REGISTRATION NO. 333-31264
SECURITIES AND EXCHANGE COMMISSION
FORM SB-2
AMENDMENT NO. 5
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEOSURG TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 3841 76-0635480
(State or other jurisdiction of (Primary Standard industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
NEOSURG TECHNOLOGIES, INC.
17300 EL CAMINO REAL, SUITE 110,
HOUSTON, TEXAS 77058 (281) 461-6211
(Address and telephone number of principal executive offices)
PETER T. O'HEERON, PRESIDENT
17300 EL CAMINO REAL, SUITE 110
HOUSTON, TEXAS 77058 (281) 461-6211
(Name, address, including zip code, and telephone number, of agent for service)
COPY TO:
BRIAN BOSIEN, ESQ.
COKINOS, BOSIEN & YOUNG
A PROFESSIONAL CORPORATION
1500 WOODSON TOWER 2919 ALLEN PARKWAY
HOUSTON, TEXAS 77019 (713) 535- 5500
APPROXIMATE DATE OF COMMENCEMENT 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 with respect to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the 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
---------------------------------------------------------------------------------------------------------------------
Proposed maximum
Title of each class of securities Amount to be Proposed maximum aggregate Amount of
to be registered registered offering price per unit(1) offering price (1) registration fee
--------------------------------- ------------ ---------------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, no par value 2,400,000 $ 6.75 $ 16,200,000 $ 4,276.80
---------------------------------------------------------------------------------------------------------------------
<FN>
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act.
</TABLE>
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 SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 1, 2000
2,400,000 SHARES
[GRAPHIC OMITTED]
NEOSURG TECHNOLOGIES, INC.
COMMON STOCK
---------------
This is an initial public offering of up to 2,400,000 shares of our common stock
at a price of $6.75 per share.
Our shares will be sold on a 592,592 share minimum, 2,400,000 share maximum
basis. We have applied for the listing of our common stock with the American
Stock Exchange but have not yet been approved. There is currently no public
market for our common stock.
We will sell shares of our common stock only to persons agreeing to purchase 300
shares or more. Funds received from prospective purchasers will be placed in an
interest bearing escrow account with First Community Bank, Houston, Texas, until
such time as we receive subscriptions for 592,592 shares of our common stock.
If we are unable to sell at least 592,592 shares of our common stock on or
before the termination of this offering, the escrow agent will promptly return
all of the funds held in the escrow account to subscribers with interest and
without deduction for the expenses of the escrow agent.
Unless earlier terminated, this offering of our common stock will remain open
until all shares offered are sold or December 15, 2000, whichever is earlier.
We may extend this offering in our discretion until March 31, 2001. We may
terminate this offering at any time.
You should carefully read and consider the information in this prospectus,
including the "Risk Factors" commencing on page 7, for information that should
be considered in determining whether to purchase any of our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Number of Price to Proceeds to
Shares Public Commissions Expenses NeoSurg
================================================================================
Minimum 592,592 $ 6.75 $ 240,000 $ 200,000 $ 3,560,000
Maximumv 2,400,000 $ 6.75 $ 972,000 $ 200,000 $ 15,028,000
================================================================================
Commissions reflect an average of a two-tiered commission structure.
<PAGE>
OXFORD FINANCIAL GROUP
The date of this prospectus is ________, 2000
2
<PAGE>
[GRAPHIC OMITTED]
NOTICE TO NEW JERSEY INVESTORS ONLY
THIS OFFERING IS BEING DIRECTED IN THE STATE OF NEW JERSEY TO ACCREDITED
INVESTORS ONLY, AS DEFINED BY RULE 501 OF REGULATION D, PROMULGATED UNDER THE
SECURITIES ACT OF 1933. AN ACCREDITED INVESTOR INCLUDES, WITHOUT LIMITATION,
ANY NATURAL PERSON WHOSE INDIVIDUAL NET WORTH, OR JOINT NET WORTH WITH THAT
PERSON'S SPOUSE, AT THE TIME OF HIS OR HER PURCHASE EXCEEDS $1,000,000 OR ANY
NATURAL PERSON WHO HAD AN INDIVIDUAL INCOME IN EXCESS OF $200,000 IN EACH OF THE
TWO MOST RECENT YEARS OR JOINT INCOME WITH THAT PERSON'S SPOUSE IN EXCESS OF
$300,000 IN EACH OF THOSE TWO YEARS, AND HAS A REASONABLE EXPECTATION OF
REACHING THE SAME INCOME LEVEL IN THE CURRENT YEAR. OTHER STANDARDS APPLY TO
INVESTORS WHO ARE NOT INDIVIDUALS. THERE WILL BE NO SECONDARY SALES OF THE
SECURITIES TO PERSONS WHO ARE NOT ACCREDITED INVESTORS IN NEW JERSEY.
<PAGE>
Table of contents
Prospectus summary 1
The offering 2
Summary financial information 3
Risk factors 4
Forward looking statements 8
Use of proceeds 9
Dividend policy 11
Capitalization 12
Dilution 13
Management's plan of operation 14
Business 19
Management 28
Certain relationships and related transaction 31
Representations required by state securities authorities 31
Restrictions applicable to certain states 32
Principal stockholders 33
Plan of distribution 34
Description of capital stock 40
Shares eligible for future sale 44
Legal matters 45
Experts 45
Where you can find more information 45
Index to financial statements F-1
<PAGE>
Prospectus summary
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully before making a decision to
invest in our common stock.
NEOSURG TECHNOLOGIES, INC.
We are a designer and manufacturer of surgical devices known as trocars
that are used in all laparoscopic surgical procedures. Laparoscopy is a
relatively recent method of minimally invasive surgery that is sometimes known
as "keyhole" or "pinhole" surgery. Laparoscopy typically entails incisions of
between 5 to 12 millimeters - just large enough to admit the passage of lights,
a small video camera, and specially crafted surgical instruments.
Laparoscopy is the predominate surgical method used for gallbladder
removal, appendix removal, hernia repair, anti-reflux surgery, bowel resection
and hysterectomy. The benefits driving its use are shorter patient hospital
stays, an earlier return to physical activity and a normal diet, reduced
post-operative pain, fewer post-operative complications, quicker patient
recovery and increased cost effectiveness. Newly developed technologies, such as
three dimensional imaging and intraoperative ultrasound, are providing surgeons
with a better view of internal structures making the procedure safe for more
complex surgical procedures.
Trocars are used to make the small portal entries into the body cavity
through which the surgical instruments and devices used in a laparoscopic
procedure are passed. Most laparoscopic procedures require four trocars,
varying in size from 5 to 12 millimeters in diameter depending on the procedure
and their function. Disposable trocars currently dominate the market and are
preferred because they are consistently sharp for each insertion and are
discarded after each use. The principal drawback of a disposable trocar is the
higher cost associated with using a new instrument for each procedure. The
principal drawback of the reusable trocars currently on the market is that they
require periodic resharpening, requiring hospitals to institute programs to
track their usage and maintain adequate inventories to permit a portion to be
out of service for resharpening.
Our trocar system, known as the T2000 Reusable Trocar System or T2000, uses
a small disposable tip to penetrate the body cavity, permitting the T2000 to be
reused without being resharpened, and can be readily sterilized and outfitted
with a new tip and seal cap for each procedure.
Our principal executive offices are located at 17300 El Camino Real, Suite
110, Houston, Texas 77058. Our telephone number is 281.461.6211.
<PAGE>
THE OFFERING
Shares offered . . . . . . . . . . . . . 2,400,000 shares of common stock
Price per share. . . . . . . . . . . . . $6.75
Minimum number of shares that can be
Purchased . . . . . . . . . . . 300
Shares outstanding after offering
Minimum. . . . . . . . . . . . . 13,841,116
Maximum. . . . . . . . . . . . . 15,648,524
Use of proceeds. . . . . . . . . . . . . - Intellectual property/product line
acquisition
- Bridge loan repayment
- Product development
- Marketing and advertising
- Additional personnel
- Insurance
- Inventory and equipment
- Working capital and general
corporate purposes
Proposed symbol for common stock on the
American Stock Exchange. . . . . . . . . NSG
After subscriptions for a minimum of 592,592 shares of common stock
have been received, we will be entitled to receive the offering proceeds in the
escrow account, and will be entitled to receive all offering proceeds
subsequently received without the requirement that they exceed a minimum amount.
We have the right to accept or reject any subscriptions in whole or in part.
Our officers, directors and affiliates may purchase up to 74,000 shares of
common stock on the same terms and price as all other purchasers in this
offering and their purchases, if any, may be used to satisfy the minimum
offering requirement.
We have applied for the listing of our common stock on the American Stock
Exchange but have not yet been approved. We believe that we will qualify for
listing if we are successful in raising the minimum offering but there can be no
assurance that listing will be granted.
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary financial data as of the dates and for
the periods indicated. The summary operating data for the fiscal years ended
December 31, 1997, 1998 and 1999, and summary balance sheet data for the year
ended December 31, 1999, has been derived from our audited financial statements.
The financial data for the nine months ended September 30, 2000, has been
derived from our unaudited financial statements. The unaudited adjusted balance
sheet data gives effect to the payment of $240,000 in commissions and
approximately $200,000 of other estimated offering expenses assuming the minimum
offering is completed and the payment of $972,000 in commissions and
approximately $200,000 of other estimated offering expenses assuming the maximum
offering is completed.
<TABLE>
<CAPTION>
Period from
January 1,
1997
inception
Years ended December 31, to Nine months ended
------------------------- December 31, September 30,
1998 1999 1999 1999 2000
------------ ------------ ----------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $ - $ - $ - $ - $ 9,311
COST AND EXPENSES:
Professional expenses 103,073 115,264 238,738 75,211 77,573
Selling, general and
administration 350,592 370,203 810,754 230,973 449,152
Research and development 28,331 54,587 137,805 44,924 30,052
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (481,996) (540,054) (1,187,297) (351,108) (547,466)
OTHER INCOME (EXPENSES)
Interest expense - - - - (71,000)
Interest income 34,936 46,482 106,165 40,331 7,496
Gain (loss) on marketable equity - (4,127) (4,127) - 68,980
securities ------------ ------------ ------------ ------------ ------------
34,936 42,355 102,038 40,331 5,476
------------ ------------ ------------ ------------ ------------
NET LOSS $ (447,060) $ (497,699) $(1,085,259) $ (310,777) $ (547,990)
============ ============ ============ ============ ============
PRO FORMA BASIC AND DILUTED LOSS
PER SHARE actual for unaudited
period ended September 30, 2000 $ (0.04) $ (0.04) $ (0.03) $ (0.04)
============ ============ ============ ============
PRO FORMA WEIGHTED AVERAGE
SHARES OUTSTANDING actual for
unaudited period ended
September 30, 2000 12,000,000 12,000,000 12,000,000 13,216,023
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
Actual Unaudited As adjusted As adjusted
December 31,1999 September 30, minimum maximum
2000
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Working capital (deficit) $ 260,360 $ (244,420) $ 3,315,580 $ 14,783,580
Property and equipment $ 37,481 $ 65,271 $ 65,271 $ 65,271
Total stockholders' equity (deficit) $ 301,841 $ (175,149) $ 3,384,851 $ 14,852,851
</TABLE>
3
<PAGE>
RISK FACTORS
An investment in our common stock is speculative and involves a high degree
of risk. Only those persons able to lose their entire investment should
purchase any of our common stock. Prior to making an investment decision, you
should carefully consider all of the information in this prospectus, including
the following risk factors.
OUR AUDITORS HAVE EXPRESSED A SUBSTANTIAL DOUBT AS TO OUR ABILITY TO
CONTINUE AS A GOING CONCERN IF WE ARE NOT SUCCESSFUL IN SELLING THE MINIMUM
NUMBER OF SHARES IN THIS OFFERING.
At September 30, 2000, we had an accumulated deficit of $751,366 and a net
loss for the year ended December 31, 1999, of $497,699 and a loss of $547,990
for the nine months ended September 30, 2000. As a consequence of our losses
and liquidity problems, in their report on our financial statements for the year
ended December 31, 1999, our auditors expressed a substantial doubt as to our
ability to continue as a going concern. We believe that we can meet our capital
needs for at least the next 12 months if we sell the minimum number of shares in
this offering. However, if we are not successful in selling the minimum number
of shares, we may not be able to continue as an operating entity. Even if we
raise the minimum offering, there can be no assurance, however, that we will be
successful in generating revenues sufficient to meet our expectations, or that
if we succeed, such revenues will be sufficient to provide the liquidity we
require or allow us to continue as a going concern.
WE HAVE BEEN ENGAGED PRIMARILY IN RESEARCH AND DEVELOPMENT ACTIVITIES
TOWARD THE DEVELOPMENT OF OUR T2000 REUSABLE TROCAR SYSTEM TO DATE AND HAVE NO
OPERATING HISTORY. OUR LACK OF OPERATING DATA MAKES PREDICTING OUR FUTURE
PERFORMANCE DIFFICULT.
To date our efforts have been devoted primarily toward the development of
the T2000. We have sold only a very limited number of our products and have no
operating history upon which you may forecast our business and prospects. Our
product is unproven, as are our pricing and marketing models for our products.
Further, we have only limited experience in selling our products. As a result
of these factors, it is difficult to evaluate our prospects, and our future
success is more uncertain than if we had a longer or more proven history of
operations.
OXFORD FINANCIAL GROUP HAS NOT PREVIOUSLY PARTICIPATED IN A PUBLIC OFFERING
AND THIS MAY AFFECT OUR ABILITY TO SUCCESSFULLY RAISE THE MINIMUM OFFERING OR
AMOUNTS IN EXCESS OF THE MINIMUM OFFERING, OR IN GENERATING INTEREST IN OUR
STOCK AFTER THE COMPLETION OF THIS OFFERING.
The successful completion of this offering will be directly dependent upon
the ability of Investors Trading Corp., d/b/a/ Oxford Financial Group, to
structure the offering syndicate, manage the offering process, and sell our
common stock. This offering is the first public offering that Oxford has
participated in, and there is a risk that it may be ineffective in managing the
sales process and that this will adversely affect sales of our common stock. As
a consequence, we may not raise the minimum offering, or, if we raise the
minimum offering, we may not be as successful in raising amounts in excess of
the minimum than if we had used a broker-dealer with greater public offering
experience. The less we raise in this offering, the less able we will be to
respond to unanticipated increases in anticipated expenses or decreases in
anticipated revenues and the greater the risk that we will be required to raise
additional capital.
4
<PAGE>
Further, at the conclusion of an offering, underwriters traditionally
assist the issuer in gaining attention from the public and securities
professionals, such as analysts and brokers. Oxford's lack of public offering
experience may also impair its inability to generate interest in us and our
common stock, which may adversely affect the development of a trading market for
our common stock, making it more difficult for our stockholders to sell their
shares and the trading price of our common stock more volatile. Prospective
purchasers of the shares of common stock offered should consider the limited
experience of Oxford in deciding whether or not to purchase shares in this
offering.
WE WILL HAVE BROAD DISCRETION IN ALLOCATING A SUBSTANTIAL PORTION OF THE
PROCEEDS FROM THIS OFFERING AND MAY UTILIZE THEM IN WAYS NOT DISCLOSED IN THIS
PROSPECTUS AND WITH WHICH YOU MAY NOT AGREE.
Our anticipated expenditures as set forth in this prospectus are based upon
assumptions that may not prove accurate. The funds allocated for any particular
use may be increased, decreased or eliminated, and other uses may be affected
accordingly, if we determine, in our discretion, that a reapportionment or
redirection of funds is in our best interest. Any reallocation of funds can be
expected to adversely affect the funding available for other business activities
and may result in our having to raise additional funds.
WE HAVE UNTIL MARCH 31, 2001, TO RAISE THE MINIMUM OFFERING. IF WE ARE
UNSUCCESSFUL IN RAISING THE MINIMUM OFFERING, THE ESCROW AGENT WILL RETURN
INVESTOR FUNDS WITH INTEREST. YOU WILL NOT BE ABLE TO DEMAND A RETURN OF YOUR
FUNDS PRIOR TO MARCH 31, 2001.
Subscriber funds will be deposited in an interest bearing escrow account
with First Community Bank, Houston, Texas, until we have successfully raised the
minimum offering of $4,000,000, at which time the escrow arrangements will
terminate and we will be entitled to the funds in the escrow account and all
subsequently received funds. We have until March 31, 2001, to raise the minimum
offering, assuming we extend the initial offering period as we are permitted to
do in our discretion. Subscribers for our shares of common stock will not be
entitled to demand a return of their funds held in escrow.
WE ARE SUBSTANTIALLY DEPENDENT ON THE EFFORTS OF PETER T. O'HEERON, OUR
PRESIDENT AND CHIEF EXECUTIVE OFFICER. MR. O'HEERON HAS KNOWLEDGE OF OUR
PRODUCTS AND MARKETS THAT WOULD BE DIFFICULT TO REPLACE. WE DO NOT CURRENTLY
HAVE AN EMPLOYMENT AGREEMENT WITH MR. O'HEERON.
Our future success depends to a significant extent on the efforts and
abilities of Peter T. O'Heeron, our president and chief executive officer, and
to a lesser extent on our other key employees, including our technical and sales
personnel. Mr. O'Heeron currently devotes substantially all his time and
efforts to NeoSurg although we do not have an employment or non-compete
agreement him or these other key personnel and we do not carry key-man or other
similar insurance policies on the lives of these individuals and we have no
plans to do so. The loss of the services of any of these individuals could harm
our business and prospects, particularly if they were to go to work for our
competitors.
DISPOSABLE TROCAR SYSTEMS CURRENTLY DOMINATE THE MARKET AND SOME OF THE
MANUFACTURERS OF THESE SYSTEMS HAVE OTHER PRODUCTS AND RELATIONSHIPS THAT MIGHT
IMPAIR OUR ABILITY TO SUCCESSFULLY SHIFT DEMAND TOWARDS OUR REUSABLE TROCAR
SYSTEM.
5
<PAGE>
The market for trocar systems is currently dominated by manufacturers of
disposable trocar systems. Our business is dependent upon a shift in the market
towards our reusable trocar system. Certain of these manufacturers also
manufacture products that are passed through, or are used with, trocars, giving
them an advantage in their ability to adapt to changes in instrumentation. As a
consequence, demand for our trocar system may not develop to a level sufficient
to support our continued operations or may develop more slowly than we expect,
adversely affecting our financial ability to respond as quickly and effectively
to new or emerging technologies and changes in customer or client requirements,
our ability to engage in more extensive research and development, undertake
farther-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to potential employees and strategic partners.
PURCHASERS OF OUR SHARES OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE
DILUTION OF 96% IF THE MINIMUM NUMBER OF SHARES ARE SOLD IN THIS OFFERING AND OF
86% IF THE MAXIMUM NUMBER OF SHARES ARE SOLD IN THIS OFFERING.
At September 30, 2000, our net tangible book value per share of common
stock was ($0.01). If only the minimum number of shares of our common stock
included in this offering are sold, the adjusted net tangible book value per
share of our common stock will be $0.24, resulting in immediate dilution of
$6.51 per share, or 96%, to purchasers in this offering. If the maximum number
of shares of our common stock included in this offering are sold, the adjusted
net tangible book value per share of our common stock will be $0.95, resulting
in immediate dilution of $5.80 per share, or 86%, to purchasers in this
offering.
EVEN IF WE SELL THE MAXIMUM NUMBER OF SHARES AVAILABLE IN THIS OFFERING,
EIGHT STOCKHOLDERS WILL STILL CONTROL 56.2% OF OUR COMMON STOCK.
Prior to this offering, our officers, directors and 5% or greater
shareholders, a total of 8 persons, controlled 66.3% of our common stock. If we
are successful in selling the maximum number of shares included in this
offering, these individuals will own approximately 56.2% of our common stock.
As a consequence, even in the case of our completion of the maximum offering,
these individuals collectively will have the ability to control the election of
directors and to significantly influence or control corporate policy and
shareholders votes regarding mergers or sales of all or substantially all of our
assets. See "Principal stockholders."
WE EXPECT TO RECEIVE NET PROCEEDS OF APPROXIMATELY $3,500,000 TO
APPROXIMATELY $14,785,000 IN THIS OFFERING, DEPENDING ON WHETHER WE SELL THE
MINIMUM OR MAXIMUM NUMBER SHARES. OUR BELIEF THAT SUCH FUNDS WILL BE SUFFICIENT
FOR OUR PURPOSES IS BASED ON ESTIMATIONS OF OUR ANTICIPATED EXPENSES AND
REVENUES. IF OUR ESTIMATIONS PROVE TO BE MATERIALLY INACCURATE, WE WILL BE
REQUIRED TO MODIFY OUR PLANS AND MAY HAVE TO RAISE ADDITIONAL CAPITAL, WHICH MAY
DIMINISH THE VALUE OF YOUR INVESTMENT.
Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least 12 months. See "Management's plan of operation -
Milestones and Liquidity and capital resources". Shortfalls in anticipated
revenues, increases in anticipated expenses and other factors may, however,
dictate that we obtain additional funding. Unplanned acquisition and
development opportunities may also arise that would cause us to raise additional
capital. If we raise additional capital the ownership percentage of our then
existing shareholders may be diluted and the value of their investment may be
diminished. Additional financing may not be available when we need it. If
adequate funds are not available on acceptable terms, we may be unable to fund
our expansion, develop or enhance our products or respond effectively to
competitive pressures, which could have a material adverse effect on our
business, financial condition and prospects.
6
<PAGE>
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR COMMON STOCK AND ONE MAY NOT
DEVELOP AS OUR STOCK IS NOT CURRENTLY LISTED OR TRADED ON A SECURITIES EXCHANGE
OR AUTOMATED QUOTATION SYSTEM, AND NO MARKET-MAKERS OR SPECIALISTS IN OUR COMMON
STOCK. AS A CONSEQUENCE, YOU MAY BE UNABLE TO SELL YOUR SHARES.
There is currently no public market for our common stock and purchasers of
our common stock may be required to hold our shares indefinitely. The
development of a public trading market depends upon not only the existence of
willing buyers and sellers, but also on the existence of "market-makers" in the
over-the-counter market and "specialists" in the securities exchanges.
Market-makers and specialists facilitate sales of securities by posting bid and
asked prices, matching buyers with sellers, and buying or selling shares for
their own account. Currently there are no market-makers or specialists posting
quotes for, trading in, or purchasing for their own account, shares of our
common stock, and no assurance can be given that any of these activities will
commence or, if commenced, will be continued.
IF A MARKET DEVELOPS FOR OUR COMMON STOCK, IT MAY BE CLASSIFIED AS A "PENNY
STOCK", SUBJECTING BROKER-DEALERS TRADING OUR SHARES TO REGULATIONS THAT MAY
DEPRESS THE PRICE OF OUR COMMON STOCK AND MAKE IT DIFFICULT FOR YOU TO SELL YOUR
SHARES.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. Prior to
a transaction in a penny stock, a broker-dealer is required to:
- deliver a standardized risk disclosure document prepared by the SEC
that provides information about penny stocks and the nature and level
of risks in the penny stock market;
- provide the customer with current bid and offer quotations for the
affected stock;
- explain the compensation of the broker-dealer and its salesperson in
the transaction;
- provide monthly account statements showing the market value of each
penny stock held in the customer's account; and make a special
written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to
the transaction.
These requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our shares of common stock become subject to the penny stock
rules, investors may find it more difficult to sell their shares.
7
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus includes forward looking statements, which appear in a
number of places and include statements regarding our plans, beliefs, intentions
and expectations. Forward looking statements may be identified by the use of
forward looking terminology such as may, will, expects, believe, estimate,
anticipate, continues, or similar terms, variations of those terms or the
negative of those terms. Actual results or events may differ materially from
those suggested by the forward looking statements for various reasons, including
the risk factors set forth in this prospectus. Although we believe that our
plans, beliefs, intentions and expectations are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Moreover, we
do not assume responsibility for the accuracy and completeness of forward
looking statements after the date of this prospectus.
8
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of our common stock, before deduction of
commissions and offering expenses are expected to be approximately $4,000,000 if
the minimum offering of 592,592 shares are sold, approximately $8,000,000 if a
mid-range number of 1,185,185 shares are sold, and $16,200,000 if the maximum
offering of 2,400,000 shares are sold. The commissions and offering expenses
are expected to be approximately $440,000 if the minimum offering of 592,592
shares are sold, approximately $680,000 if a mid-range number of 1,185,185
shares are sold, and $1,172,000 if the maximum offering of 2,400,000 shares are
sold. The amount of commissions we will actually pay may vary, as we are
required to pay a commission of 5% on sales to purchasers identified by us and
6.75% on all other sales. The foregoing estimates assume sales will fall
equally into each commission category.
The net proceeds from this offering are intended to be utilized as follows:
<TABLE>
<CAPTION>
Application of proceeds Minimum Midpoint Maximum
---------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Intellectual property/product line acquisition $ 600,000 17% $1,595,000 22% $ 4,100,000 27%
Product development 650,000 18% 1,690,000 23% 2,500,000 17%
Bridge loan repayment 480,000 13% 480,000 7% 480,000 3%
Marketing and advertising 425,000 12% 825,000 11% 1,800,000 12%
Additional personnel 275,000 8% 560,000 8% 2,250,000 15%
Insurance 45,000 1% 150,000 2% 175,000 1%
Inventory 350,000 10% 600,000 8% 1,100,000 7%
Equipment 285,000 8% 520,000 7% 923,000 6%
Working capital and general 450,000 13% 900,000 12% 1,700,000 11%
corporate purposes ---------- ---------- -----------
$3,560,000 $7,320,000 $15,028,000
</TABLE>
Intellectual property/product line acquisition costs include those
associated with acquiring intellectual property or product lines, Our goal is to
add products that will provide us with growth prospects, either through
acquisition or internal development. Although we have no specific plans or
commitments to acquire any product lines or intellectual property at this time,
we believe that there are products in the market that can be acquired that would
complement and enhance our product offerings. We believe that we will improve
our long-term prospects by continuing to diversify our product offerings with
instruments that can be used with our trocar system such as graspers, scissors
and retractors.
In considering acquisition prospects, we intend to focus on opportunities
that we believe will complement our existing products, enhance and diversify our
product mix, and may be sold initially through our existing distribution system
to our current customers. We prefer opportunities that are supported by patents
or patents pending although we will consider opportunities that are not
supported by patents or patents pending if we believe we can successfully gain
market share and compete without such protection.
Product development costs include those associated with developing a
closure device to be used in conjunction with the T2000 along with improvements
or modifications to the T2000, and in the event we raise more than the minimum
offering amount, the costs associated with developing acquired or internally
developed instruments that complement our trocar system.
9
<PAGE>
Bridge loan repayment costs are associated with a bridge loan for $505,000
that we received in May 2000. The proceeds from the bridge loan are being used
to expand our sales efforts. As of the date of this prospectus, $165,000 of the
loan proceeds remain.
Marketing and advertising costs consist primarily of costs associated with
our efforts to increase sales of our trocar system. We intend to use primarily
print advertising and direct contacts with hospital administrators. We expect
to market the T2000 only in Texas in the event the minimum offering is raised
and to proportionally expand the scope of our marketing efforts if more than the
minimum amount is raised.
Additional personnel costs include costs associated with hiring and
training and the ongoing salaries and benefits of, personnel necessary to
satisfy our growth. In the event that we sell the maximum number of shares in
this offering, we believe that we will significantly increase our marketing
efforts and, as a result, our operations. Consequently, we expect that our
personnel needs would increase significantly, including the possible need for
additional executive officers. If we sell the minimum number of shares in this
offering, we will likely increase our operations less significantly and our
personnel needs will grow to a lesser degree.
Insurance costs represent those costs associated with product liability
insurance. In the event we sell close to the maximum number of shares in this
offering, we believe we can significantly increase the distribution of our
instruments, thus increasing the need for additional insurance. If we sell the
minimum number of shares in this offering, we will likely require a lesser
amount of insurance coverage.
Inventory costs consists of the supply of instruments we feel will be
needed to fill anticipated orders. In the event we sell close to the maximum
number of shares in this offering, we believe we may significantly increase the
distribution of our instruments, thus increasing the need for additional
instruments. If we sell the minimum number of shares in this offering, an
increase in our sales would likely be smaller and our inventory needs grow to a
lesser degree.
Equipment costs represents additional office computer equipment and
prototyping machinery such as computer lathes and rapid prototyping equipment.
In the event we sell close to the maximum number of shares in this offering, and
we significantly increase our product development programs, we intend to develop
our own in-house prototyping capabilities that will benefit us by reducing the
time and costs we currently spend on prototypes. If we sell the minimum number
of shares we will expand our prototyping activities to a lesser degree.
Working capital and general corporate purposes represent funds reserved to
cover unanticipated costs including, but not limited to, professional fees,
rent, employee salaries, and other operating expenses.
The amounts set forth above are estimates. The actual amount expended to
finance any item above may be increased or decreased if we determine that such
estimates were too high or too low based on our actual experience, or if a
change in our financial position requires us to reassess our financial plans and
we believe a reapportionment or redirection of funds would be in our best
interests. The level and timing of expenditures necessary for each of the
intended uses described above will depend upon numerous factors, including the
progress of our product development activities, the timing and amount of
revenues resulting from our operations and changes in competitive or
technological conditions in our industry. If the minimum amount is raised, our
expansion plans will be limited.
10
<PAGE>
We anticipate that the net proceeds of this offering, even on a minimum
basis, together with our projected revenues from our operations, will be
sufficient to fund our operations and capital requirements for at least 12
months following this offering. There can be no assurances however, that such
funds will not be expended earlier due to unanticipated changes in economic
conditions or other circumstances that we cannot foresee. If our plans change or
our assumptions change or prove to be inaccurate, we could be required to seek
additional financing.
Pending use of the proceeds from this offering as set forth above, we may
invest all or a portion of such proceeds in marketable securities, short-term,
interest-bearing securities, U.S. Government securities, money market
investments and short-term, interest-bearing deposits in banks.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
do not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
11
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (i) at September 30,
2000, and, (ii) as adjusted to give effect to the sale of the minimum number of
592,592 shares of common stock offered and to the sale of the maximum number of
2,400,000 shares of common stock offered at an offering price of $6.75 per
share, and after the application of the net proceeds of such sale as described
in "Use of Proceeds."
<TABLE>
<CAPTION>
September 30, 2000 (unaudited)
As adjusted
-------------------------
Actual Minimum Maximum
---------- ----------- ------------
<S> <C> <C> <C>
Stockholders' equity (deficit):
Common stock, no par value per share;
20,000,000 shares authorized; 13,248,524 shares
issued and outstanding; 13,841,116 shares issued
and outstanding, assuming the minimum number of
shares are sold, 15,648,524 shares issued and
outstanding, assuming the maximum number of
shares are sold $ 576,217 $4,136,217 $15,604,217
Deficit accumulated during development stage (751,366) (751,366) (751,366)
---------- ----------- ------------
Total stockholders' equity (deficit) $(175,149) $3,384,851 $14,852,851
========== =========== ============
</TABLE>
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<PAGE>
DILUTION
Our net tangible book value (deficit) at September 30, 2000, was $(175,149)
or ($0.01) per share of common stock. Net tangible book value per share
represents the amount of total tangible assets less liabilities, divided by
13,248,524, the number of shares of our common stock outstanding at September
30, 2000. After giving effect to the sale of 592,592 shares, if the minimum
number of shares offered are sold or 2,400,000 shares if the maximum number of
shares offered are sold, our adjusted net tangible book value at September 30,
2000, would be $3,384,851, or $0.24 per share, in the event that the minimum
number of shares offered are sold and $14,852,851, or $0.95 per share, in the
event that the maximum number of shares offered are sold.
Our existing stockholders will realize an immediate increase in net
tangible book value of $0.25 per share, in the event the minimum number of
shares are sold, and $0.96 in the event the maximum number of shares are sold
and new investors will realize an immediate dilution of $6.51 per share, or 96%,
in the event that the minimum number of shares offered are sold, and $5.80 per
share, or 86%, in the event that the maximum number of shares offered are sold.
The following table illustrates per share dilution before deduction of
consulting fees, commissions and other offering expenses:
<TABLE>
<CAPTION>
Minimum Maximum
--------- ---------
<S> <C> <C>
Assumed public offering price per share of common stock
offered $ 6.75 $ 6.75
--------- ---------
Net tangible book value per share before offering. . . . . . (0.01) (0.01)
Increase per share attributable to new . . . . . . . . . . . 0.25 0.96
investors --------- ---------
As adjusted net tangible book value per share after offering 0.24 0.95
--------- ---------
Dilution per share to new investors. . . . . . . . . . . . . $ 6.51 $ 5.80
========= =========
</TABLE>
The following tables summarize the relative investments of investors
related to this offering and our current stockholders, in the event the minimum
or the maximum number of shares offered are sold at a per share offering price
of $6.75, before deduction of consulting fees, commissions and other offering
expenses:
<TABLE>
<CAPTION>
Minimum: Current
-------- stockholders Public investors Total
------------------------------------------------
<S> <C> <C> <C>
Number of shares of common stock purchased. . . . . . 13,248,524 592,592 13,841,116
Percentage of outstanding common stock after 96% 4% 100%
Offering. . . .
Gross consideration paid. . . . . . . . . . . . . . . $ 1,387,100 $ 4,000,000 $ 5,387,100
Percentage of consideration paid. . . . . . . . . . . 26% 74% 100%
Average consideration per share of common stock . . . $ .11 $ 6.75 $ .39
Maximum: Current
-------- stockholders Public investors Total
------------------------------------------------
Number of shares of common stock purchased. . . . . . 13,248,524 2,400,000 15,648,524
Percentage of outstanding common stock after offering 84% 16% 100%
Gross consideration paid . . . . . . . . . . . . . . $ 1,387,100 $ 16,200,000 $17,587,100
Percentage of consideration paid . . . . . . . . . . 8% 92% 100%
Average consideration per share of common stock. . . $ .11 $ 6.75 $ 1.14
</TABLE>
13
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
PLAN OF OPERATIONS
We are a development stage medical device company. From 1997 through
1999, we have been involved in the development, prototyping and testing of our
T2000 Reusable Trocar System. During this period, we used funds from private
placements of debt and equity securities to fund development and secure patents
on the T2000, and to acquire one additional patent from a third party. The
predecessor to NeoSurg Technologies, Inc., was T2000, LP, a limited partnership
formed in 1997 to develop the T2000. In September of 1999, T2000, LP, converted
into a Texas corporation and was renamed NeoSurg Technologies, Inc. All
interests in the limited partnership were converted into common stock of NeoSurg
in the same relative percentages as held by the partners of T2000, LP.
Subsequent to August 31, 2000, we completed our first production run of the
T2000 and have sold approximately $9,000 of replaceable tips to two facilities.
The remaining units from our first production run have been placed in inventory.
Our market efforts have focused on demonstrations of the T2000 and
discussions of the potential savings it offers with a limited number of
hospitals. We believe that capitated healthcare reimbursement is motivating
hospital executives to find ways to lower costs. Over the past few years,
reimbursement for healthcare has shifted from a fee-for-service model to
capitation. Under a capitated system, an insurance company or government pays a
predetermined rate for each procedure and it is incumbent upon the hospital to
reduce procedure costs to maintain or improve its profit margins. Improving
operating efficiencies and reducing the cost of supplies and instrumentation are
means by which profit margins may be maintained or improved and we believe that
the T2000 offers cost savings over the disposable trocar systems in general use.
We intend to expand the distribution of our products using regional
distributors, independent sales representatives and direct sales representation
where necessary. We currently have a distribution arrangement for the State of
Texas with Klein Surgical of San Antonio. Klein Surgical has sales
representatives in San Antonio, Houston, and Dallas and covers the entire state
from these territories. We intend to use the proceeds for this offering to
market the T2000 on a regional basis if we raise only the minimum proceeds and
on a national basis if we raise the maximum, and increase our inventories to
supply the anticipated demand for the product, as well as to meet our other
capital requirements as detailed elsewhere in this prospectus.
We believe in the long-term value of research and expect to continue to
incur substantial research and development costs in the future in connection
with the further research, development and manufacturing of products for use in
clinical testing. We have, for example, licensed a patent from a physician that
will begin development within three months of the closing of the offering. This
patent describes a closure device for laparoscopic wounds created by trocars.
While these wounds are small, they may need internal suturing. The device uses
two hook shaped needles to align the sutures without the need of additional
trocars and we believe it will operate more efficiently than existing systems by
reducing the number of steps required to suture a wound site.
We also expect that our general and administrative costs, including patent
and regulatory costs, manufacturing costs, marketing and sales costs will
increase in the future. We expect that our selling, general and administrative
expenses will increase in connection with the expansion of our efforts to
increase awareness of the benefits of the T2000 among both the medical community
and the purchasing decision makers at large.
14
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense increased by $26,256 or 93% from $28,331
in 1998 to $54,587 in 1999, primarily as a result of increased testing and
prototyping fees. Professional expenses increased by $12,191, or 12%, from
$103,073 in 1998 to $115,264 in 1999 as a result of increased expense associated
with the prosecution of patent applications, subcontracting for some engineering
fees and instrument design.
Research and development expenses decreased $8,872 or 19.7% from $44,924
during the nine months ended September 30, 2000, to $36,052 during the
comparable period in 2000. This decrease was due to the reduction in first
quarter spending on product design and development.
OPERATIONS FOR THE NEXT TWELVE MONTHS
We have begun to market the T2000, the first product resulting from our
research and development efforts. If we raise the minimum amount in this
offering we intend to use approximately $700,000 of the proceeds for marketing
and additional personnel to provide for the introduction of the T2000 on a
regional basis. If we raise the maximum amount, we intend to use approximately
$3,925,000 to expand distribution to a national level. We currently have four
full-time employees and two contract employees in the areas of design, sales,
and administration. Our management consists of one full-time employee. We
intend to hire additional design, financial, marketing, sales and administrative
personnel over the next twelve months, as we deem necessary and as our financial
condition permits.
We intend to offer three options to hospitals that wish to use the T2000:
purchase, lease, or equipment placement. Under each option we intend to bill
and receive payment within 30 days. Under the equipment placement model we will
charge a premium for our replaceable surgical tips to amortize the cost of the
instruments. In the other two models we will receive instrument payments prior
to installation. The equipment placement model has been developed previously as
a means to place our trocar systems in hospitals off-budget, or between capital
budgeting cycles.
Our operating expenses depend on several factors, including our level of
research and development expenses. We intend to spend up to $650,000 for
product development in the event we raise the minimum in this offering and
$2,500,000 in the event we raise the maximum in this offering, however, our
actual expenses will depend on the progress and results of our product
development efforts, which we cannot predict. We may, in some cases, be able to
control the timing of development expenses in part by accelerating or
decelerating testing and clinical trial activities. As a result of these
factors, we believe that period-to-period comparisons in the future not
necessarily be meaningful and should not be relied upon as an indication of
future performance.
15
<PAGE>
MILESTONES
The following table outlines the principal steps we intend to take during
the first year following the completion of this offering to reach our business
and financial objectives. The first month begins upon closing of the minimum
number of shares offered. These are estimates of both time and dollar amounts
given current information. The cost is a range of the minimum and maximum of
the offering. The actual time frames and expenditures are likely to change as
the business progresses resulting from the business' growth rate, demands on
management's time, unanticipated problems and delays and other unforeseen
circumstances or occurrences.
<TABLE>
<CAPTION>
When Approximate cost to
Event or milestone Method of achievement accomplished complete
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A. Hire additional Recruit and hire additional Month 1-6 275,000 - $2,250,000
personnel personnel in the areas of sales,
finance, design, manufacturing
and administration
B. Order additional Place purchasing contract with Month 1 350,000 - $1,100,000
inventory vendors
C. Marketing activities Create and display advertisements Month 2-6 425,000 - $1,800,000
and trade show displays in
targeted markets
D. Initiate distribution Identify distributors in target Month 2-6 $25,000 - $75,000
network markets and enter into distribution
agreements
E. Initiate a new product Identify emerging trends to Month 3-12 650,000 - $2,500,000
development maximize complimentary products
program and leverage with product line
acquisition
</TABLE>
The following discussion should be read in conjunction with the historical
financial statements, including the notes that might be found elsewhere in this
prospectus.
LIQUIDITY AND CAPITAL RESOURCES
To date we have been funded by our founders and a small number of private
investors. These funds have been utilized to develop, test and refine the
T2000, which has been completed successfully at this time.
On December 31, 1999, we had cash, cash equivalents and marketable
securities of $277,879. On September 30, 2000 we had cash, cash equivalents and
marketable securities of $165,061. On March 31, 2000, we obtained a bridge loan
in the amount of $130,000, which matures on December 1, 2000, and carries an
16
<PAGE>
interest rate of 10%. As of September 30, 2000, the outstanding principal
balance is $110,000. On May 3, 2000, we obtained a bridge loan in the amount of
$375,000, which carries a one-year maturity and an interest rate of 16%. We can
prepay these notes at any time without penalty. During the periods reported, we
had sufficient cash balances to support our business. We believe that our
existing liquid assets and cash generated from year 2000 operations, plus the
proceeds from this offering, if any, should be sufficient to meet our currently
anticipated liquidity and capital expenditure requirements for at least 12
months. There can be no assurance, however, that we will be successful in
generating revenues sufficient to meet our expectations, or that if we succeed,
such revenues will be sufficient to provide the liquidity we require or allow us
to continue as a going concern. In such event, we may be required to obtain
additional financing which may consist of equity or debt. There can be no
assurances that we will be able to obtain additional financing, or if available,
that such financing will be on terms acceptable to us.
We have only a limited operating history upon which an evaluation of our
prospects can be based. As a development stage company, we have incurred
expenses related to development and testing the T2000. We must raise additional
capital through this offering to bring the T2000 to market, to fund the
development of a closure device complimentary to the T2000, and to pursue new
opportunities. If we are unsuccessful in this offering, we may not continue as
a going concern. If we are unsuccessful in this offering, we may seek private
debt or equity funding to supplement current resources.
The risks, expenses and difficulties encountered by companies at an early
stage of development must be considered when evaluating our prospects. To
address these risks, we must, among other things, successfully market and sell
the T2000, develop successful new products, secure all necessary proprietary
rights, respond to competitive developments, and continue to attract, retain and
motivate qualified persons.
We may accept subscriptions for the sale of shares to investors if at least
592,592 shares have been sold. In the event we sell only such minimum amount,
we will not be able to develop our business as rapidly as if more shares were
sold and will be required to rely more heavily on our internal growth and/or
bank or other financing for our expansion.
Unplanned acquisition and development opportunities may also arise that
would cause us to raise additional capital. If we raise additional capital
through the sale of equity, including preferred stock and/or convertible debt
securities, the percentage ownership of our then existing shareholders will be
diluted. Additional financing may not be available when we may need it. If
adequate funds are not available on acceptable terms, we may be unable to fund
our expansion, develop or enhance our products or respond to competitive
pressures. This limitation could have a material adverse effect on our
business, financial condition and results of operations.
INCOME TAXES
Through September 16, 1999, we were a limited partnership and not subject
to federal and state income taxes. Accordingly, income and losses were reported
on the personal income tax returns of our partners. Effective September 16,
1999, we converted from a Texas limited partnership to a Texas corporation. The
minimum regular federal income tax rate is currently 34%. At present, Texas
does not impose income taxes on corporations but does impose a business and
franchise tax on corporations conducting business in the State of Texas based on
taxable income allocable to business done in Texas.
17
<PAGE>
SEASONALITY
The healthcare markets are characterized by capital budgeting cycles that
typically occur prior to the end of a facility's designated fiscal year. For
example, a facility with a fiscal year ending June 30 would typically make their
purchasing decisions in April or May and a facility with a fiscal year ending in
December would make their purchasing decisions in October and November. If a
capital item such as our T2000 is not budgeted during these periods, it is
likely the facility will postpone their decision until the next purchasing
cycle. We have developed a program that allows us to place our instruments in
facilities at no initial cost to the customer while permitting us to recoup our
costs by increasing the price of our disposable surgical tips. Nevertheless,
there can be no assurance that we will avoid seasonal purchasing effects or
achieve consistent growth or profitability on a quarterly or annual basis.
INFLATION.
We believe that inflation has generally not had a material impact on our
operations.
18
<PAGE>
BUSINESS
OVERVIEW
Surgery has traditionally required making large incisions, 12 to 24 inches
long. These incisions, and the significant dissection required to allow the
surgeon to visualize the operative area, are the aspects of surgery that cause
most of the post-operative pain felt by patients and contribute to slow patient
recovery.
Laparoscopic surgery is a technique that allows the surgeon to perform a
surgical procedure through multiple small incisions with the aid of a video
camera and special instruments. Laparoscopic surgery is also called minimally
invasive or keyhole surgery.
In laparoscopic surgery, a sharpened tip of a trocar is used to create a
small puncture in the body of the patient. The trocar then provides a portal
through which instruments can be passed during surgery instead of looking
directly at the part of the body being treated, the physician monitors the
procedure using a special video camera system called a laparoscope inserted
through one of the trocars used for the procedure. Using a thin tubular
telescope and a tiny high-resolution video camera, the surgeon can see, on a TV
monitor, the inside of the abdomen. Other trocars are then inserted into the
body through which long, slender instruments are inserted to conduct the actual
surgical procedure. This method of surgery can result in better visualization of
the operative site than traditional methods, allowing for more precise work.
Laparoscopic surgery was successfully introduced for gynecological
procedures in the early 1970's. Since 1988, when laparoscopy was first used for
cholecystectomy, or gallbladder removal, patient demand has contributed to a
rapid expansion in the number of laparoscopic procedures performed. The impetus
for its growth has been decreased invasiveness and its resultant advantages,
including shorter hospital stays, reduced postoperative pain, fewer
post-operative complications, quicker patient recovery, earlier return to work
and routine activities of daily living and greater cost effectiveness.
Laparoscopy is the predominate surgical method used for gallbladder removal,
appendix removal, hernia repair, anti-reflux surgery, bowel resection and
hysterectomy. For example, today, 95 percent of gallbladder removals are
performed laparoscopically, according to Millennium Research Group, US
Laparoscopy Report 1999 & 2000. New technologies, such as three dimensional
imaging and intra-operative ultrasound, are providing surgeons with a better
view of internal structures, all the approach to be adapted successfully for
many other types of surgery.
Trocars are used in all laparoscopic procedures and the average number
required per procedure is four. Ethicon Endo-Surgery and Tyco-US Surgical have
dominated the trocar market for the past 10 years with convenient, disposable
trocar systems.
We believe there is a greater awareness in the healthcare industry today of
the need to reduce costs and an increased willingness to embrace alternatives to
traditional methods of doing business as the result of changes in reimbursement
from third party payors. We intend to address the needs of customers who seek
solutions to the rising cost of surgical services by providing a high quality
trocar that reduces the cost of each procedure.
The T2000 is designed to combine the convenience of a disposable trocar
with the cost savings and quality of a reusable by providing a consistently
sharp replaceable tip, a reliable shielding mechanism for the tip, quality
construction, state of the art materials, interchangeability and easy
disassembly for sterilization.
19
<PAGE>
OUR FORMATION
The predecessor to NeoSurg Technologies, Inc., was T2000, LP a Texas
limited partnership formed in 1997. In September of 1999, T2000, LP, converted
into a Texas corporation and was renamed NeoSurg Technologies, Inc. NeoSurg
Technologies issued an aggregate of 12,000,000 shares of common stock to the
limited partners and the general partner of T-2000, L.P. in connection with the
conversion. All interests in the limited partnership were converted into common
stock of NeoSurg in the same relative percentages as held by the partners of
T2000, LP. No cash consideration was received for these shares. In February
2000, Moser Medical, Inc., the former general partner of T2000, LP and a
shareholder of NeoSurg, was merged with and into NeoSurg, and converted into
common stock in the same relative percentage as it held in T2000, LP, with
NeoSurg being the surviving entity.
THE MARKET
The overall market for all laparoscopy products stood at $686.4 million in
1998. Of that amount, $229 million was attributed to trocars. The number of
laparoscopic procedures performed in the United States in 1998 was 1,883,000 and
is projected to grow to 2,303,300 by the year 2003, according to data from the
Millennium Research Group, US Laparoscopy Report 1999 & 2000. The aging of the
"baby-boomers" is expected to lead to increased usage of the healthcare system
and contribute to the growth in this market.
Of these, the most common procedures are: cholecystectomy, appendectomy,
hernia repair, anti-reflux, bowel resection, hysterectomy, and sterilization.
Up to four individual trocars are used in each of these procedures.
CHANGES IN THE MARKET
A significant development in the marketplace recently has been increasing
financial pressure on hospitals resulting from capitated reimbursement, which is
affecting product selection, according to the Millennium Research Group, US
Laparoscopy Report 1999 & 2000. Historically buyers in this market have been
concerned with convenience and cost has been a secondary consideration in
individual instrument purchases. Because of the evolution of reimbursement
from cost based reimbursement to capitation, many hospitals are searching for
ways to reduce the procedural cost, inventory increase, and waste associated
with disposable instrumentation. ALTHOUGH DISPOSABLE PRODUCTS USED TO BE
PROFIT-CENTERS AS A RESULT OF MARK-UPS ON EACH ITEM USED IN A SURGICAL
PROCEDURE, THEY ARE NOW COST-CENTERS BECAUSE OF CAPITATED REIMBURSEMENT.
As a consequence, hospitals are forming internal committees charged with
the sole purpose of identifying disposable products that can be converted to
reusable products. While reusable instrumentation currently only commands 2% of
the market, sales have been increasing over the past 2 years according to
Millennium Research Group, US Laparoscopy Report 1999 & 2000. Growth in
reusable instruments is expected to continue for the foreseeable future.
The market for trocar systems is dominated by manufacturers of disposable
trocar systems. Our business is dependent upon a shift in the market towards our
reusable trocar system. The demand for reusable trocar systems may not develop
to a level sufficient to support our continued operations or may develop more
slowly than we expect, adversely affecting our business and prospects.
20
<PAGE>
COMPETITION
While there are many firms competing in this industry, competition is
dominated by disposable trocar manufacturers Ethicon Endo-Surgery and, to a
lesser extent, Tyco-US Surgical. In the reusable market the leader is Karl
Storz. Storz's trocars require resharpening of the tip which requires their
customers to create an infrastructure or logistics program to track the number
of uses of the trocar so it can be returned for sharpening at the appropriate
time.
While each of our competitors possesses strengths and weaknesses, their
primary advantage is market share and greater technical and financial resources.
These strengths can be expected to allow them to respond more quickly and
effectively to new or emerging technologies and changes in customer or client
requirements, as well as engage in more extensive research and development,
undertake broader marketing campaigns, adopt more aggressive pricing policies
and make more attractive offers to potential employees and strategic partners.
Our industry is characterized by rapid technological change, frequent new
product and service introductions, short development cycles and evolving
industry standards. We may incur substantial costs to modify our products to
adapt to these changes and to maintain and improve the performance, features and
reliability of our products.
DISPOSABLE VERSUS REUSABLE
The debate about the merits of reusable versus disposable trocar
instruments has been ongoing throughout the evolution of the laparoscopy
products industry. In the U.S., disposable trocars took an early lead and are
still much more prevalent domestically than anywhere else in the world. In some
European countries, including Germany in particular, disposables are widely
shunned because of their costs. In the U.S., the trend since the mid 1990s, has
been towards greater acceptance of reusables.
Disposable trocars have gained market share because of their convenience,
safety features, and consistent penetration force due to a sharp tip with each
use. Reusable trocars have maintained their position as a result of the quality
of their workmanship and cost savings, but they have traditionally lacked tip
shielding features, a consistently sharp tip for each puncture and have created
a logistical burden for customers. We believe the T2000 combines the advantages
of disposable and reusable trocars in one instrument.
TARGET MARKET AND CUSTOMERS
We believe we can successfully enter the market with our reusable trocars.
We believe that hospitals will find the cost benefits of our trocar compelling
enough that we will be able to build sales and establish a market position. We
have evaluated the T2000 in various hospitals with over 50 different surgeons
and indications are that there is significant interest in utilizing this
instrument.
Our target market is the hospital chief executive officer and chief
financial officer. We believe that the T2000 will be the first surgical
instrument introduced at the senior management level. Our personnel have
significant experience in hospitals and healthcare administration and have
developed relationships at the executive level. The chief executive officer and
chief financial officer are usually the primary decision makers with respect to
capital purchases, generally items over $5,000. Surgeons and nurses are also
critical to our success and gaining their approval of the clinical effectiveness
of the T2000 is important.
21
<PAGE>
When our product is installed in the hospital and we have developed a
purchasing relationship with the customer we will offer discounts on our trocars
and replaceable tips if hospital administrators sign up their member hospitals.
This concept has been explained to the facilities in which we are currently
conducting clinical evaluations and the interest level appears strong. If the
sales contact has the flexibility to make purchasing decisions but cannot divert
capital budget funds, we will offer to place the instruments in the facility at
no cost and amortize the purchase price through a 3-5 year tip-purchasing
contract.
To improve operating efficiencies, hospitals have been reducing their lists
of vendors and consolidating their purchasing to a few larger suppliers and
group purchasing organizations. They have also become increasingly demanding of
their suppliers, for example insisting that all vendors institute some type of
just-in-time inventory to shift the inventory burden away from the hospital.
This means that we may need to be successful in convincing hospitals to purchase
our products "off-contract", and enroll their assistance to gain a presence in
the larger Group Purchasing Organizations, or GPOs. Most GPOs have focused on
disposable instruments but we believe significant market opportunities exist for
reusables instruments. Further, because only the tips of our instruments are
replaced, we can offer hospitals lower inventory levels and reduce the physical
space allocated to trocars.
SALES AND MARKETING
Our marketing strategy will be based upon an in-person sales effort. We
will present our T2000 product principally to hospital executives. The primary
sales focus will be cost savings without a major capital expenditure or
extensive learning curve. Essentially, a hospital can transition to the T2000
after just one training session with the hospital reprocessing staff. It is
anticipated that this benefit will appeal to hospital administrators and
motivate them to guide the product through clinical evaluations with their
endorsement.
Other marketing activities will include advertising and publicity geared
towards encouraging the hospital administrators of potential customers to meet
with our salespeople and allow them to perform a quick cost/benefit analysis.
The overall direction of our marketing will be to rapidly open new accounts,
acquire new customers, insure that we achieve our sales goals, increase our
visibility in the marketplace, and differentiate us from our competition. We
intend to achieve this through a marketing program that emphasizes the T2000's
strengths and benefits over other systems. Our marketing approach to operating
room directors will be through appearances at trade shows and follow-up using
local sales representatives.
Our advertising in trade journals will focus on periodicals read by
administrators, chief financial officers, and operating room directors. The
more prominent publications directed to this market are Modern Healthcare,
Hospitals, and American College of Obstetrics and Gynecology.
WORLD WIDE WEB
We intend to promote our business with a World Wide Web site. On the site
we will offer product information, service information, basic information about
our business, suggestions on how to use our product more effectively, and other
information of interest to potential customers, including links to related sites
and information on how to reach us. We will promote our Web site on all our
literature, business cards and on our stationary. We also intend to make our
products available through the internet and via business-to-business web sites
that specialize in the healthcare sector to capitalize on the anticipated
e-commerce growth in the purchase of healthcare products.
22
<PAGE>
TRADE SHOWS
We intend to have a booth at the following trade shows:
- American College of Surgeons, ACS,
- American College of Obstetrics and Gynecology, ACOG, and
- American Operating Room Nurses Association, AORN.
Dr. Hickman, our medical affairs consultant will attend these shows and
demonstrate the T2000 to his fellow physicians and answer any questions they may
have. Pete O'Heeron will also market to hospital administrators through the
national and local chapters of the American College of Healthcare Executives or
ACHE. Mr. O'Heeron has reached the level of Certified Healthcare
Executive/Diplomat the second highest certification in ACHE.
We intend to use direct mail advertising targeted to hospital
administrators, operating room directors and nurses in decision-making positions
in advance of a trade show, utilizing a list of names and addresses generated
from the trade show organizer's registration rolls that would include
informational pieces regarding our booth location and a request that they stop
by while they are attending the trade show.
INTELLECTUAL PROPERTY
We regard our patents, copyrights, service marks, trademarks, trade
secrets, proprietary technology and similar intellectual property as critical to
our success, and we rely on trademark and copyright law, trade secret protection
and confidentiality and license agreements with our employees, customers,
independent contractors, partners and others to protect our intellectual
property rights. The original inventor of the T2000 was Philip Wolf. Mr. Wolf
assigned this patent to Moser Medical in the spring of 1997. We currently own
six patents relating to the reusable trocar. In addition to these patents, a
patent relating to a closure device has been licensed from a third party. There
can be no assurance that the steps we have taken to protect our proprietary
rights will be adequate or that third parties will not infringe, reverse
engineer or misappropriate our patents, copyrights, trademarks, trade dress and
similar proprietary rights. In addition, there can be no assurance that other
parties will not assert infringement claims, including patent infringement
claims, in which case we may have to defend or protect our patents at
potentially significant cost.
We have applied for registration of certain trademarks in the United States
and may apply for registration in the United States for other trademarks and
service marks. We may not seek or achieve effective patent, trademark, service
mark, copyright and trade secret protection in every country in which the our
products and services are made available.
23
<PAGE>
Below is a table containing summary information regarding our the patents
And trademarks, both issued and pending:
<TABLE>
<CAPTION>
APPLICATION
OR DATE FILED
PATENT NO. PATENT TITLE OR ISSUED SUMMARY
-----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
6,106,539 Trocar with 8/22/2000 This patent covers an obturator with a
Removable, removable and replaceable tip along with
Replaceable Tip geometry, which makes it easier to remove.
-----------------------------------------------------------------------------------------------
5,342,379 Safety Scalpel 8/30/1994 We hold an exclusive worldwide license and are
in the process of reviving this patent.
-----------------------------------------------------------------------------------------------
5,810,863 Trocar Including an 9/22/1998 This patent covers a trocar with a removable
Obturator with a knife attached to the obturator using a pin.
Removable Knife
-----------------------------------------------------------------------------------------------
5,697,947 Trocar Obturator 12/16/1997 This patent covers a trocar with a removable
Including a Removable knife attached to the obturator using a slotted
Knife fitting.
-----------------------------------------------------------------------------------------------
5,782,845 Trocar Site Suturing 7/21/1998 Relates to a device used to close the trocar
Device wound site.
-----------------------------------------------------------------------------------------------
6,099,544 Safety Shielded, 8/08/2000 This patent relates to patent #5,697,947
Reusable Trocar centering on the safety shielding mechanism.
-----------------------------------------------------------------------------------------------
09/256,009 Trocar 2/23/1999 This patent is pending and features a locking
shield mechanism.
-----------------------------------------------------------------------------------------------
09/295,251 Safety Shielded, 4/20/1999 We have been notified that this patent will be
Reusable Trocar allowed. This patent centers on the shielding
mechanism in conjunction with the obturator.
-----------------------------------------------------------------------------------------------
09/517,774 An Obturator 3/3/2000 This patent is pending and relates to the tip
Assembly connection.
-----------------------------------------------------------------------------------------------
75/816,723 "T2000" Trademark 10/6/1999 This trademark application is pending.
-----------------------------------------------------------------------------------------------
75/816,721 "NeoSurg" Trademark 10/6/1999 This trademark has been approved for
registration.
-----------------------------------------------------------------------------------------------
75/816,715 "T2200" 10/6/1999 This trademark has been published for
opposition.
-----------------------------------------------------------------------------------------------
</TABLE>
We have registered the domain name "neosurg.com" and "neosurg.net". The
regulation of domain names in the United States and in foreign countries is
subject to change. Regulatory bodies could establish additional top-level
domains, appoint additional domain name registrars or modify the requirements
for holding domain names. The relationship between regulations governing domain
names and laws protecting trademarks and similar intellectual property rights is
unclear. As a result, we could be unable to prevent third parties from acquiring
domain names that infringe on or otherwise decrease the value of our trademarks
and other proprietary rights. We have no knowledge of any companies in other
countries using domain names that infringe on our trademarks.
24
<PAGE>
STRATEGY
We believe the T2000 positions us to take advantage of new cost cutting
trends in the healthcare market. The particular trend we believe will benefit us
is the need for hospitals to reduce cost without sacrificing clinical quality.
Because we are competing in a marketplace and industry where change is the
norm and not the exception, we will be required to evaluate the success and
effectiveness of all aspects of our strategy on an on-going basis. It is likely
that minor aspects of our strategy or product positioning will change
frequently. We will also need to continually assess the talent of our sales
staff and manage their efforts on a daily basis. Weakness in our sales program
would have a long-term detrimental impact on our business. To assist us in
preparing a well-trained and highly motivated sales force we will need to fill
the position of national sales manager in the next several months.
Currently, we have one other product we will begin developing in the next
few months that will compliment the T2000. We have acquired an exclusive
license to a patented technology that makes closing the trocar wound site simple
and quick for the surgeon by reducing the number of steps necessary to close the
larger trocar incisions. Using an incision plug and two specially designed
suture needles, the surgeon links both needles and feeds the suture material
through to close the incision. We expect that this product will be
complimentary to the T2000.
MANUFACTURING
We currently use two outside vendors to manufacture the T2000. Both
vendors have experience in reusable medical instruments and have good
reputations. We believe these vendors will be able to service our projected
production runs and that alternative vendors are available if necessary. If our
third-party manufacturers refuse or are unable to produce our products on a
timely basis or at all, or if we experience a termination or are required to
modify the material terms our third party manufacturing arrangements, we may be
unable to deliver products to our customers on a timely basis or may incur more
cost in doing so. Higher third party manufacturing costs might lead to higher
product prices or lower profit margins, or both, which may adversely affect our
sales and our financial performance.
REGULATORY MATTERS
Before we can market new products in the United States we must obtain
clearance from the United States Food and Drug Administration, or FDA. If the
FDA concludes that any of our products do not meet the requirements to obtain
clearance of a pre-market notification under Section 510(k) of the Food, Drug
and Cosmetic Act, then we would be required to file a pre-market approval
application. The approval process for a pre-market approval application is
lengthy, expensive and typically requires extensive preclinical and clinical
trial data. We may not obtain clearance of a 510(k) notification or approval of
a pre-market approval application with respect to any of our future products on
a timely basis, if at all. If we fail to obtain timely clearance or approval for
our products, we will not be able to market and sell our products, which will
limit our ability to generate revenue. We may also be required to obtain
clearance of a 510(k) notification from the FDA before we can market certain
previously marketed products which we modify after they have been cleared. We
have made certain enhancements to our currently marketed products, which we have
determined do not necessitate the filing of a new 510(k) notification. However,
if the FDA does not agree with our determination, it will require us to file a
new 510(k) notification for the modification and we may be prohibited from
marketing the modified device until we obtain FDA clearance.
25
<PAGE>
The FDA also requires us to adhere to current good manufacturing practices
regulations, which include production design controls, testing, quality control,
storage and documentation procedures. The FDA may at any time inspect our
facilities to determine whether adequate compliance has been achieved.
Compliance with current good manufacturing practices regulations for medical
devices is difficult and costly. In addition, we may not continue to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies. If we do not achieve continued
compliance, the FDA may withdraw marketing clearance or require product recall.
When any change or modification is made to a device or its intended use, the
manufacturer may be required to reassess compliance with current good
manufacturing practices regulations, which may cause interruptions or delays in
the marketing and sale of our products. Sales of our products outside the United
States are subject to foreign regulatory requirements that vary from country to
country. The time required to obtain approvals from foreign countries may be
longer or shorter than that required for FDA approval, and requirements for
foreign licensing may differ from FDA requirements.
The federal, state and foreign laws and regulations regarding the
manufacture and sale of our products are subject to future changes, as are
administrative interpretations of regulatory agencies. If we fail to comply with
applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, including product seizures, recalls, withdrawal of
clearances or approvals and civil and criminal penalties.
EMPLOYEES
As of September 30, 2000, we had a total of 4 full-time employees,
including one in corporate management and marketing, one in technology and
development, and one in sales. We also had two contract employees we used on a
part-time basis in the areas of design, engineering and administration. None of
our employees are represented by unions, and we consider relations with our
employees to be good.
LITIGATION
There are currently no legal proceedings to which we are a party.
Management is unaware of any legal matters that may have material impact on
NeoSurg's financial position, results of operations or cash flows.
LIABILITY INSURANCE
Products as complex as those that we offer may contain undetected errors or
failures when first introduced or as new versions are released. Despite the
testing we conduct internally and by current or potential customers, errors may
be found in our current or future products after commencement of commercial
delivery, resulting in loss, liability, and loss or delay in market acceptance.
The manufacture and sale of our products exposes us to product liability
claims and product recalls, including those that may arise from the misuse or
malfunction of, or design flaws in, our products or the use of our products with
components or systems not manufactured or sold by us. Product liability claims
or product recalls, regardless of their ultimate outcome, could require us to
spend significant time and money in litigation and to pay significant damages.
26
<PAGE>
We currently maintain product liability insurance but there is no assurance that
we will be able to maintain such insurance or that such insurance coverage as we
do maintain will cover the costs of the defense or settlement of any product
liability claims made against us or be sufficient to satisfy any judgment or
award for which we may be ultimately liable. Any product liability claim that
is not covered by such policy, or is in excess of the limits of liability of
such policy, could have a material adverse effect on our financial condition.
FACILITIES
We currently occupy approximately 1,000 square feet in a leased facility in
Houston, Texas, the current rental fee is $1,000.00/month. We expect that we
will need to add additional space to adequately serve our needs over the next
several months.
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current executive officers and directors:
Name Age Position
--------------------- --- ----------------------------------------------
Peter T. O'Heeron 37 President/chief executive officer and director
Robert N. Allen 53 Secretary and director
Charles Hansen 43 Director
Clarence J. Kellerman 66 Director
Set forth below is a brief description of the background of our officers
and directors based on information provided by them to us.
Our management team includes two individuals whose combined backgrounds
represent 25 years of professional experience in the surgical and hospital
administration arena. Our president, Pete O'Heeron, is particularly well known
for his career with the Christus Health, formerly SCH Healthcare System, a
multi-hospital system. He will be directly involved in all aspects of the
business on a daily basis, which will include product development, vendor
selection and negotiations, marketing, business development, and intellectual
property administration/acquisition. Our medical affairs consultant, Mark
Hickman, M.D., will work closely with our president and will concentrate
primarily on new product development and clinical testing. We anticipate he
will devote his efforts on a part-time basis. A third key executive, the chief
financial officer, as yet to be hired, will serve as the lead analyst on large
contracts, inventory management, cash management, and budgets. The fourth key
position is the national sales manager. This position is currently open and the
responsibilities will be charged with building a national sales team in all
major metropolitan areas. They will also be responsible for interaction with
independent sales representatives and distributors along with expanding the
market outside the United States and daily management of the sales force quota
objectives.
PETER T. O'HEERON, BSHA, MSHA, CHE, PRESIDENT: Mr. O'Heeron graduated from
Southwest Texas State University with a Bachelor in Hospital Administration and
a minor in Business Administration in 1986. He received his Masters in
Healthcare Administration from the University of Houston-Clear Lake in 1988. Mr.
O'Heeron was employed by SCH Healthcare Corporation/St. John Hospital from 1987
to 1995, most recently as the Assistant Administrator for Professional Services
and Product Development. His duties included responsibility of an annual budget
in excess of $15 million and an employee base of over 100 people. In 1995 Mr.
O'Heeron left St. John Hospital to lead an investment group in a real estate
development. Mr. O'Heeron joined T2000, LP at the beginning of 1998 to manage
the development of the T2000.
ROBERT N. ALLEN, SECRETARY AND BOARD MEMBER: Mr. Allen graduated from
Texas Tech University in 1969 and was drafted in the 3rd round of the NFL Draft
by the Philadelphia Eagles. He played in the NFL for 3 years, from 1969-1972
before returning to Texas as the Sales Manager of Champion Papers, Intl. for 5
years. In 1977, Mr. Allen entered the residential building business which he
ultimately sold to Hines Interests in 1986. In 1988, Mr. Allen founded AHI,
Inc., which specializes in cement, steel and stone products and has annual sales
in excess of $13M. AHI has over 135 employees with offices in Houston, Austin,
and Dallas. Mr. Allen currently serves on the board of directors of the Moody
National Bank.
28
<PAGE>
CHARLES HANSEN, BOARD MEMBER: Mr. Hansen received his degree in Electrical
Engineering from State University of New York in 1979. His business career
began when he founded Seafood Industries in 1978, eventually selling the
business in 1985. Following the sale, in 1985 Mr. Hansen founded Hansfax to
sell and distribute fax machines. Mr. Hansen added COPECO and Certified Network
Engineers in 1998 to network and automate offices throughout Texas. Mr. Hansen
has an extensive background in sales. Mr. Hansen's companies currently gross
over $32,000,000 in annual revenues and employ more than 63 people.
CLARENCE J. KELLERMAN, BOARD MEMBER: Mr. Kellerman received his degree in
Mechanical Engineering from the University of Texas in 1961. He also completed
2 years of graduate study in Electrical Engineering at the University of Santa
Clara from 1962-1963. His business experience consists of 25 years with IBM
from 1961-1987, 5 years with Mead Data Central from 1987-1992, and for the past
8 years, Mr. Kellerman has focused on land development partnerships. He has an
extensive background in product development. While at IBM, Mr. Kellerman
managed a business unit, responsible for 7 new major product introductions with
annual revenues ranging from $100-200 million. He currently manages his various
partnership investments.
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid in the
last three years to our chief executive officer. There are currently no
employment agreements with any employees. Mr. O'Heeron devotes substantially
all of his time to NeoSurg. Our directors currently receive no compensation.
ANNUAL COMPENSATION
--------------------
Name and principal position Year Salary Bonus
------------------------------------------------------------
Peter T. O'Heeron 1997 - -
president and chief executive officer 1998 $ 90,000 -
1999 $ 90,000 -
29
<PAGE>
PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS
--------------------------------------------------------
Our amended and restated articles of incorporation limit the liability of
our directors for monetary damages for an act or omission in the director's
capacity as a director, except to the extent otherwise required by the Texas
Business Corporation Act. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Under Texas law, a corporation may indemnify a director or officer or other
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director, officer, employee or
agent of the corporation, if it is determined that such person:
- conducted himself or herself in good faith;
- reasonably believed, in the case of conduct in his or her
official capacity as a director or officer of the corporation,
that his or her conduct was in the corporation's best interest,
and, in all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
- in the case of any criminal proceeding, had no reasonable cause
to believe that his or her conduct was unlawful.
Any such person may be indemnified against judgments, penalties, including
excise and similar taxes, fines, settlements and reasonable expenses actually
incurred by the person in connection with the proceeding. If the person is
found liable to the corporation or is found liable on the basis that personal
benefit was improperly received by the person, the indemnification is limited to
reasonable expense actually incurred by the person in connection with the
proceeding, and must not be made in respect of any proceeding in which the
person is found liable for willful or intentional misconduct in the performance
of his or her duty to the corporation.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. Because directors liability insurance
is only available at considerable cost and with low dollar limits of coverage
and broad policy exclusions, we do not currently maintain a liability insurance
policy for the benefit of our directors, although we may attempt to acquire such
insurance in the future. We believe that the substantial increase in the number
of lawsuits being threatened or filed against corporations and their directors
has resulted in a growing reluctance on the part of capable persons to serve as
members of boards of directors of companies, particularly of companies which are
or intend to become public companies.
We have entered into indemnification agreements with each of our executive
officers and directors. The agreements provide for reimbursement for all direct
and indirect costs of any type or nature whatsoever, including attorneys' fees
and related disbursements actually and reasonably incurred in connection with
either the investigation, defense or appeal of a "proceeding", as defined in the
indemnification agreements, including amounts paid in settlement by or on behalf
of an "indemnitee", as defined in such agreements. We have entered into
indemnification and expense advancement in the addition to the indemnification
provided by the amended and restated articles and bylaws. We believe that these
provisions and agreement are necessary to attract and retain qualified
directors.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling us, we have been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is unenforceable.
30
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into an arrangement with one of our stockholders, Lawrence
Moser, to sell our products within the state of Texas. The arrangement includes
a commission and draw structure that is equivalent to 20% of the sales price and
covers only sales made to a limited number of hospitals in the Texas market and
one facility in Illinois. The arrangement is for a two-year term beginning
September 1, 1999, and can be extended for an additional one-year period.
NeoSurg believes the terms of the transaction were, at the time it was entered
into, as favorable as could be obtained from third parties. The transaction was
not ratified by independent directors, however, as we had no independent
directors at the time.
On May 3, 2000, we obtained a bridge loan in the amount of $375,000, which
carries a one-year maturity and an interest rate of 16% from Mark Hickman,
Clarence J. Kellerman, and William Grose. We can prepay this note at any time
without penalty. NeoSurg believes the terms of the transaction were, at the
time it was entered into, as favorable as could be obtained from third parties.
The transaction was not ratified by independent directors, however, as we had no
independent directors at the time. Any forgiveness of loans must be approved by
a majority of our independent directors who do not have an interest in the
transactions and who have access, at our expense to legal counsel.
REPRESENTATIONS REQUIRED BY STATE SECURITIES AUTHORITIES
This offering has been registered with the securities authorities of
certain states and, as a condition of registration they have required that we
make the following representations:
We currently have two independent members of our board of directors,
Charles Hansen and Clarence J. Kellerman. We will maintain at all times at
least two independent board members.
We will not engage in any material transactions or loans to or for the
benefit of officers, directors or 5% or greater shareholders unless the terms of
the transaction or loan are no less favorable to us than can be obtained from
unaffiliated persons and the transaction or loan is approved by a majority of
our independent directors, or all of them in the event we have only two
independent directors.
We will not issue shares of preferred stock to directors, officers or 5% or
greater shareholders except on the same terms as offered to all existing
shareholders or new shareholders unless approved by a majority of our
independent directors, or all of them in the event we have only two independent
directors, and they are given access to our legal counsel or independent legal
counsel at our expense.
31
<PAGE>
RESTRICTIONS APPLICABLE TO CERTAIN STATES
The states of Alabama, Arizona, Arkansas, California, Indiana, Kansas,
Kentucky, Massachusetts, Michigan, Missouri, Nevada, Ohio, Oklahoma, Oregon,
Pennsylvania, Texas, Virginia, Washington and West Virginia will not permit us
to sell shares of common stock to their residents unless they meet the following
financial criteria:
- a minimum annual gross income of $65,000 and a minimum net worth of
$65,000, exclusive of home, home furnishings and automobiles; or,
- in the alternative, a minimum net worth of $150,000, exclusive of
home, home furnishings and automobiles.
NOTICE TO NEW JERSEY INVESTORS ONLY
This offering is being directed in the state of New Jersey to accredited
investors only, as defined by rule 501 of Regulation D, promulgated under the
Securities Act of 1933. An accredited investor includes, without limitation,
any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his or her purchase exceeds $1,000,000 or any
natural person who had an individual income in excess of $200,000 in each of the
two most recent years or joint income with that person's spouse in excess of
$300,000 in each of those two years, and has a reasonable expectation of
reaching the same income level in the current year. Other standards apply to
investors who are not individuals. There will be no secondary sales of the
securities to persons who are not accredited investors in New Jersey.
32
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of September 30, 2000, and as adjusted to reflect the sale of the shares of
common stock offered by this prospectus, of:
- each person known by us to beneficially own 5% or more of the shares of
outstanding common stock,
- each of our executive officers and directors, and
- all of our executive officers and directors as a group.
Except as otherwise indicated, all shares are beneficially owned, and
investment and voting power is held by, the persons named as owners below.
<TABLE>
<CAPTION>
Amount of Percentage Percentage Percentage
common stock ownership of ownership of ownership of
Name and address of beneficially common stock common stock common stock
beneficial owner owned before offering after offering after offering
-------------------------------------------------------------------------------------------------
Minimum Maximum
--------------- ---------------
<S> <C> <C> <C> <C>
Mark Hickman 2,819,040 21.2% 20.4% 18.0%
598 N. Union, Suite 200
New Braunfels, TX 78130
Mike Newlin 2,040,000 15.4% 14.7% 13.0%
#1 King Arthur's Court
Sugar Land, TX 77478
Lawrence Moser 1,314,000 9.9% 9.5% 8.4%
17300 El Camino Real, 110
Houston, Texas 77058
William Grose 893,230 6.7% 6.5% 5.7%
4021 Garth Rd., Suite 103.
Baytown, TX 77521
Peter T. O'Heeron 776,064 5.8% 5.5% 4.9%
17300 El Camino Real, 110
Houston, TX 77058
Clarence J. Kellerman 470,000 3.5% 3.4% 3.0%
17300 El Camino Real, 110
Houston, Texas 77059
Robert N. Allen 257,046 1.9% 1.9% 1.6%
2800 N. Gordon
Alvin, TX 77511
Charles Hansen 252,222 1.9% 1.8% 1.6%
730 N. Loop
Houston, TX 77009
All officers and directors as a
group 1,755,332 13.2% 12.6% 11.2%
</TABLE>
33
<PAGE>
PLAN OF DISTRIBUTION
LIMITED STATE REGISTRATION
We will qualify or register sales of shares of our common stock in
the following 32 states: Alabama, Arizona, Arkansas, California, Colorado,
Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada,
New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah,
Virginia, Washington, West Virginia, and Wisconsin. We will not accept
subscriptions from investors resident in other states.
OFFERING OF COMMON STOCK
Up to 2,400,000 shares of the our common stock will be offered for sale to
the general public. The offering will expire at 4:00 p.m., Houston, Texas time,
on December 15, 2000, unless extended by us until March 31, 2001. We have
retained Investors Trading Corp., d/b/a Oxford Financial Group, to sell shares
of our common stock in this offering on a best efforts basis. For its services,
Oxford has received a financial advisory fee of $25,000 and will receive a sales
fee equal to:
- 5.0% of the aggregate purchase price of the common stock sold in the
offering to purchasers identified by us; and
- 6.75% of the aggregate purchase price of the common stock sold in the
offering to all other purchasers.
In addition, we will reimburse Oxford for all reasonable out-of-pocket
expenses, including expenses related to attorney's fees and expenses not to
exceed $65,000.
We reserve the right to withdraw the offer of common stock and close the
offering prior to December 15, 2000, upon the sale of at least 592,592 shares.
We may terminate this offering at any time. In the event that the offering is
not effected, all funds submitted will be promptly refunded to subscribers with
interest, and all withdrawal authorizations will be terminated. In the event of
an over subscription, the shares of common stock will be allocated on a pro rata
basis among the subscribers in the offering, in each case based on the amount of
their respective subscriptions. The opportunity to subscribe for shares of
common stock in this offering is subject to the our right, in our sole
discretion, to accept or reject any such orders in whole or in part for any
reason, either at the time of receipt of an order or as soon as practicable
following the offering expiration date.
The minimum purchase is 300 shares. No person, including a natural person,
company or other entity or group of persons acting together for the purpose of
acquiring, holding or disposing of the shares, may purchase more than $1,399,000
or 207,259 shares if such person would be deemed the beneficial owner of such
shares within the meaning of Rule 13(d)(3) promulgated under the Securities
Exchange Act of 1934.
Oxford, as marketing agent of the offering, will be available to answer
questions about the offering and may also hold informational meetings with
interested persons where executive officers and directors of NeoSurg may
participate. Such officers and directors will not be permitted to make
statements about NeoSurg unless such information is also set forth in the
prospectus, nor will they render investment advice. All purchasers will be
instructed to send payment directly to Oxford, and they will deliver the funds
to a special escrow account with First Community Bank. Funds will not be
released until the minimum shares are sold or the offering is terminated.
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Depending upon market and financial conditions, we may, without approval of
the subscribers, may increase or decrease any of the above purchase limitations
at any time. Factors we may consider in increasing or decreasing the purchase
limitations include, among other things,
- changes in market conditions;
- an over subscription of shares; or
- the failure to sell a minimum number of shares. Subscribers will be
notified by mail in the event of an increase in the purchase
limitations. In the event of a decrease in the purchase limitations,
subscribers will be notified, to the extent their orders are affected,
at the time they receive final confirmation of their orders.
Common stock purchased in the offering will be freely transferable except
as described below. In addition, under National Association of Securities
Dealers, Inc., NASD guidelines, members of the NASD and their associates are
subject to certain restrictions on transfer of securities purchased in this
offering and to certain reporting requirements upon purchase of such securities.
The common stock received in the offering by persons who are not affiliates
of NeoSurg may be resold without registration. Shares received by affiliates of
NeoSurg, primarily the directors, officers and principal stockholders of
NeoSurg, will be subject to the resale restrictions of Rule 144 under the Act.
We will make reasonable efforts to comply with the securities laws of all
states in the United States in which Oxford and the board desires to offer the
common stock.
MARKETING AND UNDERWRITING ARRANGEMENTS
Oxford, which is a broker-dealer registered with the Securities and
Exchange Commission and a member of the NASD, will consult with, advise and
assist us in the distribution of shares in this offering on a best efforts
basis. Oxford will have no obligation to take or purchase any common stock.
Oxford will assist us in the offering as follows:
- in conducting informational meetings for subscribers and other
potential purchasers;
- in keeping records of all stock subscriptions;
- in organizing and staffing with Oxford agents the stock sales center;
and
- in training and educating our employees regarding the mechanics and
regulatory requirements of the offering process.
Depending upon market conditions, the shares of common stock may be offered
for sale in the offering on a best efforts basis by a selling group of selected
broker dealers agreed upon by Oxford and us.
Oxford was formed in 1995 as a registered securities broker-dealer. Since
that time, Oxford has served its customers as broker-dealers but has not acted
as an underwriter in any public offerings. Although Oxford's principals have
extensive experience in the securities industry, there can be no assurance that
Oxford's limited operating history will not have an adverse effect on the
offering or the market for the our securities.
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We have agreed to indemnify Oxford against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments Oxford may
be required to make with respect to such liabilities.
A copy of the agency agreement between Oxford and us is on file at our
offices and has been filed with the Securities and Exchange Commission as an
exhibit to the registration statement of which this prospectus forms a part.
In addition, our directors and president may participate in the
solicitation of offers to purchase common stock in jurisdictions where they are
permitted to engage in such activities without registration as a broker-dealer.
Other employees of NeoSurg may participate in the offering in administrative
capacities, providing clerical work in effecting a sales transaction or
answering questions of a potential purchaser provided that the content of the
employee's responses is limited to information contained in this prospectus or
other offering document. Other questions of prospective purchasers will be
directed to registered representatives of Oxford. Our employees have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock. Sales of common stock will be made from
the stock sales center.
To the extent our president and directors are involved in the selling
process, they will rely on Rule 3a4-1 of the Exchange Act as a "safe harbor"
from registration as a broker-dealer in connection with the offer and sales of
shares. In order to rely on such "safe harbor" provisions provided by Rule
3a4-1, an officer or director must:
- not be subject to a statutory disqualification;
- not be compensated in connection with such selling participation by
payment of commissions or other remuneration based either directly or
indirectly on such transactions;
- not be an associated person of a broker-dealer;
- restrict participation to transactions involving offers and sale of
the shares;
- perform substantial duties for the issuer after the close of the
offering not connected with transactions in securities;
- not have been associated with a broker or dealer for the preceding 12
months;
- not participate in selling an offering of securities for any issuer
more than once every 12 months; and
- restrict participation to written communications or responses to
inquiries of potential purchasers.
Our president and directors intend to comply with Rule 3a4-1 as well as the
similar requirements of the jurisdictions in which we offer to sell our common
stock, if any. Our officers, directors and affiliates of NeoSurg may purchase up
to a maximum of 74,000 shares of common stock in the offering to satisfy the
minimum offering requirement and if they do so it will be on the same terms and
price as all other purchasers in the offering.
Unless appropriate state dealer registrations, if required, are obtained,
officers, directors and employees of NeoSurg will not be allowed to participate
in the solicitation and sale of our common stock in those jurisdictions.
Assuming such registrations are received, we will rely on Rule 3a4-1 under the
Exchange Act, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit officers, directors and employees to
participate in the sale of common stock under federal law. No officer, director
or employee of NeoSurg will be compensated in connection with his participation
by the payment of commissions or other remuneration based either directly or
indirectly on the transactions in the common stock.
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STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Prior to this offering, there has been no public market for our common
stock and therefore no public market price. The public offering price of $6.75
per share for our common stock has been determined by negotiation between Oxford
and us. Among the factors considered in determining the public offering price
were the earnings and certain other financial and operating information in
recent periods, the future prospects of NeoSurg and our industry in general and
the price-earning ratios, price-book value ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to ours. We, along with Oxford, also considered our desire to
- conduct the offering in a manner to achieve the widest distribution of
the common stock;
- promote liquidity in the common stock subsequent to the offering; and
- comply with the minimum price per share requirement of the American
Stock Exchange.
METHOD OF PAYMENT FOR SUBSCRIPTIONS
Subscribers must, before the appropriate expiration date, return an
original stock order form to Oxford, properly completed, together with cash,
checks or money orders in an amount equal to the purchase price of $6.75 per
share multiplied by the number of shares for which subscription is made.
Subscriptions that are returned by mail must be received by Oxford by the
appropriate expiration date. All funds will be placed in an escrow account with
First Community Bank and will earn interest from the date of receipt until
completion or termination of the offering. First Community Bank may invest the
escrow funds in short-term government securities or money market investments.
Stock subscriptions received by Oxford may not be modified, withdrawn or
canceled by the subscriber without our consent and, if accepted by us, are
final. We may deem subscriptions which are not received by the appropriate
expiration date or are not in compliance with the stock order form instructions,
void. We have the right to extend the offering expiration date or to waive or
permit correction of incomplete or improperly executed stock order forms, but we
do not represent that we will do so. If a minimum of 592,592 shares of common
stock have not been sold by the termination of this offering, all funds received
from subscribers will be promptly refunded, with interest.
In addition to the foregoing, if a selected dealer arrangement is utilized,
as described above, a purchaser may pay for his shares with funds held by or
deposited with a selected dealer. If a stock order form is executed and
forwarded to the selected dealer or if the selected dealer is authorized to
execute the stock order form on behalf of a purchaser, the selected dealer is
required to promptly forward the stock order form and funds to Oxford for
deposit in the escrow account on or before noon, central standard time, on the
business day following receipt of the stock order form or execution of the order
form by the selected dealer. Alternatively, selected dealers may solicit
indications of interest from their customers to place orders for shares. Such
selected dealers shall subsequently contact their customers who indicated an
interest and seek their confirmation as to their intent to purchase.
Those indicating intent to purchase shall execute stock order forms and
forward them to their selected dealer or authorize the selected dealer to
execute such forms. With the exception of non-customer carrying broker-dealers,
the selected dealer will acknowledge receipt of the order to its customer in
writing on the following business day and will debit such customer's account on
the fifth business day after the customer has confirmed his intent to purchase,
the "debit date" and on or before noon, central standard time, on the next
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business day following the debit date will promptly send stock order forms and
funds to Oxford for deposit in the escrow account. If such alternative procedure
is employed, purchasers' funds are not required to be in their accounts with
selected dealers until the debit date. In the case of a non-customer carrying
broker-dealer, checks will be made payable to Oxford and promptly transmitted to
Oxford by the broker-dealer by noon of the day after receipt of the check.
INTERNET
Once the registration statement has been declared effective by the SEC, our
subscription agreement will be made available via the internet to investors as
follows:
- it will be located in a printable format on the website where we have
posted our final prospectus;
- unless an investor has specifically requested electronic delivery of
the final prospectus and has not revoked their consent, we will
include the subscription agreement together with a paper copy of the
final prospectus that we send to them; or
- the investor can request a paper copy of the subscription agreement
and prospectus by calling Oxford Financial Group at (512) 447-7898,
writing to Oxford Financial Group at 3316 Westhill Drive, Austin,
Texas 78704, or e-mailing NeoSurg at [email protected].
RISK OF DELAYED OFFERING
In the event that all shares of common stock are not sold in the offering,
we may extend the offering until March 31, 2001. Until the termination of the
offering, the subscription funds will be invested by First Community as escrow
agent in short-term U.S. government securities and money market investments. The
actual rate of interest on these investments is not known because they fluctuate
as often as daily. The interest that such subscription funds may earn, while in
escrow, may be lower than those otherwise available to subscribers.
A material delay in the completion of the sale of all unsubscribed shares
in the offering may result in a significant increase in the costs in completing
the offering. Significant changes in our operations and financial condition, the
aggregate market value of the common stock to be issued in the offering and
general market conditions may occur during such delay. In the event the offering
is not consummated before March 31, 2001, we would charge accrued offering costs
to then current period operations.
ESCROW AGREEMENT
We have entered into an escrow agreement with First Community Bank,
Houston, Texas, which requires them to hold all funds deposited with it by
purchasers until the minimum offering of $4,000,000 has been received. If the
minimum offering amount has not been reached by December 15, 2000, which period
may be extended until March 31, 2001, at our option, all funds held in the
escrow account will be returned to the subscribers promptly by First Community
Bank with interest and without deduction for the expenses of the escrow agent.
Subscribers for our shares of common stock will not be entitled to demand a
return of their funds held in escrow.
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LOCK IN AGREEMENTS
Mark Hickman, Mike Newlin, Lawrence Moser, William Grose, Peter T.
O'Heeron, Robert Allen, Charles Hansen, and Clarence J. Kellerman hold 8,811,602
outstanding shares of our common stock, or 66.5% and are not subject to any
restriction on the sale of any of their shares, other than a lock-in agreement
with us required in connection with this offering and a lock-in agreement
required by Oxford. Under the terms of our lock-in agreement, beginning on the
day the offering commences, these persons are prohibited from transferring or
pledging any of their shares of our common stock, although they retain all of
their power to vote these shares.
According to its terms, the lock-in agreement will terminate upon any of
the following occurrences:
- the fourth anniversary of the completion date of the offering:
- the date all funds have been sent back to investors if the offering
was terminated; or
- the date the shares become "covered securities" as defined in Section
18 of the Securities Act. "Covered securities" include:
- securities listed or authorized for listing on the Nasdaq National
Market, The American Stock Exchange or the New York Stock Exchange and
securities sold in any of several types of offerings that are exempt
from the registration requirements of the Securities Act.
During the term of the lock-in agreement, beginning on the second
anniversary of the date the offering is completed, two and one-half percent of
the shares covered under the agreement shall be released from the lock-in
provisions each calendar quarter.
In addition to the above lock-in agreement our officers and directors and
stockholders holding an aggregate of 13,173,272 shares of common stock have
signed lock-in agreements with Oxford under which they have agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock for a
period ending 180 days after the conclusion of this offering. Transfers or
dispositions by our officers, directors and stockholders can be made sooner:
- with the written consent of Oxford;
- as a bona fide gift;
- as a consequence of death; or
- as a distribution to partners of shareholders, provided that the
distributees agree in writing to be bound by the terms of the lock-in
agreement.
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DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock,
no par value per share; 20,000,000 shares of "nontrading" common stock, no par
value per share; and 3,000,000 shares of preferred stock, no par value per
share. On or before September 1, 2001, all issued and outstanding shares of
non-trading common stock will convert to common stock and will not be reissued.
COMMON STOCK
General. Our authorized common stock consists of 20,000,000 shares, no par
value per share, of which are 13,173,272 issued and outstanding as of the date
of this prospectus. Up to 2,400,000 shares of common stock are being offered
for sale by this prospectus, and we have reserved 75,252 shares of common stock
for the conversion of our issued and outstanding nontrading common stock. All
shares of common stock which are sold in accordance with the terms of this
prospectus, when issued, will be validly issued, fully paid and non-assessable.
After giving effect to the conversion of the nontrading common stock, as of
the date of this prospectus we have the ability to issue up to 7,011,476
additional shares of common stock. These shares may be issued at prices and
upon terms deemed in our best interest by our board of directors although we
have no material present plans, agreements, commitments or undertakings with
respect to the issuance of additional shares of common stock or securities
convertible into any such shares, other than described in this offering. There
can be no assurance that if issued, such shares will be issued at a price in
excess of the price at which shares of common stock are sold in this offering.
Voting rights. Each share of our common stock entitles the holder to one
vote, either in person or by proxy, at meetings of stockholders. The common
stock votes as a class with the nontrading common stock. Our board of directors
is elected annually at each annual meeting of the stockholders. The holders of
common stock are not permitted to vote their shares cumulatively. According,
the holders of more than fifty percent of the voting power of our stock can
elect all of our directors.
Dividend policy. All shares of common stock are entitled to participate
ratably, with shares of nontrading common stock, in dividends when, and if
declared by our board of directors out of the funds legally available. Any such
dividends may be paid in cash, property or additional shares of common stock.
We have not paid any dividends since our inception and presently anticipates
that all earnings, if any, will be retained for development of our business and
that no dividends on the shares of common stock will be declared in the
foreseeable future. Any future dividends will be subject to the discretion of
our board of directors and will depend upon, among other things, future
earnings, our operating and financial condition, our capital requirements,
general business conditions and other pertinent facts. There can be no
assurance that any dividends on the common stock will ever be paid.
Liquidation rights; miscellaneous provisions. Holders of common stock have
no preemptive or other subscriptions rights, conversions rights, redemption or
sinking fund rights. In the event of our liquidation or dissolution, whether
voluntary or involuntary, each share of common stock is entitled to share
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ratably with all other shares of common stock and nontrading common stock in any
assets available for distribution to holders of the equity of our stock after
satisfaction of all liabilities.
NONTRADING COMMON STOCK
General. On September 11, 2000, all of our outstanding capital stock was
reclassified as nontrading common stock because of our inability to obtain lock
up agreements satisfactory to Oxford from a small number of our stockholders.
Therefore, to effect this offering, our stockholders approved an amendment to
our articles of incorporation reclassifying all outstanding shares as
"nontrading" common stock. Because we are registering for sale only shares of
common stock and because shares of nontrading common stock cannot convert into
common stock until September 1, 2001, unless the stockholder executes a
satisfactory lock up agreement covering at least 180 days. As of September 11,
2000, we had 75,252 shares of nontrading stock outstanding. It is our
expectation that transfers of shares of nontrading common stock will not develop
and will not, therefore, affect the price of common stock until such time as
they convert to common stock and the applicable lock up agreements expire.
The nontrading common stock has the same rights and privileges as, ranks
equally and shares proportionately with, and is identical in all respects as to
all matters to, the common stock, except that shares of nontrading common stock
are not being offered for sale through this prospectus and will not be listed by
us for trading on any securities exchange. Each share of nontrading common
stock will automatically convert into one share of common stock upon the
earliest to occur of:
- September 1, 2001;
- The delivery to us of an executed agreement, acceptable to us,
agreeing that such shares shall not be offered, sold, disposed of, or
pledged for a period of time acceptable to us.
We expect to receive acceptable lock-up agreements covering approximately
98% of the nontrading common stock prior to the completion of sales described in
this prospectus. As of the date of this prospectus, we have 70 holders of
nontrading common stock of record. All shares of nontrading common stock
currently outstanding are validly issued, fully paid and non-assessable.
PREFERRED STOCK
The board of directors is authorized by our certificate of incorporation to
issue up to an additional 3,000,000 shares of one or more series of preferred
stock, no par value. No shares of preferred stock have been authorized for
issuance by our board of directors, and we have no present plans to issue any
such shares. In the event that the board of directors issues shares of
preferred stock, it may exercise its discretion in establishing the terms of
such preferred stock. In the exercise of such discretion, the board of
directors may determine the voting rights, if any, of the series of preferred
stock being issued which would include the right to vote separately or as a
single class with the common stock and/or other series of preferred stock, to
have more or less voting power per share than that possessed by the common stock
or other series of preferred stock, and to vote on certain specified matters
presented to the stockholders or on all of such matters or upon the occurrence
of any specified event or condition.
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On our liquidation, dissolution or winding up, the holders of preferred
stock may be entitled to received preferential cash distributions fixed by the
board of directors when creating the particular series before the holders of
common stock are entitled to receive anything. Preferred stock authorized by
the board of directors could be redeemable or convertible into shares of any
other class or series of our stock.
The issuance of preferred stock by the board of directors could adversely
affect the rights of holders of the common stock by, among other things,
establishing preferential dividends, liquidation rights or voting powers. The
issuance of preferred stock could be used to discourage or prevent efforts to
acquire control of us through the acquisition of shares of common stock.
The shares of preferred stock and the elimination of preemptive rights to
common stock were authorized for the purpose of providing the board of directors
with as much flexibility as possible to issue additional shares for proper
corporate purposes, including financing, acquisition, stock dividends, stock
splits, employee incentive plans and other similar purposes. However, these
additional shares may also be used by the board of directors, if consistent with
its fiduciary responsibilities, to deter future attempts to gain control over
us.
OPTIONS AND WARRANTS
There are no outstanding options or warrants to purchase shares of our
common stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND
TEXAS LAW
Upon completion of this offering, we will be subject to Part Thirteen of
the Texas Business Corporation Act. Subject to limited exceptions, Part
Thirteen prohibits a publicly held Texas corporation from engaging in any
business combination with any affiliated stockholder for a period of three years
following the date that such stockholder became an affiliated stockholder,
unless: (1) prior to such date, the corporation's board of directors approved
either the business combination or the transaction that resulted in the
stockholder becoming an affiliated stockholder; or (2) the business combination
is approved by at least two-thirds of the outstanding voting shares that are not
beneficially owned by the affiliated stockholder or an affiliate or associate of
the affiliated stockholder at a meeting of stockholders called not less than six
months after the affiliated stockholder's share acquisition date.
In general, Part Thirteen defines an affiliated stockholder as any entity
or person beneficially owning 20% or more of the outstanding voting stock of the
issuing public corporation and any entity or person affiliated with or
controlling or controlled by such entity or person. Part Thirteen defines a
business combination to include, among other similar types of transaction, any
merger, share exchange, or conversion of an issuing public corporation involving
an affiliated stockholder. Part Thirteen may have the effect of inhibiting a
non-negotiated merger or other business combination that we may be involved in.
Our certificate of incorporation contains provisions which may be deemed
to be "anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control of us by another entity or person.
In addition to the ability to issue preferred stock, these provisions include a
requirement for a vote of 66-2/3% of the stockholders in order to approve
certain transactions including mergers and sales or transfers of all or
substantially all of our assets.
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TRANSFER AGENT AND REGISTRAR
The transfer agent for the common stock will be Continental Stock Transfer
& Trust Co., 2 Broadway, 19th Floor, New York, New York 10004.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 13,841,116 shares of common
stock outstanding if the minimum number of shares offered are sold, or
15,648,524 shares of common stock outstanding if the maximum number of shares
offered are sold. In addition, we will have 13,173,272 shares of common stock
reserved for issuance upon the conversion of outstanding shares of nontrading
common stock. Of these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate", in general, a person who has
a control relationship with us, which will be subject to the limitations of Rule
144 adopted under the Securities Act. All of the remaining shares are deemed to
be "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, commencing 90 days after the date of this prospectus, a person,
including an affiliate of NeoSurg or persons whose shares are aggregated, who
has owned restricted shares of common stock beneficially for at least one year
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or the average weekly trading volume of our common stock on all
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the SEC. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
an affiliate of us for at least the three months immediately preceding the sale
and who has beneficially owned shares of common stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
We currently have 12,000,000 shares of common stock outstanding that have
been held at least one year and would, absent lock in agreements, be eligible
for sale immediately. As discussed in plan of distribution, our officers,
directors and significant shareholders have signed a lock in agreement
restricting the sale of 8,811,602 shares for up to six years, although we
anticipate that these restrictions will terminate earlier as a consequence of
the listing of our common stock on a nationally recognized stock exchange or
automated quotation system. Additionally, stockholders owning approximately
12,822,715 shares of common stock have separately agreed not to sell their
shares for 180 days from the date this offering closes.
Accordingly, commencing with the completion of this offering, 425,809
shares will be eligible for immediate sale, 3,910,883 shares will be eligible
for sale in 180 days, and the remaining 8,811,602 shares will be eligible for
sale upon the termination of the lock in agreement discussed above.
Additionally, we will have issued and outstanding 75,252 shares of nontrading
common stock that have been held for at least one year and are not subject to
lock in agreements. The sale of any substantial number of these shares in the
public market could adversely affect prevailing market prices following the
offering. No predictions can be made as to the effect, if any, that sales of
shares under Rule 144 or otherwise or the availability of shares for sale will
have on the market, if any, prevailing from time to time. Sales of substantial
amounts of the common stock relative to Rule 144 or otherwise may adversely
affect the market price of the common stock offered.
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LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Cokinos, Bosien and Young, A Professional Corporation, Houston,
Texas. Certain legal matters will be passed upon for Oxford by Selman Munson
Lerner, P.C., Austin, Texas.
EXPERTS
Our financial statements as of December 31, 1999, and for each of the years
in the two-year period ended December 31, 1999, and for the period from January
1, 1997 (inception) to December 31, 1999, appearing in this prospectus and
registration statement have been audited by Hein + Associates LLP, independent
auditors, as set forth in their report, appearing elsewhere in this prospectus
and in this registration statement, and are included in reliance upon such
reports given upon the authority of Hein + Associates LLP as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form SB-2 under the
Securities Act filed by us with the Securities and Exchange Commission. This
prospectus omits certain information set forth in the registration statement and
the exhibits filed with the registration statement. For further information
about us and the shares offered by this prospectus, reference is made to the
registration statement and the exhibits filed with it. A copy of the
registration statement and the exhibits filed may be inspected without charge at
the public reference facilities maintained by the SEC in Room 1024, 450 Fifth
Street, N.W.,Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from such office upon the payment of the
fees prescribed by the SEC and at the SEC regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite #1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Please call the SEC at 1-800-SEC-0330 for further information about its
public reference room. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants, including us, that file electronically with the SEC. The address of
the website is http://www.sec.gov. Our registration statement and the exhibits
we filed electronically with the SEC are available on this site.
As of the date of this prospectus, we will be subject to the informational
requirements of the Securities Exchange Act of 1934, and we will file reports
and other information with the SEC. Such reports and other information can be
inspected and/or obtained at the locations and website set forth above.
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NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
Independent auditor's report . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance sheets as of December 31, 1999 and September 30, 2000 (unaudited) . F-3
Statements of operations for the years ended December 31, 1999 and 1998 and
for the period from January 1, 1997 (inception) to December 31, 1999
and the nine months ended September 30, 2000 and 1999 (unaudited) . . . . . F-4
Statements of stockholders' equity (deficit) and partners' capital for the
years ended December 31, 1999 and 1998 and from the
period January 1, 1997 (inception) to December 31, 1999 and
the nine months ended September 30, 2000 (unaudited). . . . . . . . . . . . F-5
Statements of cash flows for the years ended December 31, 1999 and 1998 and
for the period from January 1, 1997 (inception) to December 31, 1999
and the nine months ended September, 2000 and 1999 (unaudited). . . . . . . F-6
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . F-7
See accompanying notes to the financial statements
F - 1
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
NeoSurg Technologies, Inc.
Houston, Texas
We have audited the accompanying balance sheet of NeoSurg Technologies, Inc. (a
development stage enterprise), formerly T-2000, L.P., as of December 31, 1999,
and the related statements of operations, stockholders' equity (deficit) and
partners' capital, and cash flows for each of the years in the two-year period
ended December 31, 1999 and for the period from January 1, 1997 (inception) to
December 31, 1999. 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 financial statements referred to above present fairly, in
all material respects, the financial position of NeoSurg Technologies, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1999 and for the
period from January 1, 1997 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As more fully discussed in Note 8 to
the financial statements, NeoSurg Technologies, Inc. incurred losses of $497,699
and $447,060 for the years ended December 31, 1999 and 1998. As a result of
these losses, the company's working capital position and ability to generate
sufficient cash flows from operations to meet its operating and capital
requirements have deteriorated. These matters 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 10. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Hein + Associates LLP
Houston, Texas
February 3, 2000
See accompanying notes to the financial statements
F - 2
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
BALANCE SHEET
ASSETS
December 31, September 30,
1999 2000
-------------- ---------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 149,714 $ 141,903
Investments 128,165 23,158
Inventory 16,083 117,657
Other current assets 250 947
-------------- ---------------
Total current assets 294,212 283,665
PROPERTY AND EQUIPMENT, net 37,481 65,271
OTHER ASSETS 4,000 4,000
-------------- ---------------
Total assets $ 335,693 $ 352,936
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 33,852 $ 43,035
Notes payable, net of discount - 485,050
-------------- ---------------
Total current liabilities 33,852 528,085
COMMITMENTS AND CONTINGENCIES (Note 11) - -
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-no par value, 3,000,000 authorized; none issued - -
Common stock-no par value, 20,000,000 authorized, 12,988,524
and 13,248,524 issued and outstanding at December 31, 1999
and September 30, 2000 (unaudited) 505,217 576,217
Deficit accumulated in the development stage (203,376) (751,366)
-------------- ---------------
Total stockholders' equity (deficit) 301,841 (175,149)
-------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 335,693 $ 352,936
============== ===============
</TABLE>
See accompanying notes to the financial statements
F - 3
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
Period from
January 1,
1997 (unaudited)
(inception) Nine months ended
Years ended December 31, to September 30,
-------------------------- December 31, ------------------------
1998 1999 1999 1999 2000
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
SALES $ - $ - $ - $ - $ 9,311
COSTS AND EXPENSES:
Professional expenses 103,073 115,264 238,738 75,211 77,573
Selling, general and
administration 350,592 370,203 810,754 230,973 449,152
Research and development 28,331 54,587 137,805 44,924 30,052
------------ ------------ ------------ ------------ ----------
OPERATING LOSS (481,996) (540,054) (1,187,297) (351,108) (547,466)
OTHER INCOME (EXPENSES)
Interest Expense - - - - (71,000)
Interest income 34,936 46,482 106,165 40,331 7,496
Gain (loss) on marketable
equity securities - (4,127) (4,127) - 68,980
------------ ------------ ------------ ------------ ----------
34,936 42,355 102,038 40,331 5,476
------------ ------------ ------------ ------------ ----------
NET LOSS $ (447,060) $ (497,699) $(1,085,259) $ (310,777) $(547,990)
============ ============ ============ ============ ==========
PRO FORMA BASIC AND DILUTED LOSS
PER SHARE (actual for unaudited
period ended
September 30, 2000) $ (0.04) $ (0.04) $ (0.03) $ (0.04)
============ ============ ============ ==========
PRO FORMA WEIGHTED AVERAGE
SHARES OUTSTANDING (actual for
unaudited period ended
September 30, 2000) 12,000,000 12,000,000 12,000,000 13,216,023
============ ============ ============= ==========
</TABLE>
See accompanying notes to the financial statements
F - 4
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Deficit Total
accumulated stockholders'
in the equity and
Partners' Common Common development partners'
capital stock, shares stock stage capital
------------- ------------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997
(inception) $ - - $ - $ - $ -
Partner contributions
(contributed January 1997
at $11,163 per unit) 1,116,255 - - - 1,116,255
Net loss (140,500) - - - (140,500)
------------- ------------- -------- ------------- -----------
Balances, January 1, 1998 975,755 - - - 975,755
Net loss (447,060) - - - (447,060)
------------- ------------- -------- ------------- -----------
Balances, December 31, 1998 528,695 - - - 528,695
Net loss from January 1,
1999 through September 16,
1999 (date of conversion to
corporation) (294,323) - - - (294,323)
Reorganization from
partnership to corporation (234,372) 12,000,000 234,372 - -
Proceeds from sale of
common stock (received
November 1999 through
December 1999 at $.27
per share) - 988,524 270,845 - 270,845
Net loss - - - (203,376) (203,376)
------------- ------------- -------- ------------- -----------
Balances, December 31, 1999 - 12,988,524 505,217 (203,376) 301,841
Shares issued with debt
(unaudited) 260,000 71,000 - 71,000
Net loss (unaudited) - - - (547,980) (547,980)
------------- ------------- -------- ------------- -----------
Balances, September 30, 2000
(unaudited) $ - 12,988,524 $576,217 $ (751,366) $ (175,149)
============= ============= ======== ============= ===========
</TABLE>
See accompanying notes to the financial statements
F - 5
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
Period from
January 1,
1997
inception to Nine months ended
Years ended December 31, December 31, September 30,
----------------------- ------------ ----------------------
1998 1999 1999 1999 2000
----------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (447,060) $(497,699) $(1,085,259) $(310,777) $(547,990)
Non-cash interest expense on
debt discount - - - - 71,000
Depreciation 2,115 3,033 5,148 2,000 8,000
Loss (gain) on marketable securities - 4,127 4,127 - (68,980)
Change in current assets and
liabilities, including trading
securities (32,404) (131,260) 4,670 (48,470) 67,278
----------- ---------- ------------ ---------- ----------
Net cash used in operating
activities (477,349) (621,799) (1,071,314) (357,247) (470,692)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (6,637) (22,622) (33,780) (30,500) (22,119)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from short-term notes
payable - - - 434,000
Partner contributions - - 1,116,255 - -
Payment on notes payable - - - - (20,000)
Issuance of common stock - 270,845 270,845 - 71,000
----------- ---------- ------------ ---------- ----------
Net cash provided by financing
activities - 270,845 1,387,100 - 465,000
----------- ---------- ------------ ---------- ----------
Net change in cash and cash
equivalents (483,986) (373,576) 149,714 (377,547) 7,811
CASH AND CASH EQUIVALENTS,
beginning of period 1,007,276 523,290 - 523,290 149,714
----------- ---------- ------------ ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period $ 523,290 $ 149,714 $ 149,714 $ 145,743 $ 141,903
=========== ========== ============ ========== ==========
</TABLE>
See accompanying notes to the financial statements
F - 6
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Organization - NeoSurg Technologies, Inc. (the "Company") was formed in
------------
September 1999 through a conversion of partnership interest in T-2000, L.P.
(the "Partnership"), a Texas limited liability partnership, which commenced
business activities in January 1997. The Company's primary business
activity is to develop, manufacture and market the T-2000 trocar surgical
device (the "trocar"). Through December 31, 1999, the Company has generated
no revenues and has incurred expenses related primarily to research and
development activities, developing markets and starting production.
The company received a patent from the U.S. Patent and Trademark Office for
the trocar in December 1997 and an additional patent in September 1998. The
Company has licensed another patent and has submitted applications for two
additional patents relating to the trocar in 1999.
Effective September 16, 1999, the Company was formed by converting each 1%
ownership interest in the Partnership to 60,000 shares of the Company's
common stock. Upon conversion to a corporation, the Company converted the
partner capital to capital stock to reflect the constructive distribution
to the owners followed by a contribution to the capital of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting - The accompanying financial statements have been
--------------------
prepared using the accrual basis of accounting.
Cash and cash equivalents - The Company considers all unrestricted, highly
-------------------------
liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Property and equipment - Property and equipment consists primarily of
------------------------
office and computer equipment and molds and is stated at cost, adjusted for
accumulated depreciation. Depreciation is calculated using the
straight-line method of accounting based on each asset's useful life.
Use of estimates - The preparation of the Company's financial statements in
----------------
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from these estimates.
Earnings (loss) per share - Basic earnings (loss) per share is computed
--------------------------
based on the weighted average number of common shares outstanding. Diluted
earnings (loss) per share is calculated under the treasury stock method and
reflects the potential dilution that could occur if options and warrants
were exercised. Pro forma per share amounts are presented in the
accompanying statements of operations as if the Company were incorporated
upon inception.
Income taxes - The Company accounts for income taxes under the liability
------------
method under which the amount of deferred income taxes is based upon the
tax effect of differences between the financial statements and income tax
bases of its assets and liabilities based on existing tax laws. Prior to
See accompanying notes to the financial statements
F - 7
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
the restructuring discussed in Note 1, the Company was a partnership and
did not incur federal income tax. Pro forma income tax expense related to
the conversion from a partnership to a corporation was zero since the
Company incurred losses in each period presented herein.
Marketable securities - The Company's marketable equity securities are
----------------------
classified as trading securities. Trading securities are stated at fair
value, with unrealized gains and losses recognized in earnings.
Unaudited interim information - The accompanying financial information as
-----------------------------
of September 30, 2000 and for the nine-month periods ended September 30,
1999 and 2000 has been prepared by the Company, without audit, with respect
to the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management; necessary to
fairly present such information in accordance with generally accepted
accounting principles.
3. RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to expense as incurred.
The Company incurred approximately $138,000 of research and development
expenditures incurred from inception to December 31, 1999, and an
additional $36,000 for the nine months ended September 30, 2000, which were
for the design and engineering of the trocar performed by third parties.
4. LEASES
The Company has an operating lease for its office space, which is renewed
monthly. Total lease expense for the years ended December 31, 1998 and 1999
and the nine months ended September 30, 1999 and 2000 was approximately
$7,000 and $11,000, $7,600 and $7,300 respectively.
5. MARKETABLE SECURITIES
Marketable securities at December 31, 1999, consisted of the following:
Gross
unrealized
Cost loss Fair value
----------- ------ -----------
Trading - common shares $ 132,292 $4,127 $ 128,165
=========== ====== ===========
During the nine months ended September 30, 2000, the Company has recognized
approximately $68,980 of realized and unrealized gains on its trading
securities, which amount is reflected in Other Income in the accompanying
statement of operations.
See accompanying notes to the financial statements
F - 8
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
6. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999, consisted of the following:
Useful
life
--------
Equipment 3 years $11,158
Molds 3 years 31,471
--------
42,629
Accumulated depreciation (5,148)
--------
$37,481
========
7. NOTES PAYABLE
In the nine months ended September 30, 2000, the Company raised $130,000 by
issuing short-term notes payable to existing stockholders. These notes are
unsecured and are due December 1, 2000, with interest approximately 8.5%.
Also see Note 8 for stock issued with these short-term notes. As of
September 30, 2000, the outstanding principal balance on this debt was
$110,000.
Also during the nine months ended September 30, 2000, the Company issued an
additional $375,000 in short-term notes, which are due in May 2001. These
notes are also unsecured and bear interest of 16%.
8. COMMON STOCK
In February 2000, the Company's board of directors approved a two-for-one
common stock split. All references throughout accompanying financial
statements to number of shares of the Company's common stock have been
restated retroactively.
In conjunction with the $130,000 of short-term notes discussed in Note 7,
the Company issued 260,000 shares of its common stock to the creditors.
These shares were valued at $71,000, which amount was recognized as a
discount to the notes and is being amortized through August 1, 2000. During
the nine months ended September 30, 2000, the Company recognized $71,000 of
interest expense relating to the accretion of this debt discount.
See accompanying notes to the financial statements
F - 9
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(formerly T-2000 L.P.)
(A Development Stage Enterprise)
9. INCOME TAXES
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1999, are as follows:
Net operating loss carry forward $69,000
Valuation allowance (69,000)
---------
Net deferred tax asset -
=========
As of December 31, 1999, the Company has net operating loss carry forwards
of approximately $200,000, which will expire, if unused, in 2019.
10. MANAGEMENT'S PLANS
The Company's losses for the years ended December 31, 1998 and 1999
amounted to approximately $447,000 and $498,000. As a result of these
losses, the Company's working capital position and ability to generate
sufficient cash flow to meet capital requirements have deteriorated. These
matters raise doubt about the Company's ability to continue as a going
concern without additional infusions of equity capital and ultimately
achieving profitable operations. The Company has raised $505,000 by issuing
short-term notes of which $130,000 are due in December of 2000 and $375,000
are due in May of 2001. (see Note 7)
11. COMMITMENTS AND CONTINGENCIES
Litigation - The Company, from time to time, is also involved in claims and
----------
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
Employment agreement - The Company has entered into an employment agreement
--------------------
with one of its stockholders to sell the product within the state of Texas.
The agreement includes commission and draw structure that is equivalent to
20% of the sales prices. This agreement designates certain facilities
within the Texas geographic area. The agreement is for a two-year term
beginning September 1, 1999, and can be extended for an additional one-year
period.
12. SUBSEQUENT EVENT
In September 2000, the Company authorized 20,000,000 shares of "nontrading"
common stock. At this time, all shares of the common stock were converted
to nontrading and, pursuant to a lock-up agreement, 13,173,272 were
converted back to common stock. Currently, 75,252 of "nontrading" common
shares are issued and outstanding, all of which will be automatically
converted back to common stock effective September 1, 2001.
See accompanying notes to the financial statements
F - 10
<PAGE>
[GRAPHIC OMITTED]
You should rely only on the information contained in this prospectus. No
one has been authorized to provide you with different information. You should
not assume that the information in this prospectus is accurate as of any date
other than the date on the front cover.
These securities are not being offered or sold in any jurisdiction where
their offer or sale is not permitted.
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. NeoSurg Technologies, Inc. has not authorized anyone to provide
prospective investors with different or additional information. This prospectus
is not an offer to sell nor is it seeking an offer to buy in any jurisdiction
where such offer, or sale is not permitted. The information contained in this
prospectus is correct only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of these shares.
2,400,000 SHARES
COMMON STOCK
------------
PROSPECTUS
------------
OXFORD FINANCIAL GROUP
_______, 2000
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
Table of Contents
Prospectus summary 1
The offering 2
Summary financial information 3
Risk factors 4
Forward looking statements 8
Use of proceeds 9
Dividend policy 11
Capitalization 12
Dilution 13
Management's plan of operation 14
Business 19
Management 28
Certain relationships and related transaction 31
Representations required by state securities authorities 31
Restrictions applicable to certain states 32
Principal stockholders 33
Plan of distribution 34
Description of capital stock 40
Shares eligible for future sale 44
Legal matters 45
Experts 45
Where you can find moreinformation 45
Financial statements F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02A of the Texas Business Corporation Act, or TBCA, provides, in
relevant part, as follows:
"Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) To indemnify directors, officers, employees, and agents of the
corporation, and to purchase and maintain liability insurance for
those persons."
As permitted by Section G of Article 2.02-1 of the TBCA or any successor
statute, NeoSurg Technologies's Articles of Incorporation and bylaws (a) makes
mandatory the indemnification permitted under Section B of Article 2.02 as
contemplated by Section G; (b) makes mandatory the payment or reimbursement of
the reasonable expenses incurred by a former or present director who was, is, or
is threatened to be made a named defendant or respondent in a proceeding upon
such director's compliance with the requirements of Section K of Article 2.02;
and (c) extends the mandatory indemnification referred to in Section (a) above
and the mandatory payment or reimbursement of expenses referred to in Section
(b) above (i) to all former or present officers of NeoSurg Technologies and (ii)
to all persons who are or were serving at the request of NeoSurg Technologies as
a director, partnership, limited liability corporation, joint venture, trust or
other enterprise, to the same extent that NeoSurg Technologies is obligated to
indemnify and pay or reimburse expenses to directors.
NeoSurg Technologies has entered into indemnity agreements with its
directors and certain officers relative to which NeoSurg Technologies generally
is obligated to indemnify its directors and such officers to the full extent
permitted by the TBCA, as described above.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
*The estimated expenses of the distribution, all of which are to be borne
by the Registrant, are as follows:
SEC Registration Fee $4,277
Blue Sky Fees and Expenses 45,000
Accounting Fees and Expenses 20,000
Legal Fees and Expenses 50,723
Printing and Engraving 10,000
Marketing 40,000
Miscellaneous 30,000
---------------------------- --------
Total $200,000
----------
*Estimated
I
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, NeoSurg issued an aggregate of 12,000,000 shares of
Common Stock to the limited partners and the general partner of T-2000, L.P. in
connection with the conversion of T-2000, L.P. into NeoSurg. The shares were
issued in exchange for the Partnership interests of those partners with respect
to such conversion and no cash consideration was received for these shares.
From November 1999 through December 1999, NeoSurg issued a total of 494,262
shares of common stock to 11 existing shareholders and 4 affiliates of existing
shareholders for an aggregate cash price of $270,845.
In February 2000, NeoSurg issued a total of 130,000 shares of Common Stock
to twelve existing shareholders in order to induce those shareholders to loan an
aggregate sum of $130,000 to NeoSurg. No cash consideration was received for
these shares.
In February 2000, NeoSurg issued a total of 13,248,524 shares as a result
of a 2 for 1 stock split.
On May 3, 2000, we obtained a bridge loan in the amount of $375,000, which
carries a one-year maturity and an interest rate of 16% from Mark Hickman,
Clarence J. Kellerman, and William Grose. We can prepay this note at any time
without penalty. NeoSurg believes the terms of the transaction were, at the
time it was entered into, as favorable as could be obtained from third parties.
The transaction was not ratified by independent directors, however, as we had no
independent directors at the time.
Each of the foregoing transactions was effected by NeoSurg without the
assistance of underwriters or brokers. Accordingly, no underwriting discounts
or commissions were paid.
With respect to Rule 145, the issuance of shares resulting from the stock
split were not subject to the Securities Act of 1933. Each of the other
issuances described above were exempt from the registration requirements of the
Securities Act of 1933, with respect to Section 4(2). The original issuance of
partnership interests by T-2000, L.P. was effected only to accredited and/or
sophisticated purchasers, and the issuances of securities by NeoSurg have been
to the same accredited and/or sophisticated purchasers. Each of the T-2000,
L.P. purchasers received a disclosure document prior to their initial
investment, and NeoSurg has provided each of them with updated financial and
business information, both on a regular basis and at the time of each issuance.
II
<PAGE>
<TABLE>
<CAPTION>
ITEM 27. EXHIBITS.
<S> <C>
Number Description
-------- -----------
1.01 Agency Agreement between NeoSurg Technologies, Inc. and
Investors Trading Corp d/b/a Oxford Financial Group
3.01 Articles of Incorporation of the Registrant
3.02 Bylaws of the Registrant
4.01 Specimen Common Stock Certificate
5.01 Opinion of Cokinos, Bosien & Young, a professional corporation
regarding the legality of the securities being registered
10.01 Form of Indemnification Agreement between the Registrant and
its executive officers and directors
10.02 Form of Stock Order Form
10.13 Form Lock-in Agreement among the registrant, Mark Hickman, Mike Newlin,
Larry Moser, William Grose, Peter T. O'Heeron, Robert Allen,
Charles Hansen, and Clarence J. Kellerman
10.14 Lock-in agreement
23.01 Consent of Hein + Associates LLP
23.02 Consent of Cokinos, Bosien & Young, a professional corporation, included in exhibit 5.01
27.01 Financial Data Schedule
99.01 Escrow Agreement between Registrant and First Community Bank
99.02 Certification Form
99.03 Investor Invitation Letter
99.04 Filing Request Card
99.05 Stock Guide
</TABLE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer relative to the foregoing provisions, or
otherwise, the small business issuer has 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, as a result, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by the small business issuer of expenses incurred or paid
by a director, officer or controlling person of the small business issuer 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, the small business issuer 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 Securities Act and will be governed by
the final adjudication of such issue.
Registrant undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
III
<PAGE>
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts of events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii)Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, 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 the offering of the securities at that time as the initial
bona fide offering of those securities.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
IV
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the Houston, Texas
on the 1st day of November, 2000.
NeoSurg Technologies, Inc.
By: /s/ Peter T. O'Heeron Date: November 1, 2000
-----------------------
Peter T. O'Heeron
president and chief executive officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Peter T.
O'Heeron, with full power of substitution, his/her true and lawful
attorney-in-fact and agent to do any and all acts and things in his/her name and
on his/her behalf in his/her capacities indicated below which he may deem
necessary or advisable to enable NeoSurg Technologies, Inc. to comply with the
Securities Act of 1933, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for him/her in his/her name in the capacities stated below, any and all
amendments, including post-effective amendments thereto, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in such connection, as
fully to all intents and purposes as we might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated on the 1st day of November, 2000.
Signatures Title
/s/ Peter T. O'Heeron
-------------------------
Peter T. O'Heeron President, chief executive officer, November 1, 2000
director and principal
accounting officer
/s/ Charles Hansen Director November 1, 2000
-------------------------
Charles Hansen
/s/ Robert N. Allen Director and secretary November 1, 2000
-------------------------
Robert N. Allen
/s/ Clarence J. Kellerman Director November 1, 2000
-------------------------
Clarence J. Kellerman
V
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