REGISTRATION NO. 333-31264
SECURITIES AND EXCHANGE COMMISSION
FORM SB-2
AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEOSURG TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 3841 76-0535782
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or) Industrial Classification Identification No.)
organization Code Number)
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 pursuant 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>
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted
The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is
not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
NEOSURG
TECHNOLOGIES, INC.
2,400,000 SHARES
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 240,000 share minimum, 2,400,000 share maximum
basis. There is 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 240,000 shares of our common stock.
If we are unable to sell at least 240,000 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 31, 2000, whichever is earlier.
We may extend this offering in our discretion until May 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.
<TABLE>
<CAPTION>
Number of Price to Proceeds to
Shares Public Commissions Expenses NeoSurg
======= ========= ========= ============ ========= ===========
<S> <C> <C> <C> <C> <C>
Minimum 240,000 $ 6.75 $ 162,000 $ 200,000 $ 1,258,000
Maximum 2,400,000 $ 6.75 $ 1,620,000 $ 200,000 $14,380,000
======= ========= ========= ============ ========= ===========
</TABLE>
<PAGE>
[GRAPHIC OMITED]
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary 4
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The Offering 5
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Summary Financial Information 6
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Risk Factors 7
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Forward Looking Statements 11
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Use of Proceeds 12
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Capitalization 15
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Dilution 16
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Management's Plan of Operation 17
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Business 21
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Management 31
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Certain Relationships and Related Transactions 34
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Representations Required by State Securities Authorities 34
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Restrictions Applicable to Certain States 35
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Principal Stockholders 36
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Plan of Distribution 38
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Description of Capital Stock 41
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Shares Eligible for Future Sale 44
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Legal Matters 45
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Experts 45
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Where You Can Find More Information 45
--------------------------------------------------------
Index to Financial Statements F-1
</TABLE>
3
<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 minimally invasive surgical devices
known as trocars. A trocar is a surgical instrument used to make a small portal
entry into the body cavity through which instruments and other items necessary
for a particular surgical procedure are passed. Trocars are used in all
laparoscopic surgical procedures.
Laparoscopic surgical procedures were first used in the United States in
gynecological procedures during the 1970s. In 1988, laparoscopic procedures
were first used for cholecystectomies, or gallbladder removal. The use of
laparoscopic procedures has expanded dramatically ever since, driven by shorter
patient hospital stays, reduced post-operative pain, quicker patient recovery
and increased cost effectiveness. During 1999, approximately 1.8 million
laparoscopic procedures were conducted in the United States according to
Millennium Research Group, US Laparoscopy Report 1999 & 2000. Laparoscopy has
become the procedure of choice for gallbladder removal, appendix removal, hernia
repair, anti-reflux surgery, bowel resection and hysterectomy. Generally, each
laparoscopic procedure will require more than one trocar and, on average, four
will be used, each serving as a portal through which cameras, light sources or
surgical instruments are passed.
Disposable trocars have traditionally dominated the market and have been
preferred because they are consistently sharp for each insertion and discarded
after each use. The principal drawback of disposable trocars is the higher cost
associated with using a new instrument for each procedure. The reusable trocars
on the market require periodic resharpening, requiring hospitals to institute
programs to track usage and maintain adequate inventory to allow for a portion
to be out of service for resharpening.
Our trocar system, known as the T2000 Reusable Trocar System or T2000, has
been in development since 1997 and currently is available in sizes ranging from
5 millimeters in diameter to 12 millimeters in diameter. Our trocar system has
been designed for cost efficiency by limiting disposability to a small tip that
is used to penetrate the body cavity and a seal cap. The T2000 has also been
designed for ease of use and can be readily sterilized and outfitted with a new
tip and seal cap for each procedure.
We were formed in September 1999 through a conversion of partnership
interests of T-2000, L.P. a Texas limited liability partnership, which commenced
business activities in January 1997. Our principal executive offices are located
at 17300 El Camino Real, Suite 110, Houston, Texas 77058. Our telephone number
is 281.461.6211.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Shares Offered . . . . . . . . . . . . . . . . . . . . . 2,400,000 shares of common stock, no par value
Price Per Share. . . . . . . . . . . . . . . . . . . . . $6.75
Minimum number of shares that can be
purchased. . . . . . . . . . . . . . . . . . . . . . . . 300
Shares Outstanding after offering
Minimum. . . . . . . . . . . . . . . . . . . . . . . . . 13,228,524
Maximum. . . . . . . . . . . . . . . . . . . . . . . . . 15,388,524
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . Intellectual property/product line acquisition, bridge
loan repayment, commissions, offering expenses,
product development, marketing and advertising,
additional personnel, insurance, inventory, equipment,
working capital and general corporate purposes.
Proposed Symbol for Common Stock on the
American Stock Exchange. . . . . . . . . . . . . . . . . NEOS
</TABLE>
After subscriptions for a minimum of 240,000 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 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 this offering.
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.
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.
BEFORE BUYING ANY SHARES OF OUR COMMON STOCK, YOU SHOULD READ THIS ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE DISCUSSION OF MATERIAL RISKS OF INVESTING IN
THE SECTION ENTITLED "RISK FACTORS", BEGINNING ON PAGE 7.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary operating data derived from our
audited financial statements for the fiscal years ended December 31, 1997, 1998
and 1999, and summary balance sheet data derived from our audited financial
statements for the year ended December 31, 1999. The unaudited adjusted balance
sheet data gives effect to the payment of $162,000 in commissions and
approximately $200,000 of other estimated offering expenses assuming the minimum
offering is completed and the payment of $1,620,000 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 Three months ended March 31,
---------------- ------------- December 31, ------------ ----------
1998 1999 1999 1999 2000
---------------- ------------- ------------- ------------ ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
COST AND EXPENSES:
Professional expenses $ 103,073 $ 115,264 $ 238,738 $ 26,583 $ 20,034
Selling, general and 350,592 370,203 810,754 75,343 81,698
administration
Research and development 28,331 54,587 137,805 26,734 10,290
---------------- ------------- ------------- ------------ ----------
OPERATING LOSS (481,996) (540,054) (1,187,297) (128,660) (112,022)
OTHER INCOME (EXPENSES)
Interest income 34,936 46,482 106,165 4,156 2,147
Gain (loss) on marketable - (4,127) (4,127) - 40,870
---------------- ------------- ------------- ------------ ----------
equity securities
34,936 42,355 102,038 4,156 43,017
---------------- ------------- ------------- ------------ ----------
NET LOSS $ (447,060) $ (497,699) $ (1,085,259) $ (124,504) $ (69,005)
================ ============= ============= ============ ==========
PRO FORMA BASIC AND DILUTED $ (0.04) $ (0.04) $ (0.01) $ (0.01)
================ ============= ============ ==========
LOSS PER SHARE actual for
unaudited period ended
March 31, 2000
PRO FORMA WEIGHTED AVERAGE 12,000,000 12,000,000 12,000,000 12,988,504
================ ============= ============ ==========
SHARES OUTSTANDING actual for
unaudited period ended
March 31, 2000
BALANCE SHEET DATA:
Actual Unaudited As adjusted As adjusted
December 31,1999 March 31, 2000 minimum maximum
Working capital $ 260,360 $ 187,968 $ 1,445,968 $14,567,968
---------------- ------------- ------------- ------------
Property and equipment $ 37,481 $ 40,868 $ 40,868 $ 40,868
Total stockholders' equity $ 301,841 $ 223,836 $ 1,481,836 $14,603,836
</TABLE>
6
<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 the following risk factors and the other information
in this prospectus.
OUR AUDITORS HAVE EXPRESSED A SUBSTANTIAL DOUBT AS TO OUR ABILITY TO
CONTINUE AS A GOING CONCERN IF WE ARE NOT SUCCESSFUL IN THIS OFFERING.
At December 31, 1999, we had an accumulated deficit of $203,376 and a net
loss for the year then ended of $497,699. 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 ARE A DEVELOPMENT STAGE COMPANY WITH NO OPERATING HISTORY, AND
PREDICTING OUR FUTURE PERFORMANCE IS DIFFICULT.
To date our efforts have been devoted primarily toward the development of
our T2000 reusable trocar system. We have not sold any 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 models for offering 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.
OUR MANAGEMENT PERSONNEL MAY BE UNABLE TO SUCCESSFULLY MANAGE OUR
TRANSITION TO AN OPERATING COMPANY AND THIS MAY AFFECT OUR PERFORMANCE.
If we are to successfully transition to an operating company, our
management personnel will be required to manage successfully the greater range
of activities that are engaged in by operating companies, including the
manufacture, distribution, marketing and sale of our products; inventory,
billing and collection functions; and hiring and retaining qualified personnel.
Our failure to manage this transition effectively may adversely affect our
business and prospects.
THE OFFERING PRICE OF OUR COMMON STOCK HAS BEEN ARBITRARILY DETERMINED AND
DOES NOT BEAR ANY RELATIONSHIP TO OBJECTIVE CRITERIA OF VALUE.
No investment banker, appraiser or other independent third party has been
consulted concerning this offering or the fairness of the offering price of our
shares of common stock. We have arbitrarily determined the offering price and
other terms relative to the shares offered. The offering price does not bear
any relationship to assets, earnings, book value or any other objective criteria
of value and you may not be able to sell shares of our common stock at or above
the offering price.
7
<PAGE>
YOUR FUNDS MAY BE HELD IN ESCROW UNTIL MAY 31, 2001, AND YOU WILL NOT BE
ABLE TO DEMAND THEIR RETURN.
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 $1,620,000, 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 May 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, WITH WHOM WE HAVE NO EMPLOYMENT
AGREEMENT.
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. We do not have an employment or non-compete agreement with Mr.
O'Heeron 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. THE SUCCESS OF
OUR BUSINESS IS DEPENDENT UPON CONTINUED AND INCREASING ACCEPTANCE OF REUSABLE
TROCAR SYSTEMS. THE DOMINANT MARKET PARTICIPANTS HAVE GREATER FINANCIAL,
TECHNICAL, AND MARKETING RESOURCES THAN US.
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. 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 affect our business, financial
condition and prospects. In addition, the dominant disposable trocar
manufacturers have greater name recognition, customer bases and significantly
greater financial, technical and marketing resources than us. These advantages
can be expected to allow them to respond more quickly and effectively to new or
emerging technologies and changes in customer or client requirements, 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.
THE PROCEEDS FROM THIS OFFERING MAY NOT BE SUFFICIENT AND WE MAY BE
REQUIRED TO RAISE ADDITIONAL CAPITAL.
We may accept subscriptions for the sale of shares to investors if at least
240,000 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, requiring us to rely more heavily on our internal growth for our
expansion. 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. 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 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 prospects.
8
<PAGE>
PURCHASERS OF OUR SHARES OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE
SUBSTANTIAL DILUTION.
At December 31, 1999, our net tangible book value per share of common stock
was $0.02. 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 $0.13, resulting in immediate dilution of $6.62 per share,
or 98%, 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 $0.96, resulting in immediate
dilution of $5.79 per share, or 86%, to purchasers in this offering.
THERE IS NO PUBLIC MARKET FOR SHARES OF OUR COMMON STOCK AND ONE MAY NOT
DEVELOP AS THERE ARE NO MARKET-MAKERS IN OUR COMMON STOCK AND OUR COMMON STOCK
IS NOT CURRENTLY LISTED WITH A SECURITIES EXCHANGE.
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 FOR SHARES OF OUR COMMON STOCK DEVELOPS, SALES VOLUMES MAY BE
LIGHT AND SALES PRICES MAY BE VOLATILE.
We had 12,988,524 shares of common stock outstanding as of December 31,
1999, held by fewer than 100 persons. If a market for our common stock does
develop, trading volumes may be light, which may lead to price volatility and
make it more difficult for our shareholders to sell the shares they own at
prices they deem acceptable. Additionally, the stock markets generally
experience significant price and volume fluctuations, and the market prices of
companies with a relatively small market capitalization and individual, as
opposed to institutional, investors have been particularly volatile.
Approximately, 32% of our outstanding shares of common stock prior to this
offering are able to be immediately resold publicly under the federal securities
laws. If a large number of such shares are sold, it may adversely affect the
price for your shares.
EVEN IF WE SELL THE MAXIMUM NUMBER OF SHARES AVAILABLE IN THIS OFFERING, A
FEW STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER US.
9
<PAGE>
Prior to this offering, our officers, directors and 5% or greater
shareholders, a total of 8 persons, controlled 68% of our common stock. If we
are successful in selling the maximum number of shares included in this
offering, these individuals will own approximately 59% 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 significantly influence or
control the election of directors and to significantly influence or control
decisions regarding mergers or sales of all or substantially all of our assets.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS TO SHAREHOLDERS IN THE
FORESEEABLE FUTURE.
We have never paid cash dividends on our common stock, and do not
anticipate paying cash dividends in the foreseeable future. Profits, if any,
realized from our operations are expected to be reinvested in our further
development.
OUR COMMON STOCK MAY BE CLASSIFIED AS A "PENNY STOCK", SUBJECTING
BROKER-DEALERS TRADING OUR SHARES TO REGULATIONS THAT MAY ADVERSELY AFFECT
TRADING ACTIVITY.
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.
10
<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.
11
<PAGE>
USE OF PROCEEDS
The proceeds to us from the sale of our common stock after deducting
offering expenses are expected to be approximately $1,620,000 if the minimum
offering of 240,000 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. These proceeds are intended to be utilized as
follows:
<TABLE>
<CAPTION>
Application of Proceeds Minimum Midpoint Maximum
---------------------------------------------------------------------------------------------------
Intellectual property/product line acquisition $275,000 17% $2,500,000 31% $4,200,000 26%
---------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
500,000 31% 500,000 6% 500,000 3%
Bridge loan repayment
Commissions 170,100 11% 840,000 11% 1,701,000 11%
Offering expenses 200,000 12% 200,000 3% 200,000 1%
Product development 100,000 6% 890,000 11% 2,500,000 15%
Marketing and advertising 77,000 5% 700,000 9% 1,614,000 10%
Additional personnel 70,000 4% 320,000 4% 1,700,000 10%
Insurance 45,000 3% 150,000 2% 175,000 1%
Inventory 36,900 2% 600,000 8% 1,100,000 7%
Equipment 46,000 3% 400,000 5% 810,000 5%
Working capital and general
corporate purposes 100,000 6% 900,000 11% 1,700,000 10%
---------- ----------- -----------
$1,620,000 $8,000,000 $16,200,000
</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 our company 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
the long-term prospects of our company 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.
Bridge loan repayment costs are associated with a bridge loan for $375,000
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, $300,000 of the
loan proceeds remain.
Commissions reflect sales commissions paid to brokers for their efforts on
this offering.
Offering expenses relates to those costs associated with the preparation of
this offering including legal, accounting, printing and other consulting fees.
12
<PAGE>
Product development costs include those associated with developing a
closure device to be used in conjunction with the T2000 trocar system along with
improvements or modifications to the T2000 trocar system, 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.
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 exactly 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.
13
<PAGE>
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.
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. We cannot assure, 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-terms, 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.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (i) at March 31, 2000 and,
(ii) as adjusted to give effect to the sale of the minimum number of 240,000
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>
March 31, 2000 (unaudited)
--------------------------
As adjusted
-----------
STOCKHOLDERS' EQUITY: Actual Minimum Maximum
---------- ----------- ------------
<S> <C> <C> <C>
Common stock, no par value per share;
20,000,000 shares authorized; 12,988,524 shares
issued and outstanding; 13,228,524 shares issued
and outstanding, assuming the minimum number
of shares are sold, 15,388,524 shares issued and
outstanding, assuming the maximum number of
shares are sold. $ 505,217 $1,763,217 $14,885,217
Deficit accumulated during development stage of company (203,376) (203,376) (203,376)
---------- ----------- ------------
Total stockholders' equity $ 301,841 $1,559,841 $14,681,841
========== =========== ============
</TABLE>
15
<PAGE>
DILUTION
Our net tangible book value at March 31, 2000, was $223,836 or $.02 per
share of common stock. Net tangible book value per share represents the amount
of total tangible assets less liabilities, divided by 12,988,524, the number of
shares of our common stock outstanding at March 31, 2000. After giving effect
to the sale of 240,000 shares, if the minimum number of shares offered are sold
or 2,400,000 shares if the maximum number of shares, offered are sold, the
adjusted net tangible book value at December 31, 1999, would be $1,559,841, or
$.12 per share, in the event that the minimum number of shares offered are sold;
or $14,681,841, or $0.95 per share in the event that the maximum number of
shares offered are sold.
This represents an immediate increase in net tangible book value to the
existing stockholders of $.10 per share, in the event the minimum number of
shares are sold and $.93 in the event the maximum number of shares are sold and
an immediate dilution of $6.63 per share, or 98%, to new investors in the event
that the minimum number of shares offered are sold, or $5.80 per share, or 86%,
to new investors in the event that the maximum number of shares offered are
sold. The following table illustrates this per share dilution at an offering
price of $6.75 per share, 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 . . . . . . . $ 0.02 $ 0.02
Increase per share attributable to new investors. . . . . . . . .10 0.93
-------- --------
As adjusted net tangible book value per share after offering. . .12 0.95
-------- --------
Dilution per share to new investors . . . . . . . . . . . . . . $ 6.63 $ 5.80
======== ========
</TABLE>
The following tables summarize the relative investments of investors
related to this offering and our current stockholders, at a per share offering
price of $6.75, before deduction of consulting fees, commissions and other
offering expenses:
<TABLE>
<CAPTION>
Current Public
Minimum: Stockholders Investors Total
----------------------------------------------------- ---------------------- ------------------ ------------
<S> <C> <C> <C>
Number of shares of common stock purchased. . . . . . 12,988,524 240,000 13,228,524
Percentage of outstanding common stock after 98% 2% 100%
offering
Gross consideration paid. . . . . . . . . . . . . . . $ 1,387,100 $ 1,620,000 $ 3,007,100
Percentage of consideration paid. . . . . . . . . . . 46% 54% 100%
Average consideration per share of common stock .. . $ .11 $ 6.75 $ .23
Maximum: Current Stockholders Public Investors
-----------------------------------------------------
Total
Number of shares of common stock purchased . 12,988,524 2,400,000 15,388,524
---------------------- ------------------ ------------
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>
16
<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 developing our T2000 Reusable Trocar System,
along with testing, and prototyping it. During this period, we used funds from
private placements to fund development, secure patents on the product, and
acquire one patent. The predecessor to NeoSurg Technologies, Inc., T2000, LP
was 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.
To date we have not generated any revenues from the sale of products, and
have only recently entered into a purchase contract from a hospital. Our first
production run is complete and will be used to provide inventory and to fill our
existing order along with orders that may be completed in the next three months.
Our market efforts have focused on demonstrations of the trocar system 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 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 costs in each procedure 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 and we
believe that our T2000 trocar system offers cost savings over 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 in the next three months. 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 can be done more efficiently than existing systems by reducing the
number of steps required to suture a wound site.
17
<PAGE>
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 trocar system among both the
medical community and the purchasing decision makers at large.
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 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 $16,444 or 61.5% from $26,734
during the three months ended March 31, 1999, to $10,290 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, our first product resulting from our
research and development efforts. If we raise the minimum amount in this
offering we intend to use approximately $147,000 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
$3,314,000 to expand distribution to a national level. We currently have three
full-time employees and two contract employees in the areas of design, sales,
and administration. 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.
Our operating expenses depend on several factors, including our level of
research and development expenses. We have budgeted $100,000 for research and
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 research
and development 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.
The following discussion should be read in conjunction with the historical
financial statements, including the notes that might be found elsewhere in this
prospectus.
18
<PAGE>
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 trading securities
of $297,879. On March 31, 2000, we obtained a bridge loan in the amount of
$130,000 and 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 this note 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, if at all, or
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 need to raise
additional capital through this offering to bring our product to the market, to
fund the development of existing products 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 capital to
supplement current resources to continue with the product marketing, development
and expansion we need.
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.
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.
19
<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 trocar system is not budgeted during these
periods, it is likely the facility will postpone their decision until the next
purchasing cycle. We are developing a program that allows us to place our
instruments in facilities at no initial cost to the customer while allowing us
to recoup our costs by increasing the price of our disposable surgical tips.
Even using this system 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.
20
<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 field, are the aspects of the operation 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 surgery.
In laparoscopic surgery, a sharpened tip of a trocar is used to create a
small puncture in 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. Using a thin tubular telescope and a tiny
high-resolution video camera, the surgeon can see, on a TV monitor, what the
camera sees inside 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. By
eliminating a large incision and extensive dissections, much of the pain of
recovery can be eliminated. Minimally invasive or laparoscopic surgery is also
known as "keyhole" surgery, "micro"surgery, and telescopic surgery.
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, less postoperative pain, earlier return to
work and routine activities of daily living and greater cost effectiveness.
Patients who have undergone laparoscopic gallbladder surgery can attest to
reduced discomfort and rapid recovery, and excellent cosmetic results that are
usually achieved with this method. Today, 95 percent of gallbladder removals are
performed laparoscopically, and the approach has been adapted successfully and
is widely used for many other types of surgery according to Millennium Research
Group, US Laparoscopy Report 1999 & 2000.
A trocar is 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, the cost of which is roughly 90% more than our expected cost of
our T2000 Reusable Trocar System per procedure.
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.
21
<PAGE>
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.
OUR FORMATION
The predecessor to NeoSurg Technologies, Inc., T2000, LP was 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.
In February 2000, Moser Medical, Inc., the former general partner of T2000, LP
and a shareholder of NeoSurg, was merged with and into NeoSurg, with NeoSurg
being the surviving entity.
THE MARKET
The overall market for endoscopy products expanded 7.3% to $2.27 billion in
1998 and is projected to increase an additional $855.3 million to a value of
$3.13 billion in 2003, according to data from the Millennium Research Group, US
Laparoscopy Report 1999 & 2000. The market is growing by about 9.4% per year.
The overall market for all laparoscopy products stood at $686.4 million in 1998.
The addition of the "baby-boomer bubble" in the coming years is anticipated to
lead to increased usage of the healthcare system and contribute to continuation
of growth in this market..
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. 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 on each of these
procedures.
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 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.
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<PAGE>
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 procedural cost, inventory increase, and waste associated with
disposable instrumentation. WHEREAS 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.
This trend provides an opportunity for new technologies and innovative
products. Growth in reusable instruments is expected to continue for the
foreseeable future.
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 each tip so they 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.
DISPOSABLE VERSUS REUSABLE
The debate about the merits of reusable versus disposable trocar
instruments has been ongoing throughout the evolution of the endoscopy products
industry. In the U.S., disposable trocar 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. The trend since the mid 1990s, in the U.S. has been
towards greater acceptance of reusables.
The 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.
23
<PAGE>
TARGET MARKET AND CUSTOMERS
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. When our product is installed
in the hospital and we have developed a purchasing relationship with the
customer we will continue to extend additional discounts 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.
The chief executive officer and chief financial officer are usually the
primary decision makers with respect to capital purchases, generally items over
$5,000. If the operating room director 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. Surgeons and nurses are also critical to our
success and gaining their approval of the clinical effectiveness of the T2000
trocar system is important.
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 aggressive 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 the
visibility of our company in the marketplace, and differentiate us from our
competition. We intend to achieve this by a marketing program that emphasizes
the T2000's unique strengths, advantages, benefits, and its 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.
24
<PAGE>
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.
PROMOTIONS AND INCENTIVES
Promotions and incentives will be used to increase sales of the T2000,
including discounts for large hospitals and multi-hospital systems and referral
discounts for administrators. If we are successful in converting more
hospitals in a particular hospital system to the T2000, the discount will flow
to all of the hospitals in that system. Likewise, in an independent hospital
setting, the referrals and introductions generated by a particular executive
team will lead to a higher discount passed through to that hospital.
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 intend to make our products available through the internet and via
business-to-business web sites that specialize in the healthcare sector. We
intend to place our products in a position to capitalize on the anticipated
e-commerce growth for healthcare products.
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, CHE, is the second highest certification in ACHE.
We intend to use direct mail advertising to reach potential customers in
advance of a trade show. We intend to target our mailings to hospital
administrators, operating room directors and nurses in decision-making
positions, utilizing a list of names generated from the trade show organizer's
registration rolls. We plan to mail informational pieces regarding our booth
location and request that they stop by while they are attending the trade show.
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<PAGE>
INTELLECTUAL PROPERTY
We regard our 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
three patents relating to the reusable trocar and have two patent applications
pending. 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.
26
<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>
09/060,640 Trocar with 4/15/98 We have been notified that this patent will be
Removable, allowed by the patent office. It has not been
Replaceable Tip issued as of the date of this prospectus
------------ --------------------- ---------- -----------------------------------------------
5,342,379 Safety Scalpel 8/30/94 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.
------------ --------------------- ---------- -----------------------------------------------
09/256,009 Trocar 2/23/1999 This patent is pending and features a locking
shield mechanism.
------------ --------------------- ---------- -----------------------------------------------
08/541,003 Safety Shielded, 10/11/1995 Pending patent relates to patent #5,697,947
Reusable Trocar centering on the safety shielding 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 published for
opposition.
------------ --------------------- ---------- -----------------------------------------------
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.
27
<PAGE>
STRATEGY
We believe the T2000 positions us to take advantage of new cost cutting
trends in the healthcare market. The particular trend we beleive 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 a 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. At the date this prospectus, we have
acquired the rights 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.
28
<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 March 31, 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 three 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 the
Company'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.
29
<PAGE>
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.
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.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current executive officers, directors and
director nominees:
<TABLE>
<CAPTION>
Name Age Position
--------------------- --- ----------------------------------------------
<S> <C> <C>
Peter T. O'Heeron 36 President/Chief Executive Officer and Director
Robert N. Allen 53 Secretary and Director
Charles Hansen 43 Director
Clarence J. Kellerman 66 Director
</TABLE>
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 2 individuals whose combined backgrounds
represent 25 years of professional experience in the surgical and hospital
administration arena. Our President, Pete O'Heeron, has a good reputation in
the field, and 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. 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. Mr. O'Heeron
developed a variety of new programs and products such as the St. John Sports
Medicine Facility, Physician Recruitment, the Sports Medicine Joint Venture,
Professional Office Building Development in Houston and California, the St. John
Magnetic Resonance Imaging Center, and the Primary Care Physician Network. 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 instrument.
31
<PAGE>
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 coming back to Texas as the Sales Manager of Champion Papers, Intl. for 5
years. Following Champion Papers, in 1977 he entered the building business and
upon growing his business over a 12-year period, he ultimately sold the
operation to Hines Interests in 1986. Subsequently, Mr. Allen founded AHI,
Inc., in 1988, which specializes in cement, steel and stone products with sales
of over $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.
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, Mr. Hansen founded Hansfax to sell and
distribute fax machines. As the business grew Hansfax became a major force in
the office equipment market in Houston. To add depth to the expanding business,
he added COPECO and Certified Network Engineers in 1998 to network and automate
offices throughout Texas. Mr. Hansen has an extensive background in sales. He
also has many investments in the real estate market and multi-family housing.
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 comprised 25 years with IBM from
1961-1987 and 5 years with Mead Data Central from 1987-1992. The past 8 years,
from 1992 until today, Mr. Kellerman has focused on land development
partnerships. While at IBM, Mr. Kellerman won various awards including the
Outstanding Contribution, Outstanding Management, and Circle of Excellence
Awards. 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.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
Name and principal position Year Salary Bonus
------------------------------------- ---- -------- -----
<S> <C> <C> <C>
Peter T. O'Heeron 1997 ------- -----
President and Chief Executive Officer 1998 $ 90,000 -----
1999 $ 90,000 -----
</TABLE>
32
<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.
33
<PAGE>
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.
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.
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.
34
<PAGE>
RESTRICTIONS APPLICABLE TO CERTAIN STATES
The states of Alabama, Arizona, Arkansas, California, Connecticut,
Delaware, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Hampshire,
New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont,
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.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of May 31, 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 2,818,500 21.6% 21.2% 18.3%
598 N. Union, Suite 200
New Braunfels, TX 78130
Mike Newlin 2,100,000 16.1% 15.8% 13.6%
#1 King Arthur's Court
Sugar Land, TX 77478
Lawrence Moser 1,314,000 10.1% 9.9% 8.5%
17300 El Camino Real, 110
Houston, Texas 77058
William Grose 934,000 7.0% 6.9% 5.9%
4021 Garth Rd., Suite 103.
Baytown, TX 77521
Peter T. O'Heeron 766,064 5.8% 5.7% 5.0%
17300 El Camino Real, 110
Houston, TX 77058
Clarence J. Kellerman 470,000 3.6% 3.5% 3.0%
17300 El Camino Real, 110
Houston, Texas 77059
Robert N. Allen 257,046 1.9% 1.8% 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
1,745,332 13.6% 13.4% 11.4%
</TABLE>
36
<PAGE>
37
<PAGE>
PLAN OF DISTRIBUTION
LIMITED STATE REGISTRATION
We will qualify or register the sales of the shares in a limited number of
states. We will not accept subscriptions from investors resident in other
states.
TERMS OF SALE OF THE SHARES
NeoSurg Technologies, Inc. is offering its common stock on a 240,000 share
minimum, 2,400,000 share maximum basis at a price of $6.75 per share through our
officers and directors. We have determined the initial offering price of the
shares arbitrarily. Among the factors we considered were:
- the nature and scope of our operations, our current financial
condition and financial requirements,
- estimates of our business potential and prospects, the perceived
market demand for our products,
- the economics of the healthcare marketplace,
- the general condition of the equities market and,
- the valuations of other companies in our market segment, and other
factors.
No sales commissions will be paid to any of our officers or directors. We
will reimburse our officers and directors for expenses incurred in connection
with the offer and sale of the shares. Prospective investors must purchase the
shares in increments of 300 shares. Until we have sold at least 240,000 shares,
we will not accept subscriptions for any shares. All proceeds of this offering
will be deposited in an interest bearing escrow account with First Community
Bank, Houston, Texas. These funds, plus interest and without deduction for the
expenses of the escrow agent, will be promptly returned to subscribers should we
fail to sell the minimum number of shares in this offering.
We have the right to accept or reject any subscription for shares offered,
in whole or in part, for any reason or for no reason. This offering may remain
open until all shares offered are sold or December 31, 2000. We reserve the
right to extend this offering until May 31, 2001. We may terminate this
offering at any time.
To the extent officers 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,
38
<PAGE>
- 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 officers and directors intend to comply with the guidelines enumerated
in Rule 3a4-1. Our officers, directors and affiliates of NeoSurg may purchase
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.
ESCROW AGREEMENT
We have entered into an escrow agreement with First Community Bank,
Houston, Texas pursuant to which it will hold all funds deposited with it by
purchasers until the minimum offering of $1,620,000 has been received. If the
minimum offering amount has not been reached by December 31, 2000, which period
may be extended until May 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.
USE OF A BROKER-DEALER
We may locate one or more broker-dealers who may offer and sell the shares
on terms acceptable to us. If we determine to use a broker-dealer, such
broker-dealer must be a member in good standing of the National Association of
Securities Dealers, Inc. and registered, if required, to conduct sales in those
states in which it would sell the shares. We anticipate that we would not pay
in excess of 10% as a sales commission for any sales of the shares.
If a broker-dealer were to sell shares, it is likely that such
broker-dealer would be deemed to be an underwriter of the securities as defined
in Section 2(11) of the Securities Act and we would be required to obtain a
no-objection position from the National Association of Securities Dealers, Inc.
regarding the underwriting and compensation terms entered into between us and
such potential broker-dealer. In addition, we would be required to file a
post-effective amendment to the registration statement of which this prospectus
is a part to disclose the name of such selling broker-dealer and the agreed
underwriting and compensation terms. As of the date of this prospectus we have
no agreements or understandings with any broker-dealer to offer shares for sale.
In order to comply with the applicable securities laws, if any, of certain
states, the shares will be offered or sold in such states through registered or
licensed brokers or dealers in those states.
LOCK IN AGREEMENT
Mark Hickman, Mike Newlin, Lawrence Moser, William Grose, Peter T.
O'Heeron, Robert Allen, Charles Hansen, and Clarence J. Kellerman hold 8,911,832
outstanding shares of our common stock, or 68.6% and are not subject to any
contractual restriction on the sale of any such shares, other than a lock-in
agreement with us required in connection with this offering. Under the terms of
the lock-in agreement, beginning on the day the offering is completed, 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.
39
<PAGE>
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.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock,
no par value, and 3,000,000 shares of preferred stock, no par value per share.
COMMON STOCK
General. We have 20,000,000 authorized shares of common stock, no par
value per share, 12,988,524 of which are issued and outstanding prior to this
offering. As of the date of this prospectus, we had approximately 58
stockholders of record. All shares of common stock currently outstanding are
validly issued, fully paid and non-assessable, and all shares of common stock
which are sold pursuant to this prospectus, when issued and paid for, will be
validly issued, fully paid and non-assessable.
As of the date of this prospectus, we have the ability to issue up to
7,011,476 additional shares. These shares may be issued at a price and upon the
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 in connection with the exercise of outstanding stock
options and 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 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. Our board of
directors is elected annually at each annual meeting of the stockholders. The
holders 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 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.
Miscellaneous rights and provisions. Holders of common stock have no
preemptive or other subscriptions rights, conversions rights, redemption or
sinking fund provisions. In the event of our liquidation or dissolution,
whether voluntary or involuntary, of our stock, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
the equity of our stock after satisfaction of all liabilities.
41
<PAGE>
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.
On liquidation, dissolution or winding up of our company, 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 of.
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.
42
<PAGE>
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 our company 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.
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.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 13,228,524 shares of common
stock outstanding if the minimum number of shares offered are sold, or
15,388,524 shares of common stock outstanding if the maximum number of shares
offered are sold. 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" of our company, in
general, a person who has a control relationship with our company, 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 Technologies, Inc. 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 our company 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 have 12,000,000 of the shares of restricted stock presently outstanding
that have been held at least one year. Certain significant shareholders have
signed a lock in agreement for 8,911,832 of the 12,000,000 shares.
Accordingly, commencing following the completion of the offering, the remaining
3,088,168 shares will be eligible for resale under Rule 144 at the rates and
subject to the conditions discussed above. Additionally, the shares subject to
the lock-in agreement may be sold when that agreement terminates, which it will
do if our shares are listed by the American Stock Exchange. 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.
44
<PAGE>
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.
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 thereon, appearing elsewhere in this
prospectus and in this registration statement, and are included in reliance upon
such reports given upon the authority of said firm 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.
45
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1999 and March 31, 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 Three Months Ended March 31, 2000 and 1999 (unaudited) F-4
Statements of Stockholders' Equity 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 Three Months Ended March 31, 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 Three Months Ended March 31, 2000 and 1999 (unaudited) F-6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
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 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
F-2
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
December 31, March 31, 2000
1999
-------------- ----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 149,714 $ 122,378
Investments 128,165 126,666
Inventory 16,083 60,476
Other current assets 250 250
-------------- ----------------
Total current assets 294,212 309,770
PROPERTY AND EQUIPMENT, net 37,481 40,868
OTHER ASSETS 4,000 4,000
-------------- ----------------
Total assets $ 335,693 $ 354,638
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33,852 $ 6,802
Notes payable - 115,000
-------------- ----------------
Total current liabilities 33,852 121,802
COMMITMENTS AND CONTINGENCIES (Note 11) - -
STOCKHOLDERS' EQUITY
Preferred stock-no par value, 3,000,000 authorized; none issued - -
Common stock-no par value, 20,000,000 authorized, 12,988,524 505,217 505,217
issued and outstanding at December 31, 1999
Deficit accumulated in the development stage (203,376) (272,381)
-------------- ----------------
Total stockholders' equity 301,841 232,836
-------------- ----------------
Total liabilities and stockholders' equity $ 335,693 $ 354,638
============== ================
</TABLE>
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
(Inception)
to Three Months Ended
Years Ended December 31, December 31, March 31,
1998 1999 1999 1999 2000
------------ ------------ ------------ ------------ ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES:
Professional expenses $ 103,073 $ 115,264 $ 238,738 $ 26,583 $ 20,034
Selling, general and 350,592 370,203 810,754 75,343 81,698
administration
Research and development 28,331 54,587 137,805 26,734 10,290
------------ ------------ ------------ ------------ ----------
OPERATING LOSS (481,996) (540,054) (1,187,297) (128,660) (112,022)
OTHER INCOME (EXPENSES)
Interest income 34,936 46,482 106,165 4,156 2,147
Gain (loss) on marketable equity - (4,127) (4,127) - 40,870
------------ ------------ ------------ ------------ ----------
securities
34,936 42,355 102,038 4,156 43,017
------------ ------------ ------------ ------------ ----------
NET LOSS $ (447,060) $ (497,699) $(1,085,259) $ (124,504) $ (69,005)
============ ============ ============ ============ ==========
PRO FORMA BASIC AND DILUTED LOSS
PER SHARE (actual for
unaudited period ended
March 31, 2000) $ (0.04) $ (0.04) $ (0.01) $ (0.01)
============ ============ ============ ============
PRO FORMA WEIGHTED
AVERAGE SHARES
OUTSTANDING (actual for
unaudited period ended
March 31, 2000) 12,000,000 12,000,000 12,000,000 12,988,504
============ ============ ============ ============
</TABLE>
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
$.60 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
Net loss (unaudited) - - - (69,005) (69,005)
----------- ------------- -------- ------------- ---------------
Balances, December 31, 2000
(unaudited) $ - 12,988,524 $505,217 $ (272,381) $ 232,836
=========== ============= ======== ============= ===============
</TABLE>
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 Three Months Ended
Years Ended December 31, December 31, March 31,
1998 1999 1999 1999 2000
----------- ---------- ------------ ---------- ----------
(unaudited)
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) $(124,504) $ (69,005)
Depreciation 2,115 3,033 5,148 1,500 2,500
Change in current assets and
liabilities (32,404) 4,670 (53,893) (69,944)
----------- ------------ ---------- ----------
Net cash used in operating
activities (477,349) (621,799) (1,071,314) (176,897) (136,449)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (6,637) (22,622) (33,780) (11,366) (5,887)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from short-term notes payable - - - 115,000
Partner contributions - - 1,116,255 - -
Issuance of common stock - 270,845 270,845 - -
----------- ---------- ------------ ---------- ----------
Net cash provided by
financing activities - 270,845 1,387,100 - 115,000
----------- ---------- ------------ ---------- ----------
Net change in cash and
cash equivalents (483,986) (373,576) 149,714 (188,263) (27,336)
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 $ 335,027 $ 122,378
=========== ========== ============ ========== ==========
</TABLE>
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 Per Share - Basic earnings per share is computed based on the
-------------------
weighted average number of common shares outstanding. Diluted earnings 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
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.
F-7
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
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 March 31, 2000 and for the three-month periods ended March 31, 1999 and
2000 has been prepared by the Company, without audit, pursuant 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 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
was approximately $7,000 and $11,000, respectively.
5. MARKETABLE SECURITIES
----------------------
Marketable securities at December 31, 1999 consisted of the following:
Cost Gross Unrealized Loss Fair Value
-------- ---------------------- -----------
Trading - common shares $132,292 $ 4,127 $ 128,165
======== ====================== ===========
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 February 2000, the Company raised $115,000 by issuing short-term notes
payable to existing stockholders. These notes are unsecured and are due
August 1, 2000 with interest approximately 8.5%.
8. COMMON STOCK
-------------
Subsequent to December 31, 1999, 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.
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.
F-9
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
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 $115,000 by issuing
short-term notes payable in February 2000 (see Note 7), $390,000 subsequent
to March 31, 2000 (see Note 12).
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 EVENTS
------------------
Subsequent to March 31, 2000, the Company issued an additional short-term
note for $15,000 (see terms in Note 7). Additionally, the Company received
$375,000 by issuing notes payable at 16% interest to existing stockholders.
These notes are due May 24, 2001 and are unsecured.
F-10
<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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary 4
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The Offering 5
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Summary Financial Information 6
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Risk Factors 7
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Forward Looking Statements 11
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Use of Proceeds 12
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Capitalization 15
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Dilution 16
--------------------------------------------------------
Management's Plan of Operation 17
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Business 21
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Management 31
--------------------------------------------------------
Certain Relationships and Related Transactions 34
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Representations Required by State Securities Authorities 34
--------------------------------------------------------
Restrictions Applicable to Certain States 35
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Principal Stockholders 36
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Plan of Distribution 38
--------------------------------------------------------
Description of Capital Stock 41
--------------------------------------------------------
Shares Eligible for Future Sale 44
--------------------------------------------------------
Legal Matters 45
--------------------------------------------------------
Experts 45
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Where You Can Find More Information 45
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Index to Financial Statements F-1
</TABLE>
=================================================================
Until ______, 2000 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
=================================================================
2,400,000 SHARES
COMMON STOCK
==========
PROSPECTUS
==========
_______, 2000
=================================================================
<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 40,723
Printing and Engraving 10,000
Marketing 50,000
Miscellaneous 30,000
Total $200,000
---------------------------- --------
_________
*Estimated
I
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, 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 of T-2000, L.P. into NeoSurg
Technologies. The shares were issued in exchange for the partnership interests
of those partners pursuant to such conversion and no cash consideration was
received for these shares.
From November 1999 through December 1999, NeoSurg Technologies 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 $296,557.
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 Technologies. No cash consideration was
received for these shares.
In February 2000, NeoSurg Technologies issued a total of 12,988,524 shares
pursuant to 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 Technologies
without the assistance of underwriters or brokers. Accordingly, no underwriting
discounts or commissions were paid.
Pursuant to Rule 145, the issuance of shares pursuant to 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, pursuant 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 Technologies 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 Technologies has provided each of them with updated financial and
business information, both on a regular basis and at the time of each issuance.
ITEM 27. EXHIBITS.
Number Description
------ -----------
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 Subscription Agreements for this offering.
10.13 Form Lock-in Agreement among the registrants, Mark Hickman, Mike
Newlin, Larry Moser, William Grose, Peter T. O'Heeron, Robert Allen,
Charles Hansen, and Clarence J. Kellerman.
23.01 Consent of Hein + Associates LLP.
II
<PAGE>
23.02 Consent of Cokinos, Bosien & Young, a professional corporation,
included in exhibit 5.01
27.0 Financial Data Schedule.
99.01 Escrow Agreement between Registrant and First Community Bank
99.02 Consulting Agreement Dated December 20, 1999 between Neosurg
Technologies, Inc. and You (The "Consulting Agreement")
*To be filed by amendment
III
<PAGE>
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:
(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 16th day of June, 2000.
NeoSurg Technologies, Inc.
By: /s/ Peter T. O'Heeron Date: June 16, 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 February 23, 2000
Signatures Title
/s/ Peter T. O'Heeron June 16, 2000
----------------------
Peter T. O'Heeron President, Chief Executive Officer
and Director and principal accounting
officer
/s/ Charles Hansen June 16, 2000
--------------------
Charles Hansen Director
/s/ Robert N. Allen June 16, 2000
----------------------
Robert N. Allen Director and Secretary
/s/ Clarence J. Kellerman June 16, 2000
--------------------------
Clarence J. Kellerman Director
V
<PAGE>
