 September 30, 2000 (unaudited), the valuation
allowance of $2,470,000 and $3,236,000, 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 September 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 noninterest 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:
<TABLE>
<CAPTION>
December 31, September 30, 2000
1999 (Unaudited)
------------------ ------------------
<S> <C> <C>
Equipment and fixtures $ 41,886 $ 48,894
Molds 50,000
Less accumulated depreciation (21,549) (27,082)
------------------ ------------------
$ 20,337 $ 71,812
================== ==================
</TABLE>
5. INTANGIBLE COSTS:
Intangible costs consists of the following:
<TABLE>
<CAPTION>
December 31, September 30, 2000
1999 (Unaudited)
------------------ ------------------
<S> <C> <C>
Patents $ 1,769,600 $ 1,779,600
License agreement 1,725,000
------------------ ------------------
1,769,600 3,504,600
Less accumulated amortization (686,521) (873,738)
------------------ ------------------
$ 1,083,079 $ 2,630,862
================== ==================
</TABLE>
F-21
<PAGE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable consists of the following:
<TABLE>
<CAPTION>
December 31, September 30, 2000
1999 (Unaudited)
------------------ ------------------
<S> <C> <C>
Payable to related parties $ 244,000 $ 199,502
Payable to a former member of the Board
of Directors 100,365
Payable to others 331,377 488,398
------------------ ------------------
$ 675,742 $ 687,900
================== ==================
Accrued liabilities consists of the following:
December 31, September 30, 2000
1999 (Unaudited)
------------------ ------------------
Accrued compensation:
Payable to the President (See Note 8) $ 311,926
Payable to members of the Board of
Directors 69,250 $ 106,723
------------------ ------------------
381,176 106,723
------------------ ------------------
Payroll taxes, past due 126,118 159,895
------------------ ------------------
Accrued interest:
Payable to related parties 65,940 51,440
Payable to others 279,887 645,938
------------------ ------------------
345,827 697,378
------------------ ------------------
Other liabilities:
Payable to related parties 111,000 184,000
------------------ ------------------
$ 964,121 $ 1,147,996
================== ==================
</TABLE>
F-22
<PAGE>
7. LONG-TERM DEBT:
Long-Term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30, 2000
1999 (Unaudited)
--------------- ---------------
<S> <C> <C>
A. 12% Unsecured Note Payable to a related
party, due on May 31, 2001 $ 359,016 $ 216,122
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 484,400 414,400
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 2,615,500
H. Loan and Security Agreement, payable to a
Director of the Company, due 2000 238,266 238,266
I. Unsecured Note Payable to former
president, due 2002 (net of
unamortized discount of $310,090) 3,189,910
--------------- ---------------
5,092,970 9,541,986
Long-term debt, current maturities
(including debt to related parties
at December 31, 1999 and September
30, 2000 (unaudited) of $618,283
and $2,534,591, respectively) 2,141,320 8,280,029
--------------- ---------------
Long-term debt (including debt to
related parties at December 31,
1999 and September 30, 2000
(unaudited) of $-0- and $1,130,707,
respectively), less current
maturities $ 2,951,650 $ 1,261,957
=============== ===============
</TABLE>
F-23
<PAGE>
Following are maturities of long-term debt for each of the years in which
the debt matures:
<TABLE>
<CAPTION>
For The Year For The Year
Ended Ended
December 31, September 30,
------------------ ------------------
(Unaudited)
<S> <C> <C>
2000 $ 2,141,320
2001 2,820,400 $ 8,280,029
2002 131,250 1,261,957
</TABLE>
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. In addition, the
Company issued 90,000 shares of its Common Stock, and an option to
purchase 666,667 of its Common Stock for $0.015 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. The note holder
exercised this option on November 14, 1996.
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 ($5.00 per share).
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 September 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, recorded at an
estimated fair value of $.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 September 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 1,782 shares were to be distributed in
accordance with the settlement agreement.
During the nine months ended September 30, 2000 (unaudited), notes in
the original principal amount of $70,000 were settled for $43,000.
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 conversion price is 2/3 of the IPO price per share and 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 (recorded at an estimated fair value of
$.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 September
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
September 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 ("Bridge Loan"):
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 nine months ended September 30, 2000, the Company issued
another 29.44 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 nine
months ended September 30, 2000 (unaudited) of $2,287,000 and
$2,944,000, 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 $1,143,500 are in default as of
September 30, 2000, of which $398,500 were extended for an additional
nine months and additional notes in the principal amount of $475,000
are in default subsequent to September 30, 2000 (unaudited) of which
$112,500 were extended for an additional nine months. Accordingly, at
November 30, 2000, notes in the aggregate of $1,107,500 are in
default.
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 note holder 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 September 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. In November 2000, the
License Agreement was mutually terminated in accordance with the
terms of the Extension and Modification Agreement dated October
1999.
I. Unsecured Note Payable:
On August 17, 2000, the Company issued a $3,500,000 noninterest
bearing note as part of the Redemption Agreement (See Note 8). The
Company will 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. The note is recorded at present value using
a discount rate of 12%. The discount of $353,373 is being amortized
over the term of the note as interest expense.
J. Beneficial Conversion Feature:
Opinion NO. 98-5 of the FASB's Emerging Issues Task Force
("Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios") addresses a
beneficial conversion feature often associated with the accounting
for the issuance of convertible securities. The Company has not
recorded such a beneficial conversion feature with respect to any
of the convertible securities referred to above, since, in the
opinion of the Company, the conversion feature was greater than the
fair value of the Common Stock on the date of commitment.
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.
F-30
<PAGE>
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.
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.
In addition, the following transactions were recorded as common stock to
be distributed during 1999:
Shares Notes
---------- ---------------------------------------------------
133,333 shares See Consulting Agreement in this Note
200,000 shares See Board of Directors in this Note
166,667 shares See Board of Directors in this Note
143,333 shares See Other Employment Agreements in this Note
26,333 shares See Board of Directors in this Note
1,782 shares See Note 7D
59,667 shares See Note 7C
26,294 shares See Note 7D
141,733 shares See Note 7E
100,000 shares See Note 14, Marketing and Manufacturing Commitments
2000 Transactions:
In April and July 2000, the Company distributed 669,667 and 583,333
shares of Common Stock, respectively, originally valued at $.015 per
share that were previously classified as to be distributed (unaudited).
In July 2000, the Company issued 4,000 shares of Common Stock valued at
$10 per share to legal counsel of the Company as consideration for his
services.
In addition, the following transactions were recorded as common stock to
be distributed during 2000:
Shares Notes
---------- ---------------------------------------------------
33,333 shares See Note 14 in Litigation
200,000 shares See Board of Directors in this Note
135,000 shares See Note 3d
17,519 shares See Consulting Agreement in this Note
During the nine month period ended September 30, 2000, 1,253,000 shares
that were previously recorded as common stock to be distributed, were
actually issued.
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.
On August 17, 2000 the Company entered into a Redemption Agreement with
its then President. The Company purchased 4,000,000 shares of its Common
Stock held by him, issued a $3,500,000 Note Payable (see Note 7I) and
issued options to purchase 300,000 shares of Common Stock over a three
year period commencing one year after the IPO at an exercise price of
120% of the IPO price. In addition, the Company terminated the employment
contract with the President. The President waived all rights and claims
to his accrued compensation and entered into a consulting agreement for a
period of twelve months payable $12,000 per month commencing August 2000.
F-31
<PAGE>
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.
The cost of purchasing the 4,000,000 treasury shares has been calculated
to be $2,875,696 which is based upon the discounted present value of the
note payable of $3,146,627, plus the fair value of the options estimated
to be $187,890, less the waived accrued compensation of $458,821.
Common Stock To Be Distributed:
Common stock to be distributed (1,694,509 shares at December 31, 1999 and
1,121,761 shares at September 30, 2000, (unaudited) respectively)
consists of the following:
<TABLE>
<CAPTION>
December 31, September 30, 2000
1999 (Unaudited)
------------------ ------------------
<S> <C> <C>
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 184,186 shares)
(See below and Note 14) 6,833 1,842
Current and former members of the
Board of Directors (409,667 shares and
16,667 shares) 4,097 167
Employment agreements (143,333 shares and 0 shares) 1,433
Unsecured note holders (228,700 and 523,100 shares)
(See Note 7) 2,287 5,231
License agreement (0 shares and 135,000 shares)
(See Note 3d) 1,350
------------------ ------------------
$ 16,945 $ 11,218
================== ==================
</TABLE>
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 September 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).
F-32
<PAGE>
On July 2, 2000 the Company entered into an agreement with a consultant
to advise the Company as Chairman of the Medical Advisory Board. The
agreement is for 3 years effective March 1, 2000. As consideration for
the agreement, the Company agreed to issue shares of Common Stock
equivalent to one half of one percent of its issued and outstanding stock
at the opening of the proposed IPO. The vesting terms are as follows: 50%
immediately, 25% at the completion of the second year and the remaining
25% at the completion of the third year. At September 30, 2000, the
consultant was vested at 50% and, accordingly, the Company recorded an
expense of $175,190 for the value of the estimated 17,519 shares of
Common Stock vested at $10.00 per share. In calculating the
consideration, the expected number of shares at the opening of the IPO of
7,007,796 shares was used. The amount totaled 35,039 shares. The
remaining number of shares not yet vested, estimated at 17,520 shares,
were not recorded at September 30, 2000. As of September 30, 2000, none
of the shares had been distributed.
Board of Directors:
During 1996 and 1999, the Company entered into agreements to issue shares
to certain members of the Board of Directors.
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 September 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 nine-months period ended September 30, 2000
(unaudited), 200,000 shares had been distributed.
F-33
<PAGE>
On July 7, 1999, the Company entered into an employment agreement with
its Chairman of the Board which terminates on September 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
September 30, 2000 (unaudited) is $119,000 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. The shares were distributed in July 2000 (unaudited).
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.
<TABLE>
<CAPTION>
Weighted Average
Weighted Average Exercise
Number of Shares Price Per Share
------------------ ------------------
<S> <C> <C>
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
Granted 300,000 $12.00
Cancelled (123,333) $4.42
------------------
Outstanding at September 30, 2000
(unaudited) 1,252,766 $7.66
================== ------------------
</TABLE>
The following tables summarize information about Stock Options
outstanding:
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
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>
AT SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
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 year $5.00 33,333 $0 0
$10.50 1 year $10.50 78,333 $0 0
$12.00 3 years $12.00 300,000 $0 0
-----------
528,333
===========
</TABLE>
The following table summarizes information about Stock Warrants
outstanding at December 31, 1999 and September 30, 2000 (unaudited): (See
Note 7.)
<TABLE>
<CAPTION>
Warrants Outstanding Warrants 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>
$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, September 30,
1999 2000
------------------ ------------------
(Unaudited)
<S> <C> <C>
Reserve for shares to be issued:
7% unsecured convertible notes payable 27,156 shares 28,530 shares
7% unsecured convertible units 323,403 339,280
8% unsecured convertible promissory notes 148,950 152,807
12% unsecured convertible promissory notes 336,180 364,778
------------------ ------------------
835,689 shares 885,395 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 resulting in income in
the amount of $39,019.
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-$204,740 (unaudited). Interest
accrued on the outstanding principal is as follows: 1998-$45,714,
1999-$44,398 and 2000-$6,537 (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 December 2000, the Company issued 12% promissory notes to a trust
controlled by a director of the Company in exchange for $155,000 in cash.
The note entitles the trust to receive, for no additional consideration,
31,000 common shares upon the close of the initial public offering.
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 former
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 (see Note 8 - treasury stock) (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. (See Note 7.G for
the 12% unsecured units terms.) In February and April 2000, $36,000 was
paid to the investment banker in full payment for their services
(unaudited).
Purchase Commitments:
During 2000, the Company ordered certain molds at a purchase price of
approximately $231,000. As of September 30, 2000, the Company paid and
accrued $50,000 for this purchase which is included in equipment and
fixtures. At September 30, 2000, the Company's unfilled purchase
commitment amounted to approximately $181,000.
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, the shares are included in Common Stock to be Distributed in
the accompanying statement of Stockholders' Deficit. The shares were
distributed in July 2000 (unaudited). 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 September 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. As of September 30, 2000 and
subsequent thereto, such amounts aggregating $60,000 had been accrued but
had not been paid. The agreement was extended for six months which
expires on March 15, 2001. According to the extended agreement, PAA and
TAM are each paid $5,000 per month, an additional $5,000 each is accrued
each month, and each agree to defer the one-time compensation of $20,000
and $10,000 until the IPO. 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. As
of December 18, 2000, the trustee has commenced no action against the
Company. On October 27, 2000, the trustee and the Company agreed in
principle to settle the dispute by the trustee releasing the Company from
any action by the trustee against the Company in exchange for $16,092.
The settlement is subject to completion of a definitive settlement
agreement and approval of the definitive settlement by the Bankruptcy
Court. Outside counsel for the Company has advised that they have no
reason to believe that the Bankruptcy Court will not approve the
settlement.
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.
In addition, on October 17, 2000, the Company signed a letter of intent
with an investment banker in the UK, for registering shares on the "AIM"
Market for a sum estimated at $10,000,000 in Common Stock of the Company.
The banker will receive fees of approximately (pound)140,000
(approximately $205,000 at September 30, 2000) and commission of 2% of
gross proceeds plus VAT. This offering is conditional on admission to the
AMEX stock exchange in the United States.
The Company is in the process of offering 12% unsecured promissory notes
($50,000 per unit) and the right to have shares of the Company's Common
Stock issued upon repayment of the notes. The shares will be issued
pursuant to Regulation S under the 1933 Act. 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. As of September 30, 2000, no Units
were issued. In December 2000, the Company issued 12% promissory notes to
two non-U.S. persons in exchange for $75,000 in cash. The notes entitle
the non-U.S. persons to receive, for no additional consideration, 15,000
common shares upon the close of the initial public offering.
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 solicitation of an offer to buy our
common stock in any jurisdiction where it is RETRAC MEDICAL, INC.
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
TABLE OF CONTENTS
COMMON STOCK
Page
----
Prospectus Summary.............................1
Risk Factors...................................3
Use of Proceeds................................7 ______________________
Dividend Policy................................7
Dilution.......................................8 PROSPECTUS
Capitalization.................................9 ______________________
Management's Discussion and Analysis or
Plan of Operation...........................10
Business......................................11
Management....................................18
Principal Stockholders and
Beneficial Ownership of Management..........22 CENTEX SECURITIES INCORPORATED
Description of Securities.....................23
Anti-Takeover Provisions......................23
Underwriting..................................25
Legal Matters.................................26
Experts.......................................26
Available Information.........................26
Index to Financial Statements.................27
JANUARY __, 2001
Until _________, 2001, 25 days after the
start of the offering, all dealers that buy, sell
or trade shares, whether or not participating in
this offering, may be required to 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.
(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.
<PAGE>
(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, with certain exceptions.
Our bylaws also contain a provision for the indemnification of our directors.
Bylaws
------
Our bylaws provide for our indemnification of our directors, officers,
employees, or agents under certain circumstances as follows:
<PAGE>
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.
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
==========
<PAGE>
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 (the "Act"). In August 1999,
we refinanced the notes and in connection therewith we issued a total of 59,667
common shares as consideration to the note holders for their agreement to
refinance the notes.
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
as consideration to the note holders for their agreement to refinance the notes.
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 in the amount of $60,000. 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, as
consideration to the Trust for its agreement to loan funds to us. Our board
valued the common shares at $.015 per share, for a total value of $8,900. 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 as
consideration for the individual's transfer of certain patent rights to us. Our
board valued the common shares at $.015 per share, for a total value of $1,000.
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 as consideration for the Trust's extension and
modification of a loan agreement previously entered into between us and the
Trust. Our board valued the common shares at $2.25 per share, for a total value
of $300,000. 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. Our
board valued the common shares at $.015 per share, for a total value of $1,500.
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. Our board valued the common
shares at $.015 per share, for a total value of $2,000. The issuance was exempt
under Section 4(2) of the Act.
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 as consideration to the note holders for their agreement to
refinance the notes. Our board valued the common shares at $.015 per share, for
a total value of $2,126. 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. Our
board valued the common shares at $.015 per share, for a total value of $1,000.
The issuances were 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. Our
board valued the common shares at $.015 per share, for a total value of $2,650.
The issuances were 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. Our
board valued the common shares at $.015 per share, for a total value of $5,000.
The issuances were exempt under Section 4(2) of the Act.
<PAGE>
N. In August 1999, we refinanced certain promissory notes previously
issued by us in 1996. In connection with that refinancing, we issued 85,961
issued common shares as consideration to the note holders for their agreement to
refinance the notes. Our board valued the common shares at $.015 per share, for
a total value of $1,290. The issuances were exempt under Section 4(2) of the
Act.
O. In September 1999, we issued to two officers, Thomas Alexandris and
William Papciak, 50,000 common shares each as a compensatory stock grant. Our
board valued the common shares at $.015 per share, for a total value of $1,500.
The issuances were exempt under Section 4(2) of the Act.
P. 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.
Q. From September 1999 through September 2000, we issued 12% promissory
notes to 74 individuals in exchange for $2,615,500 in cash. Each purchaser was
an accredited investor at the time we issued the notes. These individuals were
friends, relatives or business associates of our officers or directors, or were
clients of the selling broker-dealer. The notes entitle their holders to
receive, for no additional consideration, 523,100 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.
R. 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. Our board valued the common shares at $8.00 per share, for a total value
of $1,600,000. The issuances were exempt under Section 4(2) of the Act.
S. In January 2000, we issued 33,333 common shares to one individual in
settlement of an outstanding claim. Our board valued the common shares at $1.95
per share, for a total value of $65,000. The issuances were exempt under Section
4(2) of the Act. The issuance was exempt under Section 4(2) of the Act.
T. 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. Our board valued the common shares at $.015
per share, for a total value of $422. The issuances were exempt under Section
4(2) of the Act.
U. 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. Our board valued the common shares at
$10.00 per share, for a total value of $1,350,000. The issuances were exempt
under Section 4(2) of the Act.
V. In July 2000, we agreed to issue to Michael Garvin, the chairman of
our medical advisory board, 35,039 common shares as a compensatory stock grant,
17,519 of which are to be issued upon the close of our initial public offering.
The remaining 17,520 common shares are unvested and will vest over a three year
period. Our board valued the common shares at $10 per share, for a total value
of $350,390. The issuances were exempt under Section 4(2) of the Act.
W. In December 2000, we issued 12% promissory notes to a trust
controlled by Perry Rowan Smith, our director, in exchange for $155,000 in cash.
The notes entitle the trust to receive, for no additional consideration, 31,000
common shares upon the close of our initial public offering. The issuance was
exempt under Section 4(2) of the Act.
X. In December 2000, we issued 12% promissory notes to two non-U.S.
persons in exchange for $75,000 in cash. The notes entitle the non-U.S. persons
to receive, for no additional consideration, 15,000 common shares upon the close
of our initial public offering. The issuance was exempt under Regulation S of
the Act.
With respect to each of the foregoing offerings, before 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 received, before accepting the subscription of each subscriber,
subscription agreements or investment letters executed by the subscribers. Each
of the subscribers represented and warranted to us that such subscriber (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 or the
selling broker-dealer, if any, (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-Q, and T-U above was an accredited investor within the
meaning of Rule 501(a) of the Act.
<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
4.2* [Form of] 7% convertible promissory note due 2002
4.3* [Form of] 12% convertible promissory note due July 2001
4.4* [Form of] 8% convertible promissory note due July 2001
4.5* [Form of] 7% convertible promissory note due February 2001
4.6* [Form of] 12% unsecured units due 2000/2001
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
10.8* Agreement dated January 4, 1999 between Re-Track USA, Inc.
and Thomas Sassone
10.9* Agreement dated July 7, 1999 between Re-Track USA, Inc. and
Graham Gill
10.10* Agreement dated April 1, 1999 between Re-Track USA, Inc. and
Jack Gutierrez
10.11* Agreement dated February 12, 2000 between Re-Track USA, Inc.
and Mark Murphy
10.12* Agreement dated February 12, 2000 between Re-Track USA, Inc.
and Joseph Montuoro
<PAGE>
10.13* Agreement dated March 15, 1999 between Re-Track USA, Inc. and
Robert Bambery
10.14* Agreement dated January 7, 1999 by and between Re-Track USA,
Inc. and Peter Green
10.15* Agreement effective as of September 15, 1999, by and betwen
Re-Track USA, Inc., Marketing Sciences, Inc. d/b/a Papciala
Associates Atlanta, and Pennington Enterprises, Inc. d/b/a TA
Management
10.16* Manufacturing Agreement dated December 20, 2000 by and
between American Tool & Mold Inc. and Retrac Medical, Inc.
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
**Previously filed
<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.
<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 January 10, 2001.
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 January 10, 2001
-----------------------
Graham Gill
/S/ Thomas Sassone President and Chief Executive January 10, 2001
----------------------- Officer and Director
Thomas Sassone
/S/ Jack Gutierrez Chief Financial Officer and Director January 10, 2001
-----------------------
Jack Gutierrez
/S/ Perry Rowan Smith Director January 10, 2001
-----------------------
Perry Rowan Smith
/S/ Joseph Montuoro Director January 10, 2001
-----------------------
Joseph Montuoro
/S/ Mark Murphy Director January 10, 2001
-----------------------
Mark Murphy
</TABLE>
