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
2,400,000 SHARES
NEOSURG TECHNOLOGIES, INC.
COMMON STOCK
This is an initial public offering of up to 2,400,000 shares of our common
stock.
The shares will be sold by NeoSurg Technologies, Inc. We will be selling
our shares in a direct participation offering, 240,000 share minimum, 2,400,000
share maximum" basis.
Prior to this offering, there has been no public market for our common
stock, and it is possible that no such trading will commence for a substantial
period of time after the first closing of this offering or at all. We intend to
apply for listing of our common stock on the Nasdaq SmallCap Market. We
estimate that the public offering price of our common stock will be $6.75 per
share.
<PAGE>
THE SHARES OFFERED INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. YOU SHOULD CAREFULLY READ AND CONSIDER THE "RISK FACTORS," COMMENCING
ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED IN DETERMINING WHETHER TO
PURCHASE ANY OF THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Number of Price Proceeds
Shares to Public Fees Expenses to NeoSurg
Minimum 240,000 $6.75 $81,000 $100,000 $ 1,439,000
Maximum 2,400,000 $6.75 $810,000 $100,000 $ 15,290,000
The date of this Prospectus is April 4, 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . 4
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . 8
FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . 16
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 17
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . 18
DILUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . 20
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION . . . . . . . 31
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . 32
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . 33
DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . 35
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 39
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . 39
<PAGE>
[ GRAPHIC OMITTED ]
<PAGE>
PROSPECTUS SUMMARY
NEOSURG TECHNOLOGIES, INC.
We are a development stage, medical device company. Since our inception
in July of 1997, our efforts have been principally devoted to research and
development of the T2000, securing patent protection, and raising capital. We
are a designer and manufacturer of minimally invasive surgical devices.
Minimally invasive surgery is surgery of the chest, abdomen, spine and pelvis,
done with the aid of a viewing scope, and specially designed surgical
instruments. The scope allows the surgeon to perform major surgery through
several tiny openings without the need for a large incision. Surgery has
traditionally required making large incisions, 12 to 24 inches long to perform
surgery. This incision, and the significant dissection needed to allow the
surgeon to visualize the field, are the parts of the operation that cause most
of the pain and contribute to slow patient recovery.
Laparoscopic surgery is a technique, which allows the surgeon to perform
the operation through multiple small incisions with the aid of a video camera
and special instruments. Laparoscopic surgery is also called minimally invasive
surgery.
A trocar is a surgical instrument used to make a small portal entry into the
body cavity for minimally invasive surgery. The trocar is then used as an
access device through which instruments and other items necessary for a
particular surgical procedure are passed. We believe that today's cost
conscious healthcare environment will require increasing use of reusable
surgical instrumentation as a method of controlling increasing operating room
costs. With that in mind, we set out to develop a trocar, the utilitarian
instrument common to all laparoscopic procedures, that provided superior cost
savings to hospitals and superior performance and features for surgeons. The
T2000 Reusable Trocar System is the result of our efforts.
In today's healthcare environment, cost control has become a major factor in the
assessment of surgical Trocar systems. Reusable surgical instrumentation,
rather than single-use disposable devices, is currently one of the most commonly
used solutions to increasing operating room costs. The T2000 combines the
convenience of a disposable trocar and the cost savings of a reusable trocar
without sacrificing the quality of its construction or the features that it
offers surgeons. The T2000 utilizes a consistently sharp, replaceable tip and a
reliable shielding mechanism for the tip that permits the T2000 to be easily
cleaned while also offering quality construction, state of the art materials,
and interchangeability. We believe that the T2000 will uniquely satisfy the
desire of hospitals and their administrators to control soaring costs while also
meeting the demands of surgeons for versatility and quality of construction.
Since our inception in July of 1997, our efforts have been principally
devoted toward the research and development of the T2000 Reusable Trocar System,
also referred to as the T2000, securing patent protection for the T2000, and
raising capital necessary to support those endeavors.
Consulting and offering expense
Although this is a direct participation offering, we have entered into a
consulting agreement with Millennium Capital Quest, 222 Munson Road, Wolcott, CT
06716 to provide marketing, financial public relations, financial consulting and
development services pursuant to which they will be entitled to a fee of 5% of
the funds raised in this offering and an additional 4.9% of the common stock
sold in this offering.
Our principal executive offices are located at 17300 El Camino Real, Suite 110,
Houston, Texas 77058. Our telephone number is 281.461.6211; fax 281.461.6213.
AN ELECTRONIC FORMAT OF THIS PROSPECTUS IS AVAILABLE ON OUR INTERNET WORLD WIDE
WEB SITE AT HTTP://WWW.NEOSURG.COM.
NO ONE HAS AGREED TO BUY ANY OF OUR SHARES, AND THERE IS NO ASSURANCE THAT
ANY SALES WILL BE MADE.
THE PRICE OF THE SHARES HAS BEEN DETERMINED SOLELY BY US, AND DOES NOT BEAR
ANY DIRECT RELATIONSHIP TO OUR ASSETS, OPERATIONS, BOOK OR OTHER ESTABLISHED
CRITERIA OF VALUE.
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 A NON-INTEREST
BEARING ESCROW ACCOUNT. AFTER SUBSCRIPTIONS FOR A MINIMUM OF 240,000 SHARES
HAVE BEEN RECEIVED, WE WILL BE ENTITLED TO RECEIVE THE OFFERING PROCEEDS
SUBMITTED WITH THE SUBSCRIPTIONS FROM THE ESCROW ACCOUNT, AND WILL BE ENTITLED
TO RECEIVE ALL OFFERING PROCEEDS WITHOUT THE REQUIREMENT THAT SUCH PROCEEDS
EXCEED A MINIMUM AMOUNT.
WE HAVE THE RIGHT TO ACCEPT OR REJECT ANY SUBSCRIPTIONS FOR SHARES OFFERED IN
WHOLE OR IN PART. THIS OFFERING WILL REMAIN OPEN UNTIL ALL SHARES OFFERED ARE
SOLD OR JULY 31, 2000, WHICHEVER IS EARLIER. WE MAY EXTEND THIS OFFERING UNTIL
DECEMBER 31, 2000.
<PAGE>
THE OFFERING
Shares Offered 2,400,000 shares of common stock, no par value
Price Per Share $6.75
Shares Outstanding After Offering
Minimum 13,240,284
Maximum 15,506,124
Use of Proceeds For general corporate purposes, including working
capital and capital expenditures.
Proposed Symbol
for Common Stock
on the Nasdaq Small
Cap Market(1) NEOS
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 a non-interest bearing escrow account. After subscriptions for a minimum of
240,000 shares have been received, we will be entitled to receive the offering
proceeds submitted with the subscriptions from the escrow account, and will be
entitled to receive all offering proceeds without the requirement that such
proceeds exceed a minimum amount.
We have the right to accept or reject any subscriptions for shares offered
in whole or in part. This offering will remain open until all shares offered
are sold or July 31, 2000, whichever is earlier. We may extend this offering
until December 31, 2000.
There is no current public market for our shares of common stock. We plan
to apply for listing of the common stock on the Nasdaq SmallCap Market. See
"Risk Factors -- We May Never Become Listed on NASDAQ or We May Become
Delisted".
The securities are not being offered or sold in any jurisdiction where
their offer or sale is not permitted.
You should rely only on the information contained or incorporated by
reference 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 of such
documents.
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables present our 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 for
the year ended December 31, 1999, and unaudited adjusted balance sheet data that
gives effect to the payment of $81,000 consulting fees and approximately
$100,000 of other estimated offering expenses assuming the minimum offering is
completed and the payment of $810,000 consulting fees and approximately $100,000
of other estimated offering expenses assuming the maximum offering is
completed.
Years ended December 31:
1999 1998 1997
STATEMENTS OF OPERATING DATA:
Revenues $ -- $ -- $ --
Costs and expenses:
Professional expenses $115,264 103,073 20,401
Selling, general and Administrative 370,203 350,592 89,959
Research and development 54,587 28,331 54,887
Operating loss (540,054) (481,996) (165,247)
--------- --------- --------
Other income - interest 42,355 34,936 24,747
Net loss $(497,699) $(447,060)$(410,500)
========== ========== =========
Basic and diluted earnings per share - pro forma, $(0.04) $(0.04) $(0.01)
======= ======= =========
assuming 12,000,000 shares had been
outstanding for 1999, 1998 and 1997
BALANCE SHEET DATA: Actual
December 31, As Adjusted As Adjusted
1999 Minimum Maximum
Working capital $260,360 $1,699,360 $15,550,360
Property and equipment $37,481 $37,481 $37,481
Total stockholders'
Equity $301,841 $1,740,841 $15,591,841
<PAGE>
RISK FACTORS
The common stock offered in this prospectus is speculative and involve 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 read this prospectus and consider, along with
other matters referred to in this prospectus, the following risk factors.
WE WILL FACE RISKS ENCOUNTERED BY DEVELOPMENT STAGE COMPANIES IN MEDICAL
EQUIPMENT-RELATED BUSINESSES AND MAY BE UNSUCCESSFUL IN ADDRESSING THESE RISKS.
We face risks frequently encountered by development stage companies in new
and rapidly evolving markets including the market for new medical equipment
technologies. We may not succeed in addressing these risks, and our business
strategy may not be successful. We may be unable to attract hospitals and
surgeons to our product. We may also not succeed in managing our expanding
operations as we emerge from this development phase.
AS A DEVELOPMENT STAGE SURGICAL DEVICE COMPANY WITH NO OPERATING HISTORY WE MAY
FACE BARRIERS.
We will face risks encountered by development stage companies. We may not
be successful in penetrating barriers such as companies with greater resources
and existing contracts with hospitals.
IT IS DIFFICULT TO PREDICT OUR FUTURE PERFORMANCE.
Our limited operating history makes predicting our future performance
difficult and does not necessarily provide investors with a meaningful basis for
evaluating an investment in our common stock. Although we commenced operations
in 1997, we will not begin generating any revenue until after marketing efforts
commence in the year 2000.
DETERMINATION OF OFFERING PRICE
No investment banker, appraiser or other independent third party has been
consulted concerning this offering or the fairness of the offering price of the
shares. We have arbitrarily determined the offering price and other terms
relative to the shares offered. The offering price may not bear any
relationship to assets, earnings, book value or any other objective criteria of
value. In addition, since we do not have a professional underwriter, we may not
be able to sell shares as quickly and we may not be able to sell as many shares.
THE LOSS OF THE SERVICES OF ANY OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD
LIKELY HARM OUR BUSINESS.
Our future success depends to a significant extent on the efforts and abilities
of our senior management, particularly Peter O'Heeron, our President and Chief
Executive Officer, and other key employees, including our technical and sales
personnel. The loss of the services of any of these individuals could harm our
business. We may be unable to attract, motivate and retain other key employees
in the future. Competition for employees in our industry is intense, and in the
past we have experienced difficulty in hiring qualified personnel.
WE FACE INTENSE COMPETITION FOR SALES AND MAY BE UNABLE TO COMPETE
SUCCESSFULLY.
Many of our existing competitors, as well as a number of potential new
competitors, have greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than us.
These advantages may allow them to respond more quickly and effectively to new
or emerging technologies and changes in customer or client requirements. It may
also allow them to engage in more extensive research and development, undertake
farther-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to potential employees, and strategic partners. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
customers.
IF THE ACCEPTANCE OF REUSABLE TROCAR SYSTEMS DOES NOT CONTINUE OR INCREASE,
OUR BUSINESS WILL SUFFER.
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. We expect to derive a significant portion of our revenues from
customers who first test our equipment. If the results of these tests are not
positive, it will become difficult to attract new customers to our products.
IF WE ARE UNABLE TO ADAPT TO RAPID CHANGES IN THE TROCAR AND SURGICAL
INSTRUMENT FIELD, OUR BUSINESS WILL SUFFER.
Surgery is characterized by rapidly changing technologies, 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. We may be unable to successfully develop new
products on a timely basis or achieve and maintain market acceptance.
WE FACE RISKS FROM POTENTIAL GOVERNMENT REGULATION AND OTHER LEGAL
UNCERTAINTIES RELATING TO THE MEDICAL DEVICE FIELD.
Laws and regulations that apply to the medical field are becoming more
prevalent. The adoption of such laws could create uncertainty in use of the
equipment and reduce the demand for our products.
WE WILL HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS
OFFERING, AND THERE IS A RISK THAT WE MIGHT USE THEM INEFFECTIVELY.
We will have broad discretion over how we use the net offering proceeds,
and we could spend the proceeds in ways with which you might not agree. We
cannot assure you that we will use these proceeds effectively. We plan to use
the proceeds from this offering for development, inventory, marketing,
intellectual property acquisition, hiring and working capital and general
corporate purposes. We have not definitively determined how we will allocate
proceeds among these uses, particularly in the event that more than the minimum
amount is raised in this offering. Our business strategy includes possible
growth through acquisitions, and we may use a substantial portion of the
offering proceeds to buy businesses we have not yet identified.
THE PROCEEDS FROM THIS OFFERING MAY NOT BE SUFFICIENT AND WE MAY NOT SELL
THE MINIMUM NUMBER OF SHARES.
We may accept subscriptions for the sale of shares to investors if at least
240,000 shares have been sold, which is the minimum number of shares that may be
sold in this offering. In the event we sell only such minimum amount, do not
sell the minimum amount, or any amount which is significantly less that the
maximum amount of 2,400,000 shares offered in this offering, are sold, we may
not be able to develop our products and services and increase our market share
in markets in which we compete as aggressively as if more shares were sold.
WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN IF WE ARE NOT SUCCESSFUL
IN THIS OFFERING.
We feel that we can meet our need for capital 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.
<PAGE>
IMMEDIATE DILUTION
Purchasers of the shares being sold in the offering will experience
immediate and substantial dilution in the net tangible book value of their
shares.
THE COMMON STOCK HAS NO TRADING MARKET, AND WE CANNOT PREDICT WHEN OR
WHETHER AN ACTIVE TRADING MARKET WILL DEVELOP.
There has not been a public market for our common stock. We are not sure
when the common stock will start trading, and this may not occur until well
after the first closing of this offering. We could decide not to facilitate the
commencement or continuation of a trading market for the common stock for an
extended period. We cannot predict the extent to which investor interest in our
common stock will lead to the development of an active trading market or how
liquid that market might become if trading of our common stock arises.
THE PRICE IS LIKELY TO BE VOLATILE AND MAY FALL BELOW THE INITIAL PUBLIC
OFFERING PRICE.
If a market for our common stock does develop, trading volumes may be light
and the price at which our stock trades may be volatile. Additionally, the
stock markets generally experience significant price and volume fluctuations,
and the market prices of securities have been particularly volatile. Investors
may be unable to resell their shares at or above the initial public offering
price. In the past, companies that have experienced significant volatility in
the market price of their stock have been subject to securities class action
litigation. A securities class action lawsuit against us could result in
substantial costs and a diversion of management's attention and resources.
EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE CONTROL OF OUR COMMON STOCK
AND MAY MAKE DECISIONS THAT ARE NOT IN THE BEST INTERESTS OF ALL STOCKHOLDERS.
Insider control of a large amount of our common stock could have an adverse
effect on the market price of our common stock. At the completion of this
offering our senior officers, board of directors and other shareholders who
purchased their shares in private placements before this offering will
beneficially own approximately 76.4% of the outstanding shares of our common
stock if the maximum number of shares of common stock offered are sold or 96.5%
of the outstanding shares of our common stock if the minimum 240,000 shares of
common stock offered are sold. This concentration of ownership may have the
effect of delaying or preventing a change of control of NeoSurg Technologies,
Inc. even if this change of control would benefit shareholders.
WE MAY FACE RISKS ASSOCIATED WITH OFFERING NEW MEDICAL PRODUCTS.
We expect to introduce new products in order to generate additional revenues,
attract more customers, and respond to competition. There can be no assurance
that we will be able to offer new products in a cost-effective or timely manner
or that any such efforts would be successful. Furthermore, any new product that
we launch that is not favorably received by our clinical and administrative
customers could damage our reputation or our brand name. Expansion of our
product lines could also require significant additional capital and may strain
our management, financial and operational resources. Our inability to generate
revenues from such expanded product sales sufficient to offset their cost could
have a material adverse effect on our business, financial condition and results
of operations.
WE MAY EXPERIENCE CUSTOMER DISSATISFACTION AND OUR REPUTATION COULD SUFFER
IF WE FAIL TO MANUFACTURE ENOUGH TROCARS AND TIPS TO MEET OUR CUSTOMERS'
DEMANDS.
We rely on third-party manufacturers to assemble and manufacture the
components of the T2000 system. If we fail to produce enough products at a
third-party manufacturing facility, if we experience a termination or
modification of any manufacturing arrangement with a third party, we may be
unable to deliver products to our customers on a timely basis. Our failure to
deliver products on a timely basis could lead to customer dissatisfaction and
damage our reputation.
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK VOLATILITY.
Our stock price may fluctuate for many reasons, including addition or
departure of key company personnel, variations in our quarterly operating
results and changes in market valuations of medical device companies. Recently,
when the market price of a stock has been volatile as our stock price may be,
holders of that stock have occasionally instituted securities class action
litigation against NeoSurg Technologies that issued the stock. If any of our
stockholders were to bring a lawsuit of this type against us, even if the
lawsuit is without merit, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of our management.
OUR ABILITY TO MARKET AND SELL OUR PRODUCTS AND GENERATE REVENUE DEPENDS
UPON RECEIPT OF DOMESTIC AND FOREIGN REGULATORY APPROVAL OF OUR PRODUCTS AND
MANUFACTURING OPERATIONS.
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 premarket notification under Section 510(k) of the Food,
Drug and Cosmetic Act, then we would be required to file a premarket
approval application. The approval process for a premarket 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 premarket approval application with respect to any of our 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.
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.
PRODUCT DEFECTS COULD DELAY OR PREVENT MARKET ACCEPTANCE.
Products as complex as those that we offer may contain undetected errors or
failures when first introduced or as new versions are released. Despite testing
internally or by current or potential customers, errors may be found in new
products after commencement of commercial delivery, resulting in loss of or
delay in market acceptance.
Although we have a limited number of ongoing current installation projects,
development may not be completed successfully on time or within our projected
cost or projects may not include the features required to achieve market
acceptance. The enhancements we make to our products may not keep pace with
broadening market requirements.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY, RISKS OF THIRD-PARTY
LICENSES.
We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets, and similar intellectual property as critical to our success, and
rely on patent, trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with employees, customers, partners
and others to protect our proprietary rights. We hold three patents and have
two patent applications pending. We have applied to register several trademarks
and service marks in the United States. We may not seek or achieve effective
trademark, service mark, copyright and trade secret protection in every country
in which the our products and services are made available online. 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 significant cost.
WE MAY BE REQUIRED TO BRING LITIGATION TO ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE AND MAY DIVER OUR ATTENTION FROM
THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.
We believe that the success of our business depends, in part, on obtaining
patent protection for our products, defending our patents once obtained and
preserving our trade secrets. We rely on a combination of contractual
provision, confidentially procedures and patent, trademark and trade secret laws
to protect the proprietary aspects of our technology. These legal measures
afford only limited protection and competitors may gain access to our
intellectual property and proprietary information. Litigation may be necessary
to enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of our proprietary rights. Any litigation
could result in substantial expense and diversion of our attention from the
growth of the business and may not be adequate to protect our intellectual
property rights.
WE MAY BE SUED BY THIRD PARTIES, WHICH CLAIM THAT OUR PRODUCTS INFRINGE ON THEIR
INTELLECTUAL PROPERTY RIGHTS, PARTICULARLY BECAUSE THERE IS SUBSTANTIAL
UNCERTAINTY ABOUT THE VALIDITY AND BREADTH OF MEDICAL DEVICE PATENTS.
We may be exposed to future litigation by third parties based on claims
that our products infringe the intellectual property rights of others. This risk
is exacerbated by the fact that the validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions for which
important legal principles are unresolved. Any litigation or claims against us,
whether or not valid, could result in substantial costs, could place a
significant strain on our financial resources and could harm our reputation.
This risk could also force us to cease selling or using any of our products
along with having to obtain a license from the holder of the infringed
intellectual property or redesign our products. These consequences may be
time-consuming and adversely effect our financial performance.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.
As part of our business strategy, we may make acquisitions of, or
significant investments in, complementary companies, products or technologies.
Any such future acquisitions would be accompanied by the risks commonly
encountered in acquisitions of companies. Such risks include, among other
things:
the difficulty of assimilating the operations and personnel of the acquired
companies,
the diversion of resources from our existing businesses, and technologies,
the inability of management to maximize our financial and strategic
position through the successful incorporation of the acquired technology into
our products and services,
additional expense associated with amortization of acquired intangible
assets,
the maintenance of uniform standards, controls, procedures and policies,
and
There can be no assurance we would be successful in overcoming these risks
or any other problems encountered with such acquisitions, and our inability to
overcome such risks could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY NOT FIND ADEQUATE GENERAL LIABILITY, COMMERCIAL INSURANCE, OR
PRODUCT LIABILITY INSURANCE.
Although we carry general liability, product liability and commercial
insurance, there can be no assurance that this insurance will be adequate to
protect us against any general, commercial and/or product liability claims. Any
general, commercial and/or product liability claim which 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. There can be no assurance
that we will be able to maintain this insurance on reasonable terms.
WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY CLAIMS, WHICH COULD
DIVERT MANAGEMENT ATTENTION AND ADVERSELY AFFECT OUR CASH BALANCES, OUR ABILITY
TO OBTAIN AND MAINTAIN INSURANCE COVERAGE AT SATISFACTORY RATES OR INADEQUATE
AMOUNTS AND OUR REPUTATION.
The manufacture and sale of our products expose us to product liability
claims and product recalls, including those which may arise from misuse or
malfunction of, or design flaws in, our products or 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 or to pay significant
damages. We currently maintain insurance; however, it might not cover the costs
of any product liability claims made against us. Furthermore, we may not be
able to obtain insurance in the future at satisfactory rates or in adequate
amounts.
NO DIVIDENDS
We have never paid any cash dividends on the common stock and we do not
anticipate paying any dividends in the foreseeable future.
POSSIBLE ISSUANCE OF SUBSTANTIAL AMOUNTS OF ADDITIONAL SHARES WITHOUT
STOCKHOLDER APPROVAL COULD DILUTE STOCKHOLDERS.
As of the date of this prospectus, we have an aggregate of 12,988,524 shares of
common stock outstanding and the ability to issue up to 7,011,476 additional
shares. Although there are no other 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, any shares issued
would further dilute the percentage ownership of our common stock held by our
stockholders.
SHARES HELD BY INSIDERS
Only 988,524 of the 12,988,524 outstanding shares of our common stock are
currently restricted under the federal securities laws from public resale. If
a large number of such shares are sold, it may adversely affect the price for
your shares.
WE MAY NEVER BECOME LISTED ON NASDAQ.
We intend to apply for listing of our common stock on the NASDAQ SmallCap
Market and we hope that the shares will trade on NASDAQ immediately upon the
initial closing of the offering. Under NASDAQ criteria, an issuer seeking
initial inclusion of its securities on NASDAQ is required to meet certain
threshold levels relating to assets, market capitalization, net income, market
value of public float, minimum bid price and number of registered market makers,
among others. There is no assurance that the shares will ever be approved for
inclusion on NASDAQ. The inability to have the shares listed on NASDAQ could
materially hinder the development of a public trading market for the shares.
Any delisting could cause a material decline in the market price of the shares
if a market should develop and adversely affect the liquidity of the shares.
PENNY STOCK REGULATION
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 penny
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 becomes subject to the penny stock rules, investors
may find it more difficult to sell their shares in the event they becomes
otherwise freely resalable.
AS A NEW PUBLIC COMPANY WE MAY NOT BE ABLE TO ATTRACT MARKET MAKERS.
There is currently no public trading market for the shares. The
development of a public trading market depends upon not only the existence of
willing buyers and sellers, but also on market makers. Following the completion
of the first closing under this offering, broker-dealers may become the
principal market makers for the shares. Under these circumstances, the market
bid and asked prices for the shares may be significantly influenced by decisions
of the market makers to buy or sell the shares for their own account, which may
be critical for the establishment and maintenance of a liquid public market in
the shares. Market makers are not required to maintain a continuous two-sided
market and are free to withdraw firm quotations at any time. Additionally, in
order to become listed on the NASDAQ SmallCap Market, we need to have at least
three registered and active market makers. We currently have no market makers.
No assurance can be given that any market making activities of any market
makers, if commenced, will be continued.
IF WE ARE UNABLE TO STRENGTHEN OUR BRAND NAMES, WE MAY BE UNABLE TO COMPETE
EFFECTIVELY AGAINST COMPETITORS WITH GREATER BRAND NAME RECOGNITION.
We have not historically emphasized and have no current plans to
significantly attempt to strengthen our brand name. As competitive pressures in
the medical equipment industry increase, due to the budget constraints of
medical and surgical centers, brand name strength may become increasingly
important. If we do not strengthen our brand names, we may be unable to maintain
or increase orders, which would be expected to lead to decreased revenues. We
may in the future devote substantial resources to promote "NeoSurg" or other
brand names. The reputation of our brand name will depend on our ability to
produce high quality products, and to provide a high-quality customer service.
<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," "expect," "believe,"
"estimate," "anticipate," "continue," 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. Potential risks and uncertainties include among other
things, such factors as:
- - the intense competition in our industry;
- - the growth of reusable medical instruments applications;
- - the marketing strength of our competitors;
- - the market acceptance and sales of our products;
- - the competitive environment in which hospitals and other medical
organizations have existing group purchasing organizations (GPO's) to
reduce their purchasing costs;
- - our ability to develop, maintain or increase our domestic or international
market share;
- - the other factors disclosed and discussed under "Risk Factors" and in
other sections of this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume
responsibility for the accuracy and completeness of the forward-looking
statements after the date of this prospectus.
<PAGE>
USE OF PROCEEDS
The gross proceeds to us from the sale of the common stock after deducting
offering expenses are expected to be approximately $1,620,000 if the minimum
number of 240,000 shares is sold, approximately $8,000,000 if 1,185,185 shares
are sold and $16,200,000 if the maximum number of 2,400,000 shares is sold.
These proceeds are intended to be utilized as follows:
Application of Proceeds Minimum Midpoint Maximum
- ----------------------- ------- -------- -------
Intellectual property
/ product line acquisition $ 275,000 $ 3,000,000 $ 5,000,000
Product development 125,000 1,500,000 3,200,000
Marketing and advertising 319,000 890,000 1,915,000
Additional personnel 200,000 500,000 1,075,000
Insurance 35,000 60,000 100,000
Inventory 120,000 350,000 1,000,000
Equipment 25,000 100,000 1,000,000
Consulting fees 81,000 400,000 810,000
Offering expenses 100,000 100,000 100,000
Working capital and
general corporate purposes 340,000 1,100,000 2,000,000
----------- ----------- -----------
$ 1,620,000 $ 8,000,000 $16,200,000
----------- ----------- -----------
The amounts set forth above are estimates. The actual amount expended to
finance any category of expenses may be increased or decreased by management, in
its discretion, if a reapportionment or redirection of funds is deemed to 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 operation and changes in competitive or
technological conditions in our industry. If the minimum amount is raised, our
expansion plans will be limited.
We estimate that our net proceeds from the sale of the 2,400,000 shares of
common stock will be approximately $15,290,000, assuming an initial public
offering price of $6.75 per share and after deducting estimated consulting
fees and other estimated offering expenses payable by us. We estimate that our
net proceeds if the minimum of 240,000 shares are sold of common stock will be
approximately $1,439,000, assuming an initial public offering price of $6.75
per share and after deducting estimated consulting fees and other estimated
offering expenses payable by us. The principal purposes of this offering are to
establish a public market for our common stock, to increase our visibility in
the marketplace, to facilitate future access to public capital markets, to
provide liquidity to existing stockholders and to obtain additional working
capital.
We may also use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. We have no specific understandings, commitments or agreements
relating to an acquisition or investment. 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.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (i) at December 31, 1999 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 assumed public offering price of
$6.75 per share, and after the application of the net proceeds of such sale, as
described in "Use of Proceeds". These numbers are adjusted to reflect the
anticipated receipt and application of the net proceeds of this offering, which
include 11,760 shares issued to consultants for successful completion of minimum
offering and 117,600 shares issued to consultants for successful completion of
maximum offering
December 31, 1999
------------------------------------
As Adjusted
-----------
STOCKHOLDERS' EQUITY: Actual Minimum Maximum
--------- ---------- -----------
Common stock, no par value per share;
20,000,000 shares authorized; 12,988,524
shares issued and outstanding; 13,240,284 shares
issued and outstanding, as adjusted, assuming
the minimum number of shares are sold, 15,506,124
shares issued and outstanding, as adjusted
assuming the maximum number of shares are sold.
$505,217 $1,944,217 $15,795,217
Deficit accumulated during
development stage of company (203,376) (203,376) (203,376)
--------- ---------- -----------
Total stockholders' equity $301,841 $1,740,841 $15,591,841
======== ========== ===========
<PAGE>
DILUTION
Our net tangible book value at December 31, 1999 is $301,841 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 December 31, 1999. 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 $1,740,841,
or $.13 per share, in the event that the minimum number of shares offered are
sold; or $15,591,841, or $1.01 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 $.11 per share, in the event the minimum number of shares are
sold and $.99 in the event the maximum number of shares are sold and an
immediate dilution of $6.62 per share, or 98%, to new investors in the event
that the minimum number of shares offered are sold, or $5.74 per share, or 85%,
to new investors in the event that the maximum number of shares offered are
sold. The following table illustrates this per share dilution assuming an
offering price of $6.75 per share, before deduction of consulting fees,
commissions and other offering expenses.:
Minimum Maximum
------- -------
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 .11 0.99
------- -------
As adjusted net tangible book
value per share after offering .13 1.01
------- -------
Dilution per share to new investors $ 6.62 $ 5.74
======= =======
The following tables summarize the relative investments of investors
related to this offering and our current stockholders, assuming a per share
offering price of $6.75, before deduction of consulting fees, commissions and
other offering expenses:
<TABLE>
<CAPTION>
Minimum: Current Stockholders Public Investors Total
- ----------------------------------------------------- ---------------------- ------------------ ------------
<S> <C> <C> <C>
Number of shares of common stock purchased. . . . . . 12,988,524 240,000 13,228,524
---------------------- ------------------ ------------
Percentage of outstanding common stock after offering 98% 2% 100%
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
</TABLE>
<TABLE>
<CAPTION>
Maximum: Current Stockholders Public Investors
- -----------------------------------------------------
Total
<S> <C> <C> <C>
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>
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
PLAN OF OPERATIONS
We are a development stage, medical device company. Since our inception
in January of 1997, our efforts have been principally devoted to research and
development of the T2000, securing patent protection, and raising capital. 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. We
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 expand our distribution via regional distributors, independent
sales representatives and direct sales representation where necessary. We
intend to use the proceeds for this offering to market the T2000 on a national
basis and increase inventories to supply the anticipated demand for the product,
as well as to meet our other capital requirements.
We believe in the long-term value of research and as a result expect to
continue to incur substantial research and development costs in the future
resulting from ongoing research and development programs and manufacturing of
products for use in clinical testing of our products. We also expect that
general and administrative costs, including patent and regulatory costs,
necessary to support research and development, manufacturing, and the creation
of a marketing and sales organization will increase in the future.
Accordingly, we expect to incur operating losses for the foreseeable future.
We have 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. This 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. We believe that this device will compliment the T2000.
GENERAL
From 1997 through 1999, we have been a development stage company
involved in developing our product the T2000 Reusable Trocar System, testing,
and prototyping. During this period, we used funds from private placements to
fund development, secure patents on the product and acquire and/or license two
additional patents. The predecessor to NeoSurg Technologies, Inc., T2000, LP
was a limited partnership formed in 1997 to develop the T2000 Reusable Trocar
System. In September of 1999, T2000, LP converted to a Texas corporation under
the name NeoSurg Technologies, Inc. All interests in the limited partnership
were converted into common stock of NeoSurg Technologies, Inc. in the same
relative percentages as held by the partners of T2000, LP.
Our market efforts have focused on demonstrations of the trocar systems and
discussions of the savings potential with a limited number of hospitals. We
believe that capitated healthcare reimbursement motivates hospital executives to
find instruments that can lead to significant cost savings reductions. The term
capitated healthcare is relatively new. Over the past few years, reimbursement
for healthcare has shifted from fee-for-service to capitation. In other words,
a predetermined rate is paid for each procedure by the insurance company or
government program and it is incumbent upon the hospital to reduce costs in each
procedure in order to maintain or improve profit margins. This can be done
through various mean including creating operating efficiencies and/or reducing
the cost of supplies and instrumentation.
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 Reusable Trocar System among both the medical
community and the purchasing decision makers at large. We believe that our
research and development expenses will increase in support of our efforts to
develop additional products.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense decreased by $26,556 or 48% from $54,887
in 1997 to $28,331 in 1998, primarily as a result of increased testing and a
reduction in prototyping of the instrument which saved the cost of manufacturing
new prototypes. Professional expenses increased by $82,672 or 405% from
$20,401 in 1997 to $103,073 as a result of increased expense associated with the
prosecution of patent applications, subcontracting for some engineering fees and
instrument design.
OPERATIONS FOR THE NEXT TWELVE MONTHS
We intend to have distribution channels in place within the next few months
and to realize sales shortly there after. 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.
We believe we can begin installing the T2000 system in hospitals within 90
days after this offering. Our revenue model will begin immediately upon
installation. We intend to offer three options to hospitals: purchase of
equipment, leasing, 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 tips to cover the cost of amortizing the instruments.
In the other two models we will receive instrument payments prior to
installation.
We have begun to market the T2000, our first product resulting form our
research and development efforts. Our operating expenses of will depend on
several factors, including the level of research and development expenses.
Research and development expenses will depend on the progress and results of our
product development efforts, which we cannot predict. Management 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 are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
We plan to modify our plan based on the level of funds we receive in this
offering. If we sell the minimum number of shares, we plan to launch the T2000
in the Texas market. If we sell an amount between the minimum and maximum
amounts we plan to market the T2000 on a regional basis in Texas and surrounding
states.
The following discussion should be read in conjunction with the historical
financial statements, including the notes that might be found elsewhere in this
prospectus.
LIQUIDITY AND CAPITAL RESOURCES
During the periods reported, we had sufficient cash balances to support our
business.
On December 31, 1999, we had cash, cash equivalents and trading securities
of $297,879. 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 and capital resources we require. 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, in order to
continue as a going concern.
We have only a limited operating history upon which an evaluation of our
prospects can be based. 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, develop
successful new products, secure all necessary proprietary rights, respond to
competitive developments, and continue to attract, retain and motivate qualified
persons.
As a development stage company, we have incurred expenses related to
development and testing the T2000. We will need to raise additional capital to
fund the roll-out and expansion of our product in the market. If we are
unsuccessful in this offering, we may not succeed as a going concern. We may
seek additional private capital if necessary to supplement current resources to
continue with the product expansion we need. To date we have been funded by our
founders and a small number of investors. These funds have been utilized to
develop, test and refine the product, which has been completed successfully at
this time.
CONSULTING AGREEMENT
As of December 20, 1999, we entered into a consulting agreement relating to
services consisting of financial public relations and advice regarding corporate
structuring, and marketing. The terms of the contract include, among others,
payments of up 5% of the funds received in this offering along with 4.9% of the
stock sold in this offering. The consulting agreement expires on December 31,
2000.
INCOME TAXES
Through September 16, 1999, we were not subject to federal and state income
taxes since we were formed as a Limited Partnership. Accordingly, we reported
income on our personal income tax returns. Effective September 16, 1999, our
entity was converted from a Texas Limited Partnership to a Texas Corporation.
The minimum regular federal income tax rate is currently 34%. At present, the
state of 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.
SEASONALITY
The healthcare markets are characterized by capital budgeting cycles that
are typically seen 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 decision 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 the T2000 Reusable Trocar System is not budgeted for during
these periods, it is likely the facility will postpone their decision until the
next purchasing cycle. As a result, we have developed a program where we can
place the instruments in the facilities at no cost and simply pass the capital
cost through to the cutting tips by increasing their individual pricing. Even
using this system there can be no assurance that we will 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.
<PAGE>
BUSINESS
OVERVIEW
Surgery has traditionally required making large incisions, 12 to 24 inches
long to perform surgery. This incision, and the significant dissection needed
to allow the surgeon to visualize the field, are the parts
of the operation that cause most of the pain and contribute to slow patient
recovery.
Laparoscopic surgery is a technique, which allows the surgeon to perform
the operation through multiple small incisions with the aid of a video camera
and special instruments. Laparoscopic surgery is also called minimally invasive
surgery.
Minimally invasive surgery is a approach where the same operations are
performed using specialized instruments designed to fit into the body through
several small punctures instead of one large incision. Instead of looking
directly at the part of the body being treated, the physician monitors the
procedure via a special video camera system called a laparoscope inserted
through one of the small punctures. This can actually allow better visualization
of the operative site for more precise work. By eliminating the large incision
and extensive dissections, much of the pain of recovery can also be eliminated.
This minimally invasive or laparoscopic surgery is also known as "keyhole"
surgery, "micro"surgery, and telescopic surgery.
Minimally invasive surgery represents a relatively new class of surgical
procedures that incorporate the use of a 10mm or smaller fiberoptic laparoscope
that connects to a video monitor. The laparoscope is used to perform surgery in
or around the abdominal cavity, known as laparoscopy or the laparoscopic
approach.
The minimally invasive technique of laparoscopic surgery was successfully
introduced for gynecological procedures in the early 1970's. Since 1988, when
laparoscopy was first used for cholecystectomy, gallbladder removal, patient
demand has contributed to a rapid expansion in the number of laparoscopic
procedures performed. 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, through a pencil-sized "portal" passed through the abdominal wall.
Other portals are placed, through which long, slender instruments can be
inserted, to do the actual surgery. There is no large and painful incision.
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 for
many other types of surgery.
Therapeutic laparoscopy in general surgery was established in the late 1980s
with its use in performing cholecystectomies, hernia repairs and other
procedures. 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.
Laparoscopy experienced explosive growth with respect to instrument
development and sales. The current market size for all laparoscopic procedures
is 1,957,700 and is expected to grow to 2,303,303 by the year 2003. Companies
such as US Surgical and Ethicon Endo-Surgery began to compete for the highly
lucrative market of laparoscopic instrumentation, primarily trocars. When
compared against the market size for laparoscopic procedures, trocars are
estimated to generate annual sales of over $300,000,000. Trocars are the
utility instrument for all laparoscopic procedures.
A trocar's main purpose is to penetrate the abdominal wall and allow access to
the body cavity in which a procedure is performed. It is the one common
instrument used in all procedures and the average number required is four per
procedure. Each trocar allows the surgeon to pass a scope, instrument or other
device to complete the procedure. US Surgical and Ethicon Endo-Surgery have
dominated the market over the past 10 years with convenient, disposable trocar
systems, which cost roughly 90% more than our expected cost of the T2000
Reusable Trocar System per procedure.
In the healthcare industry today, there is a much greater awareness than
ever before of the need to reduce cost and look for alternatives to traditional
methods of doing business as a result of changes in reimbursement from third
party payors. The laparoscopic surgical market has expanded rapidly in the
past several years and growth is expected to continue at a strong pace as new
surgical techniques and approaches are developed using minimally invasive
technology. We intend to address the needs of customers in this market who
seek solutions to the rising cost of surgical services by providing the highest
quality surgical instrumentation and at the same time reduce the cost of each
procedure by 50-60%. The number of hospitals and outpatient surgery centers that
are candidates for sales of our T2000 Reusable Trocar System is over 6,000
nationwide.
The T2000 combines the convenience of a disposable trocar with the cost savings
of a reusable. If a hospital, surgeon or nurse favors the convenience and
safety of a disposable; the T2000 meets those needs with a consistently sharp,
replaceable tip along with a reliable shielding mechanism for the tip. If the
hospital favors the cost savings of a reusable, the T2000 can meet those needs
as well, with its quality construction, state of the art materials, and
interchangeability.
We intend to offer an instrument that not only provides the cost savings
typically seen with reusable instruments, but also gain market share through the
conversion of existing disposable instrument customers.
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.
Growth is expected to continue at this pace for the foreseeable future. Sales
are relatively steady and not subject to significant cyclical or seasonal
variation. 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
will lead to increased usage of the healthcare system along with products and
resources.
The overall market for 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. 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.
A few large companies currently dominate the trocar field. However, we
believe the arena is ripe for a new company with an approach "geared" toward
quality and cost savings. We believe we can successfully enter the market by
offering trocars that are reusable. We will limit the disposability to the tip
and seal cap. This differs from current products in that the lead players in
the industry sell disposable trocars that must be discarded after each case.
This means that after each abdominal puncture, the entire instrument is
discarded. We believe that hospitals will find the competitive benefit of our
trocar compelling enough that we will be able to build sales and establish a
market position. We have evaluated this instrument in various hospitals with
over 50 different surgeons and they confirm that hospitals are in favor of
utilizing this instrument.
CHANGES IN THE MARKET
A significant development in the marketplace recently has been increasing
financial pressure on hospitals resulting from capitated reimbursement and
ultimately, product selection, according to the MILLENNIUM RESEARCH GROUP, US
LAPAROSCOPY REPORT 1999 & 2000. The implication of this trend includes a
movement away from disposable instrumentation and toward reusables.
Historically buyers in this market have been concerned with convenience and
profit objectives from individual instrument purchases. Because of the
evolution of reimbursement from cost based reimbursement to capitation, many
hospitals have become increasingly concerned about the procedural cost,
inventory increases, and waste associated with disposable instrumentation. An
important feature of the T2000 compared to disposable trocars is that it is
reusable and as a result reduces cost, waste and inventory.
Some hospitals are forming internal committees charged with the sole purpose of
identifying disposable products that can be converted to reusable products.
WHEREAS THESE 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.
The ongoing trend of hospitals to identify reusable products and
instruments is providing an opportunity for new technologies and innovative
products. Growth in reusable instruments is expected to continue unabated for
some time to come.
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, such as Germany, disposables are widely shunned. The trend since the
mid 1990s, however, has been towards greater acceptance of reusables in the U.S.
In brief, disposable trocar manufacturers claim that their products are
superior on safety issues as they are sterile, and incorporate a shield for the
cutting blade. Reusable trocar manufacturers can demonstrate that in the long
run, they have superior cost advantages even after taking into account the
reprocessing costs associated with their use. Reusable products appear to be
winning over a cost conscious purchasing audience, which has continued to
convert many more procedures to reusable equipment over the past 3 years. While
the reusable instrumentation currently only commands 2% of the market, it is the
growth area for laparoscopic procedures.
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 years
of 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 for this program.
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 can offer the ability to place the
instruments in the facility at no cost and amortize the purchase price through a
3-5 year tip-purchasing contract. The surgeons and nurses are also critical to
this process and gaining their approval of the clinical effectiveness of the
trocar is important.
INDUSTRY OVERVIEW
While there are different firms competing in this industry, competition is
dominated by Ethicon Endo-Surgery in disposable trocars and to a lesser extent
US Surgical. In the reusable market there is no clear leader, which is largely
attributed to the lack of shielding features on existing reusable instruments
and the need to create an infrastructure or logistics program to keep the trocar
sharp. We feel that our shield mechanism and replaceable tip have answered the
objections hospitals and surgeons have had toward reusable trocars.
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. 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.
We have applied for certain trademarks in the United States and may apply for
registration in the United States for other trademarks and service marks.
We have registered our domain name neosurg.com and neosurg.net. Internet
regulatory bodies generally regulate domain names. The regulation of domain
names in the United States and in foreign countries is subject to change in the
near future. 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.
We may be required to obtain licenses from others to refine, develop,
market and deliver new products. We may be unable to obtain any such licenses on
commercially reasonable terms, if at all, or guarantee that rights granted by
any licenses will be valid and enforceable.
NATURE OF COMPETITION
Competition in this industry has traditionally focused on the improved
shield mechanisms and universal reducer systems to accommodate different size
instruments being passed through the trocar. Since the cost of the instruments
has only recently been an issue, the market leaders have traditionally focused
on technology at the expense of cost. The T2000 addresses that providing the
latest in technology and material selection. With a savings approaching 60% on
average and the ability to use a lightweight instrument made of titanium and
stainless steel, we believe the advances and cost savings of the T2000 exceed
those of the disposable trocars on the market.
CHANGES IN THE INDUSTRY
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 and shift the burden away from the hospital. These
issues are answered twofold by the T2000. First, the savings on our instrument
are compelling enough that certain hospitals have indicated that they will
purchase them "off-contract", and work closely with us to gain a presence on the
larger Group Purchasing Organizations, GPO. Most GPOs have focused on
disposable instruments and we believe significant market opportunities exist for
reusables such as the T2000. Secondly, because we are only replacing the tips
of the instruments, which we can do in 24 hours, we can offer hospitals lower
inventory levels and reduce the physical space allocated to trocars.
COMPETITIVE PRODUCTS/SERVICES
While each of our competitors possesses strengths and weaknesses, their
primary advantage is market share. The disposable trocars have gained market
share because of their convenience, safety features, and consistent penetration
force due to a sharp tip each time. Reusable trocars have maintained their
position as a result of the quality of their workmanship and cost savings, but
they have traditionally lacked the shielding features and the consistently sharp
tip for each puncture.
We believe the T2000 is the only instrument currently that combines the
advantages of disposable and reusable trocars in one instrument.
Based upon our evaluation of the market, hospital needs and current
competitive offerings, we feel there is an unfilled need for a trocar that is
designed with the safety and convenience of a disposable instrument along with
the savings and durability of a reusable. We believe the T2000 can gain
acceptance as a preferred reusable instrument in the U.S., and also convert
hospitals currently using disposable instruments, WITHOUT SACRIFICING FEATURES.
We believe the T2000 trocar will be particularly desired by buyers who are
looking to save costs in their operating room environment without having to
"battle" physicians into accepting inferior products in order to do so.
STRATEGY
We believe the T2000 positions us better than our competitors to take
advantage of new cost cutting trends in the healthcare market. The particular
trend that will benefit us as stated before, is the need to reduce cost without
sacrificing clinical quality. While the disposable instrument companies have
to replace the entire instrument after each puncture, we merely have to replace
a small plastic tip. The advantages of the T2000 over disposables in terms of
cost and quality are dramatic.
Because we are competing in a marketplace and industry where change is the
norm and not the exception, we will 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 the sales program can have a long-term
detrimental impact. To ensure that we have a well-trained and highly motivated
sales force we will need to fill the position of a National Sales Manager prior
to implementing the rollout of the T2000.
Our marketing plan includes placing a sales associate in each of the major
metropolitan markets and building the infrastructure at the corporate office to
meet the needs of the customer with respect to sales, delivery, and service need
to be implemented in parallel paths.
Currently, we have one other product in development that will compliment the
T2000 trocar. At the time of the writing of this offering, we have acquired the
rights to a patent, which will make closing the trocar wound site simple and
quick for the surgeon. This device reduces the number of steps necessary to
close the larger trocar incisions. Using an incision plug and two specially
designed suture needles, the surgeon will link both needles and feed the suture
material through to close the incision. We project that we will begin
development of this product in the spring of 2000.
SALES AND MARKETING
Our marketing strategy will be based around an aggressive sales effort. In
person sales presentations will be the core of our selling effort. We will
present our T2000 product principally to hospital executives. We believe there
are very few decisions an executive can make in a hospital that will provide the
type of savings the T2000 can offer without a major capital expenditure or
extensive learning curve. Essentially, the operating room can transition to the
T2000 with just one in-service and training of the reprocessing staff. This
should be appealing to administrators and give them the impetus to guide the
product through clinical evaluations with their endorsement.
Other marketing activities including advertising and publicity will be
geared to getting potential customers to agree to meet with our salespeople and
allow them to walk the customer through a quick cost/benefit analysis. The
overall direction of our marketing is to support the positioning of the T2000
Reusable Trocar System, 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 cohesive marketing program that emphasizes the T2000's unique
strengths, advantages, benefits, and the comparative benefits over other
systems. With access to their hospital administrator's email addresses and
ability to interact with them on a professional level through the American
College of Healthcare Executives, we will contact them person-to-person. The
market approach to the operating room director will be through appearances at
trade shows and follow-up with the local sales representative.
Our advertising in trade journals will focus on periodicals read by
administrators, CFOs, and operating room directors. The more prominent
publications directed to this market are Modern Healthcare, Hospitals, hospital
chief financial officer, and ACOG.
We intend to use direct mail advertising to reach potential customers in
advance of a trade show. We intend to target our mailings to 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.
PROMOTIONS AND INCENTIVES
Promotions and incentives will be used to increase sales of the T2000,
including such as discounts for large hospitals and multi-hospital systems and
referral discounts for administrators. As more hospitals in a particular
hospital system convert 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.
We intend to promote our business with a World Wide Web site. On the site
we will offer product information, service information, and basic information
about our business, suggestions on how to use our product/service more
effectively, a wide range of 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
believe the growth in the healthcare internet sector is just beginning and we
plan to place our products in a position to capitalize on the e-commerce growth
for healthcare products.
TRADE SHOWS
We plan 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 instrument 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, ACHE. He has reached the level of Certified Healthcare
Executive/Diplomat, CHE. CHE is the second highest certification in ACHE and
this provides an opportunity we do not believe our competitors have.
CUSTOMER SERVICE/SUPPORT
We intend to prioritize customer service and make it a key component of our
marketing programs. We believe that providing hospitals with what they want,
when and how they want it is the key to repeat business and positive referrals.
Not only will our Customer Service Department play a role in our success but
will be a fundamental part of each employee's job description from senior
management through all employees. The emphasis on excellent customer service
will be systemic within the organization. We are committed to training our
employees to deliver excellent service and we intend to give them the
flexibility to respond creatively to client requests. In addition, we intend to
continually monitor our clients' level of satisfaction with our service through
surveys and other convenient feedback opportunities.
MANUFACTURING
We currently use two outside vendors to manufacture of 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.
EMPLOYEES
As of December 31, 1999, we had a total of 3 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.
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.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our current executive officers, directors and
director nominees:
Name Age Position
- ---- --- --------
Peter O'Heeron 36 President/Chief Executive Officer and Director
Robert Allen 53 Secretary and Director
Charles Hansen 43 Director
Set forth below is a brief description of the background of our officers
and directors based on information provided by them to us.
Our team includes 3 individuals whose combined backgrounds represent 35
years of professional experience in the surgical and hospital administration
arena. The 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 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. The Medical Affairs
consultant, Mark Hickman, M.D., will work closely with the 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
needs to be filled and the individual that assumes 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 in the beginning of 1998 to
manage the development of the T2000 instrument.
BOB ALLEN, 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.
CHUCK 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.
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid in the
last three years to our chief executive officer.
ANNUAL COMPENSATION
-------------------
Name and Principal Position Year Salary Bonus
---- -------- -----
Peter O'Heeron 1998 $90,000 -----
President and 1999 $90,000 -----
Chief Executive Officer 2000 $132,000 -----
PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS
Our certificate of incorporation and Bylaws contain provisions that reduce the
potential personal liability of directors for certain monetary damages and
provide for indemnification of directors and other persons.
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.
In the opinion of the SEC, indemnification for liabilities arising under the
Securities Act of 1933, such as those contained in the indemnification
agreements is contrary to public policy and, as a result, is unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into an arrangement with one of our stockholders, Larry
Moser, to sell the product within the state of Texas. The arrangement includes
commission and draw structure that is equivalent to 20% of the sales prices.
This arrangement designates certain facilities within the Texas geographic area.
The arrangement is for a two-year term beginning September 1, 1999 and can be
extended for an additional one-year period.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of December 31, 1999, 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.
<TABLE>
<CAPTION>
Amount of Percentage Percentage Percentage
Common Ownership of Ownership of Ownership of
Name and Address of Stock Common Stock Common Stock Common Stock
Beneficial Owner Beneficially Before Offering After Offering After Offering
Owned 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
Larry Moser 1,314,000 10.0% 9.9% 8.5%
600 E. Medical Center Blvd. #412
Webster, TX 77598
William Grose 934,000 7.0% 6.9% 5.9%
4021 Garth Rd., Suite 103.
Baytown, TX 77521
Pete O'Heeron 794,064 6.1% 5.9% 5.1%
17300 El Camino Real, 110
Houston, TX 77058
Bob Allen 257,046 1.9% 1.8% 1.6%
2800 N. Gordon
Alvin, TX 77511
Chuck Hansen 252,222 1.9% 1.8% 1.6%
730 N. Loop
Houston, TX 77009
All officers and directors as a
group (3 persons) 1,303,332 10.0% 9.8% 8.4%
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
ARBITRARY DETERMINATION OF OFFERING PRICE
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
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 through a direct participation
offering, 240,000 share minimum, 2,400,000 share maximum" basis through our
officers and directors. No sales commissions will be paid to any of our
officers or directors. Prospective investors must purchase the shares in
increments of 200 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 a non-interest bearing escrow account with First Community Bank,
Houston, Texas. These funds 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. The offering will remain
open until all shares offered are sold or July 31, 2000 unless we decide to
cease selling efforts at any time prior to such date. We reserve the right to
extend this offering until December 31, 2000. We will reimburse our officers and
directors for expenses incurred in connection with the offer and sale of the
shares. Our officers and directors are relying 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 the shares. In order to rely on such "safe harbor"
provisions provided by Rule 3a4-1, an officer or director must:
- not be subject to a statutory disqualification;
- not be compensated in connection with such selling participation by payment
of commissions or other remuneration based either directly or indirectly
on such transactions;
- not be an associated person of a broker-dealer;
restrict participation to transactions involving offers and sale of the
shares,
- perform substantial duties for the issuer after the close of the offering
not connected with transactions in securities,
- not have been associated with a broker or dealer for the preceding 12
months,
- not participate in selling an offering of securities for any issuer more
than once every 12 months and,
- restrict participation to written communications or responses to inquiries
of potential purchasers.
Our officers and directors intend to comply with the guidelines enumerated in
Rule 3a4-1.
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. 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.
<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. We currently have approximately 58 stockholders of record. All
shares of common stock currently outstanding are validly issued, fully paid and
non-assessable, and all shares which are the subject of this prospectus, when
issued and paid for related to this offering, will be validly issued, fully paid
and non-assessable.
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 (50%) 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.
Shares Eligible for future Sale. Upon completion of this offering, we will
have 13,240,284 shares of common stock outstanding if the minimum number of
shares offered are sold, or 15,506,124 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 tradeable 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.
12,000,000 of the shares of restricted stock presently outstanding have
been held at least one year. Accordingly, commencing following the completion
of the offering, these 12,000,000 shares will be eligible for resale relative to
Rule 144 at the rates and subject to the conditions discussed above. 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.
PREFERRED STOCK
The board of directors is authorized by the our certificate of
incorporation to issue up to an additional 3,000,000 shares of one or more
series of serial preferred stock, no par value. No shares of such serial
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 serial preferred stock, it may exercise its
discretion in establishing the terms of such serial 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
holder of the 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 stock of our company.
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 our company through the acquisition of shares of common
stock.
PROVISIONS IN THE CERTIFICATE OF INCORPORATION
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.
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 exceptions, Part Thirteen
prohibits a publicly held Texas corporation from engaging in any business
combination with any affiliated stockholder for a period of three years
following the date that such stockholder became an affiliated stockholder,
unless: (1) prior to such date, the corporation's board of directors approved
either the business combination or the transaction that resulted in the
stockholder becoming an affiliated stockholder; or (2) the business combination
is approved by at least two-thirds of the outstanding voting shares that are not
beneficially owned by the affiliated stockholder or an affiliate or associate of
the affiliated stockholder at a meeting of stockholders called not less than six
months after the affiliated stockholder's share acquisition date.
In general, Part Thirteen defines an affiliated stockholder as any entity
or person beneficially owning 20% or more of the outstanding voting stock of the
issuing public corporation and any entity or person affiliated with or
controlling or controlled by such entity or person. Part Thirteen defines a
business combination to include, among other similar types of transaction, any
merger, share exchange, or conversion of an issuing public corporation involving
an affiliated stockholder. Part Thirteen may have the effect of inhibiting a
non-negotiated merger or other business combination that we may be involved in.
Our amended and restated articles of incorporation limited 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 no affect the
availability of equitable remedies such as injunctive relief or rescission. Our
directors and officers to the fullest extent permitted by Texas law, including
in circumstances in which indemnification is otherwise discretionary under Texas
law.
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.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling us related to the
foregoing provision, 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, as a result unenforceable. 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.
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, without further
stockholder approval 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 NeoSurg Technologies, Inc.
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.
<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, as amended, 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.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary . . . . . . . . . . . . . . . . . . . .4
The Offering . . . . . . . . . . . . . . . . . . . . . . .6
Summary Financial Information . . . . . . . . . . . . . .7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . .8
Forward Looking Statements . . . . . . . . . . . . . . .16
Use Of Proceeds . . . . . . . . . . . . . . . . . . . . 17
Capitalization . . . . . . . . . . . . . . . . . . . . . .18
Dilution . . . . . . . . . . . . . . . . . . . . . . . . .19
Management's Discussion And Analysis . . . . . . . . . 20
Business . . . . . . . . . . . . . . . . . . . . . . . . .23
Management . . . . . . . . . . . . . . . . . . . . . . . .30
Certain Relationships And Related Transaction . . . . 31
Principal Stockholders . . . . . . . . . . . . . . . . . 32
Plan Of Distribution . . . . . . . . . . . . . . . . . .33
Description Of Capital Stock . . . . . . . . . . . . . 35
Legal Matters . . . . . . . . . . . . . . . . . . . . . .39
Experts . . . . . . . . . . . . . . . . . . . . . . . . . 39
Where You Can Find More Information . . . . . . . . .39
UNTIL DECEMBER 31, 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.
UNTIL DECEMBER 31, 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.
<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 $3,960
Blue Sky Fees and Expenses 5,000
Accounting Fees and Expenses 15,000
Legal Fees and Expenses 25,000
Printing and Engraving 10,000
Marketing 30,000
Miscellaneous 15,000
Total $103,960
----- --------
_________
*Estimated
<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 various existing stockholders 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 13,248,524 shares
pursuant to a 2 for 1 stock split.
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, as amended. Each of the other
issuances described above were exempt from the registration requirements of the
Securities Act of 1933, as amended, 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. 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 T2000, LP in connection with the conversion of T2000, LP
into NeoSurg Technologies. These shares were issued in exchange for the
partnership interests of those partners pursuant to the conversion. The issuance
was exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2). The consideration for such shares was the
contribution of the initial operating assets of NeoSurg Technologies we at value
at book value, $270,845.
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.
10.03 Form of Agreement between Registrant and Millennium Capital.
23.01 Consent of Hein + Associates LLP.
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
*To be filed by amendment
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.
<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 14 day of February, 2000
NeoSurg Technologies, Inc.
By: /s/ Peter O'Heeron 4/6/00
--------------------------------- -------------------- Date
Peter O'Heeron President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Peter
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 eAcceleration Corp. to comply with the
Securities Act of 1933, as amended, 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 14, 2000
Signatures Title
- ---------- -----
By: /s/ Peter O'Heeron 4/6/00
---------------------- ------- President, Chief Executive
Peter O'Heeron Date Officer and Director
(Principal Executive Officer)
By: /s/ Peter O'Heeron 4/6/00
---------------------- -------
Pete O'Heeron, Date
principal accounting officer
/s/ Charles Hansen 4/6/00
---------------------- ------- Director
Charles Hansen Date
/s/ Robert Allen 4/6/00
---------------------- ------- Director, and Secretary
Robert Allen Date
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of December 31, 1999 . . . . . . . . . . . . . . . . . . . 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. . . 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 . . . . . . . . . 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. . . 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 8. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Hein + Associates llp
Houston, Texas
February 3, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $ 149,714
Investments 128,165
Inventory 16,083
Other current assets 250
----------
Total current assets 294,212
PROPERTY AND EQUIPMENT, net 37,481
OTHER ASSETS 4,000
----------
Total assets $ 335,693
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
ACCOUNTS PAYABLE $ 33,852
COMMITMENTS AND CONTINGENCIES (Note 10) -
STOCKHOLDERS' EQUITY
Preferred stock-no par value, 3,000,000 authorized; none -
issued
Common stock-no par value, 20,000,000 authorized, 505,217
12,988,524 issued and outstanding at December 31, 1999
Deficit accumulated in the development stage (203,376)
----------
Total stockholders' equity 301,841
----------
Total liabilities and stockholders' equity $ 335,693
==========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Period from
January 1,
1997
(inception) to
Years ended December 31, December 31,
----------------------------------------- ------------
1999 1998 1999
-------------------------- ------------- ------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Professional expenses $ 115,264 $ 103,073 $ 238,738
Selling, general and administration 370,203 350,592 810,754
Research and development 54,587 28,331 137,805
-------------------------- ------------- ------------
OPERATING LOSS (540,054) (481,996) (1,187,297)
OTHER INCOME (EXPENSES)
Interest income 46,482 34,936 106,165
Unrealized loss on marketable equity securities (4,127) - (4,127)
-------------------------- ------------- ------------
42,355 34,936 102,038
-------------------------- ------------- ------------
NET LOSS $ (497,699) $ (447,060) $(1,085,259)
========================== ============= ============
PRO FORMA BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.04)
========================== ============= ============
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING 12,000,000 12,000,000
========================== ============= ============
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Deficit Total
Accumulated Stockholders'
in the Equity and
Partners' Common Development Partners'
Capital Stock, shares Common Stock Stage Capital
------------- ------------- ------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 $ - - $ - $ - $ -
(inception)
Partner contributions 1,116,255 - - - 1,116,255
(contributed January
1997 at $11,163 per unit)
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, (294,323) - - - (294,323)
1999 through
September 16, 1999
(date of conversion to
corporation)
Reorganization from (234,372) 12,000,000 234,372 - -
partnership to corporation
Proceeds from sale of - 988,524 270,845 - 270,845
common stock
(received November
1999 through December
1999 at $.60 per share)
Net loss - - - (203,376) (203,376)
------------- ------------- ------------- ------------ ---------------------
Balances, December 31, 1999 $ - 12,988,524 $ 505,217 $ (203,376) $ 301,841
============= ============= ============= ============ =====================
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Period from
January 1,
1997
(inception) to
Years ended December 31, December 31,
1999 1998 1999
-------------------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (497,699) $ (447,060) $(1,085,259)
Depreciation 3,033 2,115 5,148
Unrealized loss on marketable equity securities 4,127 - 4,127
Change in current assets and liabilities 1,032 (32,404) 4,670
-------------------------- ------------- ------------
Net cash used in operating activities (489,507) (477,349) (1,071,314)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (22,622) (6,637) (33,780)
Purchase of marketable equity securities (132,292) - (132,292)
-------------------------- ------------- ------------
Net cash used in investing activities (154,914) (6,637) (166,072)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions - - 1,116,255
Issuance of common stock 270,845 - 270,845
-------------------------- ------------- ------------
Net cash provided by financing activities 270,845 - 1,387,100
-------------------------- ------------- ------------
Net change in cash and cash equivalents (373,576) (483,986) 149,714
CASH AND CASH EQUIVALENTS, beginning of period 523,290 1,007,276 -
-------------------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 149,714 $ 523,290 $ 149,714
========================== ============= ============
</TABLE>
F-6
<PAGE>
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.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
----------------------------------------------
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.
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.
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, 1999 and 1998 was
approximately $11,000 and $7,000, respectively.
F-8
<PAGE>
5. MARKETABLE SECURITIES
----------------------
Marketable securities at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cost Gross Unrealized Loss Fair Value
-------- ---------------------- -----------
Trading - common shares $132,292 $ 4,127 $ 128,165
======== ====================== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
------------------------
Property and equipment at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
Useful
Life
--------
<S> <C> <C>
Equipment 3 years $11,158
Molds 3 years 31,471
-------
42,629
Accumulated depreciation (5,148)
$37,481
=======
</TABLE>
7. 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.
F-9
<PAGE>
8. 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 carryforward $ 69,000
Valuation allowance (69,000)
--------
Net deferred tax asset -
========
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $200,000 which will expire, if unused, in 2019.
9. MANAGEMENT'S PLANS
-------------------
The Company's losses for the years ended December 31, 1999 and 1998 amounted to
approximately $498,000 and $447,000. 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 is
planning a direct participation offering to raise additional capital.
10. 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.
F-10
<PAGE>
5840
|------------| |------------|
| Number | | Share |
| NEO | | |
|------------| NeoSurg |------------|
TECHNOLOGIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR
NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J. CERTAIN
DEFINITIONS CUSIP 640651 10 5
THIS CERTIFIES THAT
is the registered holder of
FULLY PAID SHARES OF THE COMMON STOCK, NO PAR VALUE PER SHARE, OF
------------------NEOSURG TECHNOLOGIES, INC.-----------------
transferable on the books of the Bank by the holder hereof in person or by duly
authorized attorney on surrender of this certificate
properly enclosed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Bank and the facsimile signatures of its
duly authorized officers.
Dated:
[CORPORATE SEAL]
/s/ -------------------- Neosurg Technologies, Inc. /s/---------------
September 21, 1999 PRESIDENT AND
SECRETARY TEXAS CHIEF EXECUTIVE OFFICER
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into effective as of the 15th day of November 1999, by and between NeoSurg
Technologies, Inc., a Texas Company (the "Company"), and its Directors (the
"Indemnified Party").
R E C I T A L S :
A. The Company desires to attract and retain talented officers,
directors and other personnel.
B. In order to provide an additional incentive for qualified personnel
to become and remain directors, officers or other key personnel of the Company,
the Company is willing to enter into this Agreement setting forth its
indemnification obligations with respect to the Indemnified Party.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the Company and the
Indemnified Party hereby agree as follows:
1. Indemnification. Except as provided in Section 2 below, the Company
shall, to the maximum extent and in the manner permitted by the Texas Revised
Business Corporations Act (the "Act"), indemnify the Indemnified Party against
any liability incurred in any proceeding to which the Indemnified Party is made
a party because he or she is or was a director or officer of the Company or is
or was serving at the request of the Company as a director, officer, employee,
fiduciary or agent of another company, partnership, joint venture, trust, or
other enterprise (an "Indemnifiable Party"), if his or her conduct was in good
faith, he or she reasonably believed that his or conduct was in, or not opposed
to, the Company's best interest, and in the case of any criminal proceeding, he
or she had no reasonable cause to believe his or her conduct was unlawful.
Termination of the proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent is not, of itself, determinative
that the Indemnified Party did not meet the standard of conduct described in
this section.
2. Certain Restrictions on Indemnification. Notwithstanding anything to
the contrary in this Agreement, the Company may not indemnify the Indemnified
Party under Section 1, in connection with a proceeding by or in the right of the
Company or any affiliate of the Company in which the Indemnified Party was
adjudged liable to the Company or the respective affiliate of the Company, or in
connection with any other proceeding charging that the Indemnified Party derived
an improper personal benefit, whether or not involving action in his official
capacity, in which proceeding he was adjudged liable on the basis he derived an
improper personal benefit, unless ordered by a court of competent jurisdiction.
3. Mandatory Indemnification. The Company shall indemnify the
Indemnified Party if he or she is successful, on the merits or otherwise, in the
defense of any proceeding, or the defense of any claim, issue, or matter in the
proceeding, to which he or she was a party because he or she is or was an
Indemnifiable Party, against reasonable expenses incurred by him or her in
connection with the proceeding or claim with respect to which he or she has been
successful.
4. Determination. Notwithstanding anything to the contrary in this
Agreement, the Company shall not indemnify the Indemnified Party under Section 1
unless authorized and a determination has been made in the specific case that
indemnification of the Indemnified Party is permissible in the circumstances
because the Indemnified Party has met the applicable standard of conduct set
forth in Section 1. Such determination shall be made (1) by the Board of
Directors by majority vote of those present at a meeting at which a quorum is
present, and only those directors not parties to the proceeding shall be counted
in satisfying the quorum, (2) if a quorum cannot be attained, by majority vote
of a committee of the Board of Directors designated by the Board of Directors,
which committee shall consist of two or more directors not parties to the
proceeding, except that directors who are parties to the proceeding may
participate in the designation of directors for the committee, (3) by special
legal counsel selected by the Board of Directors or its committee in the manner
prescribed by the Act, or (4) by the shareholders, by a majority of the votes
entitled to be cast by holders of qualified shares (i.e. shares held by an
person other than the Indemnified Person, family members of the indemnified
person, or entities owned or controlled by the Indemnified Person) that are
present in person or by proxy at a meeting. A majority of the votes entitled to
be cast by the holders of all qualified shares constitutes a quorum for purposes
of action that complies with this section. Shareholders' action that otherwise
complies with this section is not affected by the presence of holders, or the
voting, of shares that are not qualified shares.
<PAGE>
5. General Indemnification. The indemnification and advancement of
expenses provided by this Agreement shall not be construed to be exclusive of
any other rights to which a person seeking indemnification or advancement of
expenses may be entitled under any Articles of Incorporation of the Company,
bylaw, other agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
6. Advances. The Company shall pay for or reimburse the reasonable
expenses incurred by the Indemnified Party if he or she is made party to a
proceeding in advance of final disposition of the proceeding if: (1) the
Indemnified Party furnishes the Company a written affirmation of his or her good
faith belief that he or she has met the applicable standard of conduct described
in Section 1, (2) the Indemnified Party furnishes to the Company a written
undertaking, executed personally or on his behalf, to repay the advance if it is
ultimately determined that he or she did not meet the standard of conduct and
(3) a determination is made that the facts then known to those making a
determination would not preclude indemnification under this Agreement or the
Act.
7. Scope of Indemnification. The indemnification and advancement of
expenses authorized by this Agreement is intended to permit the Company to
indemnify the Indemnified Party to the fullest extent, but not in excess of the
fullest extent, permitted by the laws of the State of Texas. In the event the
Act is amended to expand or restrict the circumstances under, extent to which,
or method by which the Company may indemnify or advance expenses to the
Indemnified Party, this Agreement shall automatically be deemed to comply with
and include the substance of such amendment to the Act.
8. [INSURANCE. THE COMPANY SHALL PURCHASE AND MAINTAIN INSURANCE ON
BEHALF OF ANY PERSON WHO IS OR WAS A DIRECTOR, OFFICER, EMPLOYEE, FIDUCIARY OR
AGENT OF THE COMPANY, OR IS OR WAS SERVING AT THE REQUEST OF THE COMPANY AS A
DIRECTOR, OFFICER, EMPLOYEE, FIDUCIARY OR AGENT OF ANOTHER COMPANY, PARTNERSHIP,
JOINT VENTURE, TRUST, OR OTHER ENTERPRISE, AGAINST ANY LIABILITY ASSERTED
AGAINST OR INCURRED BY HIM IN SUCH CAPACITY OR ARISING OUT OF HIS STATUS IN SUCH
CAPACITY, WHETHER OR NOT THE COMPANY WOULD HAVE THE POWER TO INDEMNIFY HIM
AGAINST THE LIABILITY UNDER THE PROVISIONS OF THIS AGREEMENT OR THE LAWS OF THE
STATE OF TEXAS, AS THE SAME MAY HEREAFTER BE AMENDED OR MODIFIED.]
9. No New Employment Rights. This Agreement does not create in
Indemnified Person any right with respect to continuation of service, and it
shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, Indemnified Person's service at any time.
10. Titles and Captions. All Section titles and captions in this
Agreement are for convenience or reference only, and shall not be deemed part of
this Agreement, and in no way define, limit, extend or describe the scope or
intent of any provision hereof.
11. Applicable Law. This Agreement shall be construed in accordance
with and shall be governed by the laws of the State of Texas.
12. Assignment/Binding Effect. The Indemnified Person may not transfer
or assign, by operation of law or otherwise, this Agreement or any interest in
this Agreement. This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns.
<PAGE>
13. No Waiver of Breach. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of the Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
14. Termination. This Agreement may be terminated by the Indemnified
Person and the Company by mutual written agreement at any time. This Agreement
shall only apply to the Indemnified Person's acts or omissions while functioning
as an Indemnifiable Person, and this Agreement shall terminate upon the
termination of the Indemnified Person's service as an Indemnifiable Person;
provided, however, the rights and obligations of the parties under this
Agreement shall continue to apply with respect to all periods prior to the date
the Indemnified Persons cease to be an Indemnifiable Person.
15. Severability. In the event any condition, covenant or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder of
this Agreement and shall in no way affect any other covenant or condition herein
contained. If such condition, covenant or other provision shall be deemed
invalid due to its scope or breadth, such provision shall be deemed valid to the
extent of the scope or breadth permitted by law.
16. Definitions. The following words used herein shall have the same
meaning as set forth in Section 16-10a-901 of the Act: (a) "liability," (b)
"proceeding," (c) "director," and (d) "officer."
17. Amendment. This Agreement may be amended only by a writing signed
by the Company and the Indemnified Person.
IN WITNESS WHEREOF, the Company and the Indemnified Person have
executed this Agreement as of the day and year first set forth above.
/s/ Peter O'Heeron
- ----------------------------------
Peter O'Heeron, President
"COMPANY"
NeoSurg Technologies, Inc.,
a Texas company
"INDEMNIFIED PERSON"
/s/ Peter O'Heeron
- ----------------------------------
Name: Peter O'Heeron
Position: Director
"INDEMNIFIED PERSON"
/s/ Robert Allen
- ----------------------------------
Name: Robert Allen
Position: Director
"INDEMNIFIED PERSON"
/s/ Charles Hansen
- ----------------------------------
Name: Charles Hansen
Position: Director
