REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEOSURG TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 5047 76-0535782
(State or other jurisdiction (Primary (I.R.S. Employer
of incorporation or Standard Industrial Identification No.)
organization) Classification Code Number)
NEOSURG TECHNOLOGIES, INC. 17300 EL CAMINO REAL, SUITE 110, HOUSTON, TEXAS 77058
- (281) 461-6211
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PETE O'HEERON
PRESIDENT
17300 EL CAMINO REAL, SUITE 110
HOUSTON, TEXAS 77058
(281) 461-6211
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
BRIAN BOSIEN, ESQ.
COKINOS, BOSIEN & YOUNG
A PROFESSIONAL CORPORATION
1500 WOODSON TOWER
2919 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(713) 535- 5500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed maximum
Title of each class of securities Amount to be Proposed maximum aggregate Amount of
to be registered registered offering price per unit (1) offering price (1) registration fee
- --------------------------------- ---------------- ---------------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, no par value 2,400,000 $ 6.25 $ 15,000,000 $ 3,960.00
- --------------------------------- ---------------- ---------------------------- ------------------- -----------------
<FN>
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 23, 2000
PRELIMINARY PROSPECTUS
[GRAPHIC OMITTED]
2,400,000 SHARES OF 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 our company. We will be selling our shares in
a direct offering on a "best efforts, 240,000 share minimum, 2,400,000 share
maximum" basis. No one has agreed to buy any of our shares, and there is no
assurance that any sales will be made. 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. 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 thereafter be entitled to receive all offering proceeds
thereafter without the requirement that such proceeds exceed a minimum amount.
We have the right to accept or reject any subscriptions for shares offered
hereby in whole or in part. This offering will remain open until all shares
offered hereby are sold or July 31, 2000, whichever is earlier. We may extend
this offering until December 31, 2000.
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 or Nasdaq
National Market. We estimate that the public offering price of our common stock
will be $6.25 per share. 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.
AN ELECTRONIC FORMAT OF THIS PROSPECTUS IS AVAILABLE ON OUR INTERNET WORLD WIDE
WEB SITE AT HTTP://WWW.NEOSURG.COM.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. YOU SHOULD CAREFULLY READ AND CONSIDER THE
"RISK FACTORS," COMMENCING ON PAGE 7 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Shares Price to Public Proceeds to Us (1)
- ----------------------------------------------------------------
Minimum 240,000 $ 6.25 $ 1,500,000
Maximum 2,400,000 $ 6.25 $ 15,000,000
<FN>
(1) Before deducting offering expenses payable by us estimated to be
approximately $825,000.
</TABLE>
The date of this Prospectus is February 23, 2000
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY. . . . . . . . . 4
- ------------------
THE OFFERING. . . . . . . . . . . . 5
- ------------
SUMMARY FINANCIAL INFORMATION . . . 6
- -----------------------------
RISK FACTORS. . . . . . . . . . . . 7
- ------------
FORWARD LOOKING STATEMENTS. . . . . 14
- --------------------------
USE OF PROCEEDS . . . . . . . . . . 15
- ---------------
CAPITALIZATION. . . . . . . . . . . 15
- --------------
DILUTION. . . . . . . . . . . . . . 16
- --------
MANAGEMENT'S PLAN OF OPERATION. . . 17
- ------------------------------
BUSINESS. . . . . . . . . . . . . . 20
- --------
MANAGEMENT. . . . . . . . . . . . . 26
- ----------
PRINCIPAL STOCKHOLDERS. . . . . . . 28
- ----------------------
PLAN OF DISTRIBUTION. . . . . . . . 29
- --------------------
DESCRIPTION OF CAPITAL STOCK. . . . 30
- ----------------------------
LEGAL MATTERS . . . . . . . . . . . 33
- -------------
EXPERTS . . . . . . . . . . . . . . 33
- -------
WHERE YOU CAN FIND MORE INFORMATION 33
- -----------------------------------
INDEX TO FINANCIAL STATEMENTS . . . 1
- -----------------------------
</TABLE>
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[GRAPHIC OMITTED]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this prospectus. Because it is a summary, it does not contain all
of the information you should consider before making an investment decision. You
should read this entire prospectus carefully; especially the risks of investing
in our common stock discussed under the sections entitled "Risk Factors",
beginning on page 7.
NEOSURG TECHNOLOGIES, INC.
We are a designer and manufacturer of minimally invasive surgical devices.
Our principal product, the T2000 Reusable Trocar System (also referred to herein
as the "T2000"), is a high quality surgical instrument that provides tremendous
savings through its reusability. We believe there has been a trend toward
reusable surgical instrumentation over the past few years, and we set out to
develop an instrument that met the needs of the surgeon and the cost savings
needs of hospital administrators.
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. Our
primary product line is the T2000 Reusable Trocar System. A surgical trocar is
the utilitarian instrument common among all laparoscopic procedures.
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 they favor the cost savings of a reusable device, the T2000 can meet those
needs as well, with its quality construction, state of the art materials, and
interchangeability.
We intend to address the needs of customers in this market who seek
solutions to the rising cost of surgical services by providing high quality
trocar instrument while reducing the cost of each procedure by up to 50-60%.
We currently hold three patents relating to the reusable trocar and have
two patent applications pending that we expect may be awarded within the next
year. In addition to these patents, we license a patent relating to a closure
device, which will assist the surgeon in closing the penetration created by the
trocar.
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.
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<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Shares Offered (1) 2,400,000 shares of common stock, no par value
Price Per Share $6.25
Shares Outstanding After Offering
Minimum (2) 13,240,284
Maximum (3) 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 or Nasdaq National
Market(1) NEOS
______________________
<FN>
(1) 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 or Nasdaq National Market; however, there can be no
assurance that the common stock will be approved for listing or that the we will be able to meet the
requirements for continued listing, that a public trading market will develop or that if such market
develops, it will be sustained. See "Risk Factors -- We May Never Become Listed on NASDAQ or We May
Become Delisted".
(2) Adjusted to reflect 11,760 shares issued to consultants for successful completion of minimum
offering.
(3) Adjusted to reflect 117,600 shares issued to consultants for successful completion of maximum
offering.
</TABLE>
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.
THE SECURITIES ARE NOT BEING OFFERED IN ANY JURISDICTION WHERE THEIR OFFER
IS NOT PERMITTED.
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.
FOR A DESCRIPTION OF SOME OF THE RISKS THAT YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF OUR COMMON STOCK, SEE "RISK FACTORS," BEGINNING ON PAGE 7.
5
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<TABLE>
<CAPTION>
Years ended December 31:
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
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 (1) $ (0.04) $ (0.04) $ (0.01)
========== ========== ==========
<FN>
(1) Assuming 12,000,000 shares had been outstanding for 1999, 1998 and 1997
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: Actual
December 31, As Adjusted As Adjusted
1999 Minimum (2) Maximum (3)
------------- ------------- -------------
<S> <C> <C> <C>
Working Capital $ 260,360 $ 1,585,360 $ 14,335,360
Property and Equipment $ 37,481 $ 37,481 $ 37,481
Total Stockholders' Equity $ 301,841 $ 1,626,841 $ 14,376,841
<FN>
(2) Assumes minimum offering, net of $75,000 underwriting fees and commissions
and approximately $100,000 of other estimated offering expenses.
(3) Assumes Maximum offering, net of $850,000 underwriting fees and commissions
and approximately $100,000 of other estimated offering expenses.
</TABLE>
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<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 herein, 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. These risks include our ability to:
- - attract consumers to our products;
- - contract with new medical and surgical centers for installations for our
- - products;
- - add new applications for our products;
- - manage our expanding operations;
- - continue to develop and upgrade our technology;
- - create and maintain the loyalty of our customers;
- - develop new strategic relationships and alliances;
- - attract, retain and motivate qualified personnel;
- - compete with companies that have greater resources; and
- - raise the capital require to implement our strategy.
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 began 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.
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<PAGE>
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 the T2000
Reusable Trocar System.
If we are unable to adapt to rapid changes in the medical equipment 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 equipment 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, marketing, insurance,
leaseholds, 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. See "Use of Proceeds."
The proceeds from this offering may not be sufficient and we may only 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, 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 than if more shares were sold.
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. See "Dilution."
8
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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.
The stock market has experienced 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 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 (in the event the maximum number of shares of common stock offered hereby
are sold), or 96.5% of the outstanding shares of our common stock (in the event
the minimum 240,000 shares of common stock offered hereby 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.
Risks associated with offering new 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 products to meet our customers' demands.
We rely on third-party manufacturers to assemble and manufacture the
Components of our trocar 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 the company 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.
9
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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,
the following risks still exist:
- - development may not be completed successfully on time or within our
projected cost;
- - projects may not include the features required to achieve market
- - acceptance; and
- - enhancements to our products may not keep pace with broadening market
requirements.
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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. In addition, intellectual property litigation or claims could force
us to do one or more of the following:
- - cease selling, incorporating or using any of our products that incorporate
the challenged intellectual property, which would adversely affect our
revenue,
- - obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, if at all,
and
- - redesign our products, which would be costly and time-consuming.
- - 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 potential disruption of our ongoing business,
- the diversion of resources from our existing businesses, and technologies,
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- - 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
- - the impairment of relationships with employees and customers as a result of
any integration of new management personnel.
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.
GENERAL LIABILITY AND COMMERCIAL INSURANCE, 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, such
shares may only be sold under certain conditions. If a large number of such
shares are sold, it may reduce the value of your shares.
12
<PAGE>
WE MAY NEVER BECOME LISTED ON NASDAQ.
We intend to apply for listing of our common stock on the NASDAQ
SmallCap Market or the NASDAQ National 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.
INABILITY 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, certain 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 or NASDAQ National 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
13
<PAGE>
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.
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.
14
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,400,000
shares of common stock will be approximately $14,075,000, assuming an initial
public offering price of $6.25 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 $1,325,000, assuming an initial public offering price
of $6.25 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 currently intend to use a portion of the net proceeds from this
offering for general corporate purposes,
including working capital, product development, increasing our sales and
marketing capabilities and expanding
our operations. 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.
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 hereby and to the sale of the maximum
number of 2,400,000 shares of common stock offered hereby at an assumed public
offering price of $6.25 per share, and after the application of the net proceeds
of such sale, as described in "Use of Proceeds". See "Description of Capital
Stock".
<TABLE>
<CAPTION>
December 31, 1999
--------------------
As Adjusted (1)
---------------
STOCKHOLDERS' EQUITY: Actual Minimum Maximum
<S> <C> <C> <C>
Common Stock, no par value per share;
20,000,000 shares authorized; 12,988,524
shares issued and outstanding; 13,240,284 (2) shares
issued and outstanding, as adjusted (assuming
the minimum number of shares are sold); 15,506,124 (3)
shares issued and outstanding, as adjusted (assuming
the maximum number of shares are sold) $ 505,217 $1,830,217 $14,580,217
Deficit Accumulated During Development Stage of Company (203,376) (203,376) (203,376)
Total Stockholders' Equity $ 301,841 $1,626,841 $14,376,841
<FN>
___________________
(4) Adjusted to reflect the anticipated receipt and application of the net proceeds of this
offering.
(5) Adjusted to reflect 11,760 shares issued to consultants for successful completion of minimum
offering.
(6) Adjusted to reflect 117,600 shares issued to consultants for successful completion of maximum
offering.
</TABLE>
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<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). See "Description
of Capital Stock". After giving effect to the sale of 240,000 shares (in the
event that the minimum number of shares offered hereby are sold) or 2,400,000
shares (in the event that the maximum number of shares, offered hereby are
sold), the adjusted net tangible book value at December 31, 1999 would be
$1,626,841, or $.12 per share, in the event that the minimum number of shares
offered hereby are sold; or $14,376,841, or $.93 per share in the event that the
maximum number of shares offered hereby are sold. This represents an immediate
increase in net tangible book value to the existing stockholders of $.10 per
share, in the event the minimum number of shares are sold and $.91 in the event
the maximum number of shares are sold and an immediate dilution of $6.13 per
share, or 98%, to new investors in the event that the minimum number of shares
offered hereby are sold, or $5.32 per share, or 85%, to new investors in the
event that the maximum number of shares offered hereby are sold. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
Minimum Maximum
<S> <C> <C>
Assumed Public offering price per share of Common Stock Offered
hereby (1) $ 6.25 $ 6.25
Net tangible book value per share before offering $ 0.02 $ 0.02
Increase per share attributable to new investors .10 0.91
As adjusted net tangible book value per share after offering .12 0.93
Dilution per share to new investors $ 6.13 $ 5.32
<FN>
______________________
(1) Assumes an offering price of $6.25 per share, before deduction of consulting fees,
commissions and other offering expenses.
</TABLE>
The following tables summarize the relative investments of investors
pursuant to this offering and our current stockholders, assuming a per share
offering price of $6.25, before deduction of consulting fees, commissions and
other offering expenses:
<TABLE>
<CAPTION>
Minimum: Current Public Total
- ---------------------------------------------------- Stockholders Investors
-------------- ------------ ------------
<S> <C> <C> <C>
Number of Shares of Common Stock Purchased 12,988,524 240,000 13,228,524
Percentage of Outstanding Common Stock AfterOffering 98% 2% 100%
Gross Consideration Paid $ 1,387,100 $ 1,500,000 $ 2,887,100
Percentage of Consideration Paid 48% 52% 100%
Average Consideration Per Share of CommonStock $ .11 $ 6.25 $ .22
Maximum: Current Public Total
- ---------------------------------------------------- Stockholders Investors
-------------- ------------ ------------
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 $15,000,000 $16,387,100
Percentage of Consideration Paid 8% 92% 100%
Average Consideration Per Share of Common
Stock $ .11 $ 6.25 $ 1.07
</TABLE>
16
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
Plan of Operations
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
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 agreement 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.
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.
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.
Operations for the Next Twelve Months
We intend to have distribution channels in place within the next few months
and to realize sales shortly thereafter. 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.
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<PAGE>
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.
The following discussion should be read in conjunction with the historical
financial statements, including the notes thereto, included 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.
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 whereby 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.
18
<PAGE>
Inflation.
We believe that inflation has generally not had a material impact on our
operations.
19
<PAGE>
BUSINESS
Overview
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,
Inc. 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.
20
<PAGE>
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
The most significant development in the marketplace recently has been
increasing financial pressure on hospitals resulting from capitated
reimbursement and ultimately, product selection. The implication of this trend
includes a fundamental shift 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.
21
<PAGE>
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 with respect thereto. 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.
Therefore, 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 by not only
providing the latest in technology and material selection but also significant
cost reduction. 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
22
<PAGE>
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. We believe the T2000's combination of cost
savings and quality construction makes it a superior product to those of our
competitors in the reusable and disposable trocar market. 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 cost savings offered by the T2000 when compared to disposables,
is up to 60% per procedure. 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 quality and cost savings of 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. This will
benefit us because we can provide the best built trocar on the market at the
lowest procedural cost in the industry. 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.
[GRAPHIC OMITTED]
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.
[GRAPHIC OMITTED]
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.
[GRAPHIC OMITTED]
Our T2000 product is a completely reusable trocar with the features,
safety, and convenience of a disposable. The basic purpose for the instrument
is to offer the market a combination of the best components of the disposables
that are so widely used in this country, along with the cost savings of the
reusable trocars that are widely used in Europe. We introduced this product in
late Fall of 1999 and have received positive feedback from both surgeons and
hospital administrators. We feel we can meet the evolving needs of the market,
and also develop an instrument that can be used in any clinical setting. We
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have a near 99% approval rating from physicians that have used the T2000
Reusable Trocar System during our clinical evaluations.
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. 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.
24
<PAGE>
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) 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.
Employees
As of December 31, 1999, we had a total of 3 employees, including one in
corporate management and marketing, one in technology and development, and one
in sales. 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.
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. NeoSurg
Technologies, Inc., is a Texas corporation and the successor to T2000, L.P., a
Texas Limited partnership.
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MANAGEMENT
Directors and Executive Officers
The following persons are our current executive officers, directors and director
nominees:
<TABLE>
<CAPTION>
Name Age Position
- -------------- --- ----------------------------------------------
<S> <C> <C>
Peter O'Heeron 36 President/Chief Executive Officer and Director
Robert Allen 53 Secretary and Director
Charles Hansen 43 Director
</TABLE>
Set forth below is a brief description of the background of our officers
and directors based on information provided by them to us.
Our 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, the Sports Medicine Joint Venture, Professional Office
Building Development in Houston and California, the St. John Magnetic Resonance
Imaging Center, and the Primary Care Network.
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 before coming back to Texas as the
Sales Manager of Champion Papers, Intl. for 5 years. Following Champion Papers,
he entered the building business and upon growing his business over a 12-year
period, he ultimately sold the operation to Hines Interests. Subsequently, Mr.
Allen founded AHI, Inc., 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 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.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid in the
last three years to our chief executive officer.
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal
Position Year Salary Bonus Other Annual Compensation (1)
<S> <C> <C> <C> <C>
Peter O'Heeron
President and Chief
Executive Officer 199819992000 90,000$90,000$132,000
</TABLE>
Employment Agreements
We have entered into an employment agreement with one of our stockholders,
Larry Moser, 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.
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 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, therefore, is unenforceable.
27
<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 (i) each person known by us to
beneficially own 5% or more of the shares of outstanding common stock, (ii) each
of our executive officers and directors, and (iii) 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 Stock Ownership of Ownership of Ownership of
Name and Address Beneficially Common Stock Common Stock Common Stock
of Beneficial Owner Owned Before Offering After Offering After Offering
- --------------------------------- ------------ ---------------- --------------- ---------------
Minimum Maximum
------------ ---------------
<S> <C> <C> <C> <C>
Mark Hickman 2,818,500 21.6% 21.2% 18.3%
598 N. Union, Suite 200
New Braunfels, TX 78130
Mike Newlin 2,100,000 16.1% 15.8% 13.6%
#1 King Arthur's Court
Sugar Land, TX 77478
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 439,655 3.3% 3.2% 2.8%
2800 N. Gordon
Alvin, TX 77511
Chuck Hansen
730 N. Loop 252,222 1.9% 1.8% 1.6%
Houston, TX 77009
All officers and directors as a
group (3 persons) 1,485,941 11.3% 11.0% 9.4%
</TABLE>
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<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, 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
We are offering the shares on a "best efforts, 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 an non-interest bearing
escrow account with Morgan Stanley Dean Witter . We have the right to accept or
reject any subscription for shares offered hereby, in whole or in part, for any
reason or for no reason. The offering will remain open until all shares offered
hereby 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 (1) not be subject to a statutory
disqualification; (2) not be compensated in connection with such selling
participation by payment of commissions or other remuneration based either
directly or indirectly on such transactions; (3) not be an associated person of
a broker-dealer; and (4) (i) restrict participation to transactions involving
offers and sale of the shares, and (ii) perform substantial duties for the
issuer after the close of the offering not connected with transactions in
securities, and not have been associated with a broker or dealer for the
preceding 12 months, and not participate in selling an offering of securities
for any issuer more than once every 12 months, and (iii) 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.
29
<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. 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 pursuant to this offering, will be validly
issued, fully paid and non-assessable.
Voting Rights. Each share of our common stock entitles the holder thereof
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. See "Principal Stockholders" and
"Risk Factors" - Concentration of Stock Ownership in Management".
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 therefor. 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 hereby are sold, or 15,506,124 shares of common stock outstanding
if the maximum number of shares offered hereby 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 as currently in effect, 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.
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<PAGE>
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 pursuant 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 pursuant to Rule 144 or otherwise may adversely affect the
market price of the common stock offered hereby.
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 thereof 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.
Certain Provisions in the Certificate of Incorporation
Our Certificate of Incorporation contains certain 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 certain 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
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<PAGE>
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 pursuant 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 therefore 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 American Stock Transfer &
Trust Co., 40 Wall Street, New York, New York 10005.
32
<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 therewith. For further information about us and the shares
offered by this prospectus, reference is made to the registration statement and
the exhibits filed therewith. A copy of the registration statement and the
exhibits filed therewith 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.
33
<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>
F1
<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
F2
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
<S> <C>
CURRENT ASSETS:
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
------------------------------------
<S> <C>
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,
12,988,524 issued and outstanding at December 31,
1999 505,217
Deficit accumulated in the development stage (203,376)
----------
Total stockholders' equity 301,841
----------
Total liabilities and stockholders' equity $ 335,693
==========
</TABLE>
See accompanying notes to these financial statements.
F3
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
Period from
January 1,
1997
Years ended December 31, (inception) to
------------------------ 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) $ (0.09)
============ ============ ============
PRO FORMA WEIGHTED AVERAGE SHARES
OUTSTANDING 12,000,000 12,000,000 12,000,000
============ ============ ============
</TABLE>
See accompanying notes to these financial statements.
F4
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Deficit Total
Accumulated Stockholders'
in the Equity and
Partners' Common Development Partners'
Capital Stock, shares Common Stock Stage Capital
----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997
(inception) $ - - $ - $ - $ -
Partner contributions
(contributed January
1997 at $11,163 per unit) 1,116,255 - - - 1,116,255
Net loss (140,500) - - - (140,500)
----------- ------------- ------------- ------------- ---------------
Balances, January 1, 1998 975,755 - - - 975,755
Net loss (447,060) - - - (447,060)
----------- ------------- ------------- ------------- ---------------
Balances, December 31, 1998 528,695 - - - 528,695
Net loss from January 1,
1999 through September 16,
1999
(date of conversion to
corporation) (294,323) - - - (294,323)
Reorganization from
partnership to corporation (234,372) 12,000,000 234,372 - -
Proceeds from sale of
common stock
(received November
1999 through December 1999
at $.60 per share) - 988,524 270,845 - 270,845
Net loss - - - (203,376) (203,376)
----------- ------------- ------------- ------------- ---------------
Balances, December 31, 1999 $ - 12,988,524 $ 505,217 $ (203,376) $ 301,841
=========== ============= ============= ============= ===============
</TABLE>
See accompanying notes to these financial statements.
F5
<PAGE>
<TABLE>
<CAPTION>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Period from
January 1,
1997
Years ended December 31, (inception) to
------------------------ 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>
See accompanying notes to these financial statements.
F6
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
------------
Organization - NeoSurg Technologies, Inc. (the "Company") was formed in
------------
September 1999 through a conversion of partnership interest in T-2000, L.P.
(the "Partnership"), a Texas limited liability partnership, which commenced
business activities in January 1997. The Company's primary business
activity is to develop, manufacture and market the T-2000 Trocar surgical
device (the "Trocar"). Through December 31, 1999, the Company has generated
no revenues and has incurred expenses related primarily to research and
development activities, developing markets and starting production. The
Company received a patent from the U.S. Patent and Trademark Office for the
Trocar in December 1997 and an additional patent in September 1998. The
Company has licensed another patent and has submitted applications for two
additional patents relating to the Trocar in 1999.
Effective September 16, 1999, the Company was formed by converting each 1%
ownership interest in the Partnership to 60,000 shares of the Company's
common stock. Upon conversion to a corporation, the Company converted the
partner capital to capital stock to reflect the constructive distribution
to the owners followed by a contribution to the capital of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Basis of Accounting - The accompanying financial statements have been
--------------------
prepared using the accrual basis of accounting.
Cash and Cash Equivalents - The Company considers all unrestricted, highly
-------------------------
liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
Property and Equipment - Property and equipment consists primarily of
------------------------
office and computer equipment and molds and is stated at cost, adjusted for
accumulated depreciation. Depreciation is calculated using the
straight-line method of accounting based on each asset's useful life.
Use of Estimates - The preparation of the Company's financial statements in
----------------
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from these estimates.
F7
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
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.
F8
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
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.
F9
<PAGE>
NEOSURG TECHNOLOGIES, INC.
(FORMERLY T-2000, L.P.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
-------------
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Net operating loss carryforward $ 69,000
Valuation allowance (69,000)
---------
Net deferred tax asset -
=========
</TABLE>
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 private
placement 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.
F10
<PAGE>
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEOSURG TECHNOLOGIES, INC. HAS NOT AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY IN ANY JURISDICTION
WHERE SUCH OFFER, OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SHARES.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY. . . . . . . . . 4
- ------------------
THE OFFERING. . . . . . . . . . . . 5
- ------------
SUMMARY FINANCIAL INFORMATION . . . 6
- -----------------------------
RISK FACTORS. . . . . . . . . . . . 7
- ------------
FORWARD LOOKING STATEMENTS. . . . . 14
- --------------------------
USE OF PROCEEDS . . . . . . . . . . 15
- ---------------
CAPITALIZATION. . . . . . . . . . . 15
- --------------
DILUTION. . . . . . . . . . . . . . 16
- --------
MANAGEMENT'S PLAN OF OPERATION. . . 17
- ------------------------------
BUSINESS. . . . . . . . . . . . . . 20
- --------
MANAGEMENT. . . . . . . . . . . . . 26
- ----------
PRINCIPAL STOCKHOLDERS. . . . . . . 28
- ----------------------
PLAN OF DISTRIBUTION. . . . . . . . 29
- --------------------
DESCRIPTION OF CAPITAL STOCK. . . . 30
- ----------------------------
LEGAL MATTERS . . . . . . . . . . . 33
- -------------
EXPERTS . . . . . . . . . . . . . . 33
- -------
WHERE YOU CAN FIND MORE INFORMATION 33
- -----------------------------------
INDEX TO FINANCIAL STATEMENTS . . . 1
- -----------------------------
</TABLE>
NEOSURG
-------
TECHNOLOGIES, INC.
------------------
2,400,000 SHARES
OF
COMMON STOCK
__________________
PROSPECTUS
___________________
FEBRUARY 23, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02A of the Texas Business Corporation Act, or TBCA, provides, in
relevant part, as follows:
"Subject to the provisions of Section B and C of this Article, each
corporation shall have the power:
(16) To indemnify directors, officers, employees, and agents of the
corporation, and to purchase and maintain liability insurance for
those persons."
As permitted by Section G of Article 2.02-1 of the TBCA or any successor
statute, the Company's Articles of Incorporation and Bylaws (a) makes mandatory
the indemnification permitted under Section B of Article 2.02 as contemplated by
Section G thereof; (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 the Company and (ii) to all
persons who are or were serving at the request of the Company as a director,
partnership, limited liability corporation, joint venture, trust or other
enterprise, to the same extent that the Company is obligated to indemnify and
pay or reimburse expenses to directors.
The Company has entered into indemnity agreements with its directors and
certain officers pursuant to which the Company 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 $103,614
_________
*Estimated
Item 26. Recent Sales of Unregistered Securities
In September 1999, the Company issued an aggregate of 12,000,000 shares of
Common Stock to all limited partners and the general partner of T2000, LP in
connection with the formation of the Company. The consideration for such shares
was the contribution of the initial operating assets of the Company. The
issuance of such shares was exempt from the registration requirement of the
Securities Act of 1933, as amended, pursuant to Section 4 (2) thereof.
In November 1999 through December 31, 1999, the Company issued an aggregate
of 988,524 shares of Common Stock at a price of approximately $028 per share
to various stockholders.
In February 2000, the Company completed a 2-1 stock split and issued
260,000 shares of Common Stock to 12 stockholders in return for a loan to cover
the expenses incurred in this offering.
I
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Number Description
- ------ -------------------------------------------------------------------------------------------------------
<C> <S>
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.
23.01 Consent of Hein + Associates LLP.
23.02 Consent of Cokinos, Bosien & Young, a professional corporation, included in exhibit 5.01
27 Financial Data Schedule.
<FN>
*To be filed by amendment
</TABLE>
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant 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, therefore, 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 hereby 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 o 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.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
II
<PAGE>
of prospectus filed by the small business issuer under Rule 424(b)(1), or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
III
<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 ____ day of _____, 2000
NeoSurg Technologies, Inc.
By: /S/ Peter O'Heeron
-----------------------------------------
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
- ---------- -----
/S/ Peter O'Heeron
- ---------------------------- President, Chief Executive Officer and Director
Peter O'Heeron (Principal Executive Officer)
/S/ Charles Hansen
- ---------------------------- Director
Charles Hansen
/S/ Robert Allen
- ---------------------------- Director, and Secretary
Robert Allen
IV
<PAGE>
ARTICLES OF INCORPORATION
OF
NEOSURG TECHNOLOGIES, INC.
I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the Texas Business
Corporation Act, do hereby adopt the following Articles of Incorporation for
such corporation:
ARTICLE ONE
-----------
The name of the Corporation is NEOSURG TECHNOLOGIES, INC.
ARTICLE TWO
-----------
The period of the Corporation's duration is perpetual.
ARTICLE THREE
-------------
The purpose or purposes for which the Corporation is incorporated is to
conduct any lawful business for which corporations may be incorporated under the
Texas Business Corporation Act.
ARTICLE FOUR
------------
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is thirteen million (13,000,000) shares, of which
ten million (10,000,000) shares, no par value shall be a class designated
"Common Stock," and three million (3,000,000) shares, no par value, shall be a
class designated "Preferred Stock." Holders of Common Stock are granted voting
rights equal to one (1) vote per share.
Shares of Preferred Stock may be issued from time to time in one or more
series, each such series to have distinctive serial designations, as shall
hereafter be determined in the resolution or resolutions providing for the
issuance of such Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do which is hereby vested in the Board
of Directors.
<PAGE>
Each series of Preferred Stock may:
1. have such numbers of shares;
2. have such voting powers, full or limited, or may be without voting
powers;
3. be subject to redemption at such time or times and at such prices;
4. be entitled to receive dividends (which may be cumulative or
noncumulative) at such rate or rates, on such conditions, from such
date or dates, and at such times, and payable in preference to, or
in such relation to, the dividends payable on any other class or
series of stock;
5. have such rights upon the dissolution of, or upon any distribution
of the assets of, the Corporation;
6. be made convertible into, or exchangeable for, shares of other class
or classes (except a class having prior or superior rights and
preferences as to dividends or distribution of assets upon
liquidation) or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at
such rates of exchange, and with such adjustments;
7. be entitled to the benefit of a sinking fund or purchase fund to be
applied to the purchase or redemption of shares of such series in
such amount or amounts;
8. be entitled to the benefit of conditions and restriction upon
the creation of indebtedness of the Corporation or any subsidiary,
upon the issue of any additional stock (including additional shares
of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption, or other acquisition by the Corporation or any
subsidiary of any outstanding stock of the Corporation; and
9. have such other relative, participating, optional, or other special
rights, and qualifications, limitations, or restrictions thereof;
all as shall be stated in said resolution or resolutions providing for the issue
of such Preferred Stock. Except where otherwise set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issue of any
series of Preferred Stock, the number of shares comprising such series may be
-2-
<PAGE>
increased or decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors.
Shares of any series of Preferred Stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been converted into
or exchanged for shares of stock of any other class or classes shall have the
status of authorized and unissued shares of Preferred Stock and may be reissued
as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of any
other series of Preferred Stock, all subject to the conditions or restrictions
on issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock and to any
filing required by law.
Except as otherwise provided by law or by the resolution or resolutions of
the Board of Directors providing for the issue of any series of the Preferred
Stock, the Common Stock shall have the exclusive right to vote for the election
of Directors and for all other purposes.
Upon any liquidation, dissolution, or winding-up of the Corporation,
whether voluntary or involuntary, and after the holders of the Preferred Stock
of each series shall have been paid in full the amounts to which they
respectively shall be entitled or a sum sufficient for such payment in full
shall have been set aside, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests, to the exclusion of the holders of the
Preferred Stock.
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<PAGE>
ARTICLE FIVE
------------
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of ONE THOUSAND DOLLARS
($1,000) consisting of money, labor done, or property actually received.
ARTICLE SIX
-----------
The shareholders of the Corporation shall have no preemptive rights to
acquire additional, unissued, or treasury shares of the Corporation, or
securities of the Corporation convertible into or carrying a right to subscribe
to or acquire shares, and such preemptive rights are hereby expressly denied.
ARTICLE SEVEN
-------------
At each election for Directors of the Corporation, each shareholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, only the number of shares owned by him for as many persons as there are
Directors to be elected, and no shareholder shall ever have the right or be
permitted to cumulate his votes on any basis, any and all rights of cumulative
voting being hereby expressly denied.
ARTICLE EIGHT
-------------
Any action taken or to be taken by the shareholders of the Corporation,
which, but for the provisions of this article, require the vote or concurrence
of the holders of more than a majority of the shares entitled to be cast
thereon, including specifically and without limitation, the following actions:
1. Any merger or consolidation of this Corporation with another
corporation;
2. Any amendment of these Articles of Incorporation;
-4-
<PAGE>
3. Any sale, lease, exchange, or other disposition of all, or
substantially all, the property and assets with or without the
goodwill of the Corporation, not made in the usual or regular course
of its business;
4. Any vote of the shareholders of the Corporation on a resolution
to dissolve the Corporation;
5. Any purchase by this Corporation, directly or indirectly, of its
own shares to the extent of the aggregate of unrestricted capital
surplus available therefor, and unrestricted reduction surplus
available therefor; and
6. Any distribution out of reduction surplus of the Corporation;
SHALL REQUIRE, AND SHALL ONLY REQUIRE, the vote or concurrence of a majority of
the issued and outstanding shares of each class or series of stock of the
Corporation, regardless of limitations or restrictions on the voting power
thereof, entitled to vote at a meeting duly called for such purpose.
ARTICLE NINE
------------
Any action required to be taken at any annual or special meeting of the
shareholders, or any action which may be taken at any annual or special meeting
of the shareholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders of shares having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which the holders of all shares entitled to vote on the action were
present and voted.
ARTICLE TEN
-----------
The address of the initial Registered Office of the Corporation is 17300 El
Camino, Suite 110, Houston, Texas 77058, and the name of the initial Registered
Agent at such address is Peter T. O'Heeron.
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<PAGE>
ARTICLE ELEVEN
--------------
The number of Directors constituting the initial Board of Directors is
three (3), and the names and addresses of the persons who are to serve as
Directors until the first Annual Meeting of the Shareholders or until their
successors are elected and qualified are:
Robert N. Allen
17300 El Camino, Suite 110
Houston, Texas 77058
Charles M. Hansen
17300 El Camino, Suite 110
Houston, Texas 77058
Peter T. O'Heeron
17300 El Camino, Suite 110
Houston, Texas 77058
ARTICLE TWELVE
--------------
The Corporation is being formed pursuant to a conversion of the following
entity:
T-2000, L.P.
17300 El Camino, Suite 110
Houston, Texas 77058
A Texas Limited Partnership formed on January 3, 1997, with a Certificate
of Limited Partnership having been filed with the Secretary of the State of
Texas on February 25, 1998.
ARTICLE THIRTEEN
----------------
The name and address of the incorporator is Peter T. O'Heeron, 17300 El
Camino, Suite 110, Houston, Texas 77058.
IN WITNESS WHEREOF, I have hereunto set my hand this the 15th day of
September, 1999.
___________________________________________
PETER T. O'HEERON, INCORPORATOR
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<PAGE>
ARTICLES OF MERGER OF
MOSER MEDICAL, INC.,
A TEXAS CORPORATION, INTO
NEOSURG TECHNOLOGIES, INC., A TEXAS CORPORATION
Pursuant to the provisions of article 5.04 of the Texas Business
Corporation Act (the "Act"), MOSER MEDICAL, INC., a Texas corporation ("Moser"),
and NEOSURG TECHNOLOGIES, INC., a Texas corporation ("NeoSurg") (herein
collectively called the "Constituent Corporations") hereby adopt the following
Articles of Merger for the purpose of effecting a merger in accordance with the
provisions of article 5.01 of the Act.
1. A plan of merger adopted in accordance with the provisions of article
5.03 of the Act providing for the combination of NeoSurg and Moser and
resulting in NeoSurg being the surviving corporation in the merger is
attached hereto as Exhibit A and is hereby incorporated herein by reference
(the "Plan").
2. The names of the Constituent Corporations and the states under the laws
of which they are respectively organized are:
Name of Corporation State of Incorporation
--------------------- ------------------------
NeoSurg Technologies, Inc. Texas
Moser Medical, Inc. Texas
3. As to each of the Constituent Corporations, the number of shares of
their respective stock issued and outstanding is as follows:
Number of Shares
Corporation Outstanding
----------- ------------------
NeoSurg 6,000,000
Moser 100,000
None of the issued and outstanding shares of the stock of either Constituent
Corporations are entitled to vote as a class with respect to the merger of Moser
with and into NeoSurg pursuant to the Plan (the "Merger").
4. As to each of the Constituent Corporations, the total number of shares
of their stock voted for and against the Plan, respectively, are as
follows:
Voted Voted
Corporation For Against
----------- ---- -------
Abstained
---------
NeoSurg 5,299,216 0 700,784
Moser 100,000 0 0
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<PAGE>
5. The Plan and the performance of its terms were duly authorized by all
action required by the laws under which each corporation or other entity
that is a party to the Plan was incorporated or organized and by its
constituent documents.
6. The surviving entity assumes all tax liabilities of the Constituent
Corporations.
7. The Merger will become effective upon the date of the issuance of the
Certificate of Merger by the Secretary of State in accordance with Article
5.05 of the Act.
EFFECTIVE the 1st day of February, 2000.
MOSER MEDICAL, INC.
BY:_________________________________________
PETER T. O'HEERON, President
NEOSURG TECHNOLOGIES, INC.
BY:_________________________________________
PETER T. O'HEERON, President
-8-
<PAGE>
ARTICLES OF AMENDMENT
OF
NEOSURG TECHNOLOGIES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation.
ARTICLE I
---------
The name of the Corporation is NEOSURG TECHNOLOGIES, INC.
ARTICLE II
----------
The following amendments to the Articles of Incorporation were adopted as
of the 31st day of December, 1999:
(1) The first paragraph of Article Four is amended to read:
ARTICLE FOUR
------------
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is twenty-three million (23,000,000) shares, of
which twenty million (20,000,000) shares, no par value shall be a class
designated "Common Stock," and three million (3,000,000) shares, no par value,
shall be a class designated "Preferred Stock." Holders of Common Stock are
granted voting rights equal to one (1) vote per share.
ARTICLE III
-----------
The foregoing amendments were adopted by the shareholders of the
Corporation as of December 31, 1999. The number of shares of the Corporation
outstanding at the time of such adoption was six million four hundred
ninety-four thousand two hundred sixty-two (6,494,262); and the number of shares
entitled to vote thereon was six million four hundred ninety-four thousand two
hundred sixty-two (6,494,262). The number of shares voted for such amendment
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<PAGE>
was five million five hundred sixty-four thousand six hundred fifty-six
(5,564,656); and no shares were voted against such amendment.
EXECUTED as of the 1st day of February, 2000.
___________________________________________
PETER T. O'HEERON, President
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<PAGE>
BYLAWS
OF
NEOSURG TECHNOLOGIES, INC.
ARTICLE I
REGISTERED OFFICE
-----------------
1.01 Principal Office. The principal office shall be in Harris County,
-----------------
Texas, and the Corporation may have offices at such other places as the business
of the Corporation may require.
ARTICLE II
SHAREHOLDERS
------------
2.01 Place of Meetings: All meetings of the Shareholders shall be held at
-----------------
the registered office of the Corporation, or any other place within or without
this state, as may be designated for that purpose from time to time by the Board
of Directors.
2.02 Annual Meetings: The annual meetings of the Shareholders shall be
---------------
held on the second Wednesday of September of each year. If this day falls on a
legal holiday, the annual meeting shall be held at the same time on the next
following business day thereafter.
2.03 Notice of Meeting: Notice of the meeting, stating the place, day,
-------------------
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called shall be given in writing to each
Shareholder entitled to vote at the meeting, at least ten (10), but not more
than sixty (60), days before the date of the meeting, either personally or by
mail or other means of written communication, addressed to the Shareholder at
his address appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice. Notice of adjourned meetings is not
necessary unless the meeting is adjourned for thirty (30) days or more, in which
case notice of the adjourned meeting shall be given as in the case of any
special meeting. Notwithstanding the foregoing, no notice need be given to any
<PAGE>
Shareholder if (i) notice of two consecutive annual meetings and all notices of
meetings held during the period between those annual meetings, if any, or (ii)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a 12-month period have been
mailed to that person, addressed to his address as shown on the records of the
Corporation, and have been returned undeliverable. However, if such person
delivers to the Corporation a written notice setting forth his then-current
address, then any notice subsequently given shall also be given to such person.
2.04 Special Meetings: Special meetings of the Shareholders for any
----------------
purpose or purposes whatsoever may be called at any time by the President, or by
the Board of Directors, or by any one or more Shareholders holding in the
aggregate at least ten percent (10%) of all shares entitled to vote at the
proposed special meeting. The record date for determining Shareholders entitled
to call a special meeting shall be the date the first Shareholder signs the
notice of that meeting. Only business within the purpose or purposes described
in the notice of the special meeting of the Shareholders may be conducted at
the meeting.
2.05 Quorum: A majority of the shares entitled to vote constitutes a
------
quorum for the transaction of business. Business may be continued after and
despite the withdrawal of a number of Shareholders so that less than a quorum
remains.
2.06 Voting: Only persons in whose names shares appear on the share
------
records of the Corporation on the date on which notice of the meeting is mailed
shall be entitled to vote at such meeting, unless some other day is fixed by the
Board of Directors for the determination of Shareholders of record. No
Shareholder shall have the right to cumulate his votes at any election for
Directors of this Corporation. Voting for the election of Directors shall be by
voice unless any Shareholder demands a ballot vote before the voting begins.
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<PAGE>
2.07 Proxies: Every person entitled to vote or execute consents may do so
-------
either in person or by written proxy executed in writing by the Shareholder or
his duly authorized attorney-in-fact.
2.08 Consent of Absentees: No defect in the calling or noticing of a
----------------------
Shareholders' meeting will affect the validity of any action at the meeting if a
quorum was present, and if each Shareholder not present in person or by proxy
signs a written waiver of notice, consent to the holding of the meeting, or
approval of the minutes, either before or after the meeting, and such waivers,
consents, or approvals are filed with the corporate records or made a part of
the minutes of the meeting.
2.09 Action Without Meeting: Action may be taken by Shareholders without
-----------------------
a meeting if each Shareholder entitled to vote signs a written consent to the
action and such consents are filed with the Secretary of the Corporation.
ARTICLE III
DIRECTORS
---------
3.01 Powers: The Directors shall act only as a board and an individual
------
Director shall have no power as such. All corporate powers of the Corporation
shall be exercised by, or under the authority of, and the business and affairs
of the Corporation shall be controlled by the Board of Directors, subject,
however, to such limitations as are imposed by law, the Articles of
Incorporation, or these Bylaws, as to actions to be authorized or approved by
the Shareholders or the Executive Committee. The Board of Directors may, by
contract or otherwise, give general or limited or special power and authority to
the officers and employees of the Corporation to transact the general business,
or any special business, of the Corporation, and may give powers of attorney to
agents of the Corporation to transact any special business requiring such
authorization.
-3-
<PAGE>
3.02 Number and Qualification of Directors: The authorized number of
-------------------------------------
Directors of this Corporation shall be not less than three (3) nor more than
five (5). The Directors need not be Shareholders of the Corporation or residents
of Texas. The number of Directors may be increased or decreased from time
to time by amendment to these Bylaws, but no decrease shall have the effect of
shortening the term of any incumbent Director.
3.03 Election and Term of Office: The Directors shall be elected
-----------------------------
annually by the Shareholders entitled to vote, and shall hold office until their
respective successors are elected, or until their death, resignation or
removal.
3.04 Vacancies: Any vacancy occurring in the Board of Directors, other
---------
than a vacancy occurring by reason of an increase in the number of Directors,
may be filled by a majority of the remaining Directors, though less than a
quorum, or by a sole remaining Director. Any vacancy occurring in the Board of
Directors by reason of an increase in the number of Directors may be filled by
the Board of Directors for a term of office continuing only until the next
election of one or more Directors by the Shareholders; provided that the Board
of Directors may not fill more than two such directorships during the period
between any two successive annual meetings of Shareholders. The Shareholders
may fill any vacancy occurring in the Board of Directors not filled by the
Directors at an annual or special meeting of the Shareholders called for that
purpose.
3.05 Removal of Directors: The entire Board of Directors or any
----------------------
individual Director may be removed from office with or without cause by vote of
the holders of a majority of the shares then entitled to vote for Directors at a
meeting of the Shareholders called expressly for that purpose.
3.06 Place of Meetings: All meetings of the Board of Directors shall be
-------------------
held at the registered office of the Corporation or at such place within or
without the state of Texas as may be designated from time to time by resolution
of the Board or by written consent of all of the members of the Board of
Directors.
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<PAGE>
3.07 Regular Meetings: Regular meetings of the Board of Directors shall
-----------------
be held, without call or notice, immediately following each annual meeting of
the Shareholders of the Corporation, and at such other times as the Directors
may determine.
3.08 Special Meetings - Call and Notice: Special meetings of the
---------------------------------------
Board of Directors for any purpose shall be called at any time by the President
or any two (2) Directors. Written notice of the special meetings, stating the
time and, in general terms, the purpose or purposes thereof, shall be mailed
or telegraphed or personally delivered to each Director not later than three (3)
days before the day appointed for the meeting.
3.09 Quorum: A majority of the authorized number of Directors shall be
------
necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided and except as provided in Section 3.04 of these
Bylaws. Every act or decision done or made by a majority of the Directors
present shall be regarded as the act of the Board of Directors, unless a greater
number be required by law.
3.10 Board Action Without Meeting: Any action required or permitted to
-------------------------------
be taken by the Board of Directors may be taken without a meeting and with the
same force and effect as a unanimous vote of Directors, if all members of the
Board shall individually or collectively consent in writing to such action.
3.11 Adjournment - Notice: A quorum of the Directors may adjourn any
----------------------
Directors' meeting to meet again at a stated day and hour. Notice of the time
and place of holding an adjourned meeting need not be given to absent Directors
if the time and place is fixed at the meeting adjourned. In the absence of a
quorum, a majority of the Directors present at any Directors' meeting, either
regular or special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
-5-
<PAGE>
3.12 Conduct of Meetings: The President, or in his absence, any
---------------------
Director selected by the Directors present, shall preside at meetings of the
Board of Directors. The Secretary of the Corporation, or in his absence, any
person appointed by the presiding officer, shall act as Secretary at meetings
of the Board of Directors.
3.13 Presumption of Assent. A Director of the Corporation who is present
----------------------
at a meeting of the Board of Directors in which action on any Corporation matter
is taken shall be presumed to have assented to the action taken unless his
dissent shall be written in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof, or shall forward such dissent by
registered or certified mail to the Secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a Director who voted in favor of such action.
3.14 Compensation: Directors and members of committees may receive such
------------
compensation, if any, for their services, and such reimbursement for expenses as
may be fixed or determined by resolution of the Board of Directors.
3.15 Executive Committee
--------------------
(1) Designation. The Board of Directors may, by resolution adopted by a
-----------
majority of the whole Board, designate an Executive Committee. The Executive
Committee shall serve at the pleasure of the Board of Directors. The Executive
Committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in the management of the
business and affairs of the Corporation, other than those powers reserved to the
full Board of Directors pursuant to Article 2.36 of the Texas Business
Corporation Act, as the Board may prescribe. If the Board of Directors shall
have designated an Executive Committee, all references to the Board of Directors
in these Bylaws shall mean the Executive Committee, to the extent provided in
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<PAGE>
the resolution of the Board designating the Executive Committee and except where
such designation is contrary to the provisions of Article 2.36 of the Texas
Business Corporation Act. An Executive Committee designated by the Board of
Directors shall specifically have the power and authority to declare a dividend
and to authorize the issuance of shares of the Corporation.
(2) Change in Number. The number of Executive Committee members may be
------------------
increased or decreased from time to time by resolution adopted by a majority of
the Board of Directors.
(3) Removal. Any member of the Executive Committee may be removed by the
-------
Board of Directors by the affirmative vote of a majority of the Board, whenever,
in its judgment, the best interests of the Corporation will be served thereby.
(4) Vacancies. A vacancy occurring in the Executive Committee (by death,
---------
resignation, removal, or otherwise) may be filled by the Board of Directors in
the manner provided for original designation of members in subparagraph (1)
hereof.
(5) Meetings. The time, place, and notice (if any) of Executive Committee
--------
meetings shall be determined by the Executive Committee.
(6) Quorum; Unanimous Vote. At meetings of the Executive Committee, all
------------------------
members designated by the Board of Directors shall constitute a quorum for the
transaction of business. A unanimous vote by the members present at any meeting
at which a quorum is present shall constitute an act of the Executive Committee.
If a quorum is not present at a meeting of the Executive Committee, the member
or members present may adjourn the meeting from time to time, until a quorum is
present, without notice other than an announcement at the meeting.
(7) Compensation. By resolution of the Board of Directors, the members of
------------
the Executive Committee may be paid their expenses, if any, of attendance at
each meeting of the Executive Committee and may be paid a fixed sum for
attendance at each meeting of the Executive Committee or a stated salary as a
member. No such payment shall preclude any member of the Executive Committee
from serving the Corporation in any other capacity and receiving compensation
therefor.
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<PAGE>
(8) Procedure. The Executive Committee shall keep regular minutes of its
---------
proceedings and report the same to the Board of Directors when required. The
minutes of the proceedings of the Executive Committee shall be placed in the
minute book of the Corporation.
(9) Action Without Meeting. Any action required or permitted to be taken
-----------------------
at a meeting of the Executive Committee may be taken without a meeting if a
consent in writing, setting forth the actions so taken, is signed by all of the
members of the Executive Committee. Such consent shall have the same force and
effect as a unanimous vote at an actual meeting. The executed consent shall be
placed in the minute book.
(10) Responsibility. The designation of an Executive Committee and the
--------------
delegation of authority to it shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.
3.16 Other Committees. The Board of Directors may also create, appoint
-----------------
members to, and remove members from such other committees as the Board of
Directors may from time to time determine, which shall have and may exercise
such powers and duties as may be authorized by the Board of Directors, but which
shall not have all of the authority of the Board of Directors. Members of such
other committees may be, but need not be, Directors. Members of each committee
shall serve at the pleasure of the Board of Directors.
3.17 Subcommittees. Except as otherwise specifically provided by the
-------------
Board of Directors, any committee shall have the power to appoint a subcommittee
from among its members and to delegate to any such subcommittee any of its
powers, duties, and functions.
-8-
<PAGE>
ARTICLE IV
OFFICERS
--------
4.01 Title and Appointment: The officers of the Corporation shall be a
-----------------------
President, a Vice President, a Secretary, a Treasurer and such assistants and
other officers as the Board of Directors shall from time to time determine. Any
two or more offices may be held by one person.
4.02 Election. The officers of the Corporation, except such officers as
--------
may be appointed in accordance with the provisions of this paragraph 4.02 or
paragraph 4.04 of this Article, shall be chosen annually by the Board of
Directors, and each shall hold his office until he shall resign or shall be
removed or otherwise disqualified to serve, or his successor shall be elected
and qualified. The Board of Directors may delegate to any officer or committee
the power to appoint any subordinate officers (other than the President, Vice
President, Secretary, and Treasurer), committees or agents, to specify their
duties and to determine their compensation.
4.03 Removal and Resignation. Any officer may be removed, either with or
------------------------
without cause, by a majority of the Directors at the time in office, at any
regular or special meeting of the Board, or by any committee or officer upon
whom such power of removal may be conferred by the Board of Directors. Any
officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
4.04 Vacancies. If the office of the President, Vice President,
---------
Secretary, or Treasurer becomes vacant by reason of death, resignation, removal,
or otherwise, the Board of Directors shall elect a successor who shall hold
office for the unexpired term, and until his successor is elected.
-9-
<PAGE>
4.05 President. The President shall be the chief executive and operating
---------
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
officers of the Corporation and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or these Bylaws. Within this authority and in the course of his duties, he
shall:
(1) Sign all certificates of stock of the Corporation, in conjunction with
the Secretary or Assistant Secretary, unless otherwise ordered by the Board of
Directors.
(2) Make such contracts and take such actions as the ordinary conduct of
the Corporation's business may require, unless the Board of Directors shall
order otherwise by resolution.
(3) Appoint and remove, employ and discharge, and prescribe the duties and
fix the compensation of all agents, employees, and clerks of the Corporation
other than the duly appointed officers, subject to the approval of the Board
of Directors, and control all of the officers, agents, and employees of the
Corporation, subject to the direction of the Board of Directors.
(4) Attend in person or by substitute appointed by him or by proxy, and
act and vote on behalf of the Corporation, at all meetings of the shareholders
of any corporation in which the Corporation holds stock, unless otherwise
directed by the Board of Directors.
(5) Preside at all meetings of the Shareholders and Board of Directors.
4.06 Vice President. In the absence or disability of the President, the
---------------
Vice President shall perform all of the duties of the President, and when so
acting shall have all of the powers of, and be subject to all of the
restrictions on, the President. The Vice President shall have such other powers
and perform such other duties as from time to time may be prescribed for him
by the Board of Directors or these Bylaws.
-10-
<PAGE>
4.07 Secretary. The Secretary shall:
---------
(1) Sign, with the President or the Vice President, certificates for
shares of the Corporation.
(2) Attest and keep at the principal office of the Corporation the
original or a copy of these Bylaws as amended or otherwise altered to date.
(3) Sign or attest such documents as may be required by law or the
business of the Corporation, and affix the corporate seal to such instruments
as may be necessary or proper.
(4) See that all notices are duly given in accordance with the provisions
of these Bylaws or as required by law. In the absence or disability of the
Secretary, or his refusal or neglect to act, notice may be given and served by
an Assistant Secretary or by the President or Vice President or by the Board of
Directors.
(5) In general, perform all duties incident to the office of Secretary,
and such other duties as from time to time may be assigned to him by the Board
of Directors.
(6) In the absence or disability of the Secretary or his refusal or
neglect to act, the Assistant Secretary, or if there be none, the Treasurer,
acting as Assistant Secretary, may perform all of the functions of the
Secretary. In the absence or inability to act, or refusal or neglect to act of
the Secretary, the Assistant Secretary, and the Treasurer, any person thereunto
authorized by the President or Vice President or by the Board of Directors may
perform the functions of the Secretary.
4.08 Treasurer. The Treasurer shall:
---------
(1) Have charge and custody of, and be responsible for, all funds and
securities of the Corporation.
(2) Receive, and give receipt for, monies due and payable to the
Corporation from any source.
-11-
<PAGE>
(3) Disburse or cause to be disbursed the funds of the Corporation as may
be directed by the Board of Directors.
(4) Keep and maintain or cause to be kept and maintained adequate and
correct accounts of the Corporation's properties and business transactions,
including account of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus, and shares.
(5) Exhibit at all reasonable times the books of account and records to
any Director on application, and to any shareholder as provided in Section 7.01
of these Bylaws.
(6) In general, perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
4.09 Other Duties. In general, each officer shall perform all of the
-------------
duties incident to his office and such other duties as from time to time
may be assigned to him by the Board of Directors.
ARTICLE V
INDEMNIFICATION; INSURANCE
--------------------------
5.01 Persons. The Corporation shall indemnify, subject to the further
-------
provisions of this Article V, to the extent provided in Section 5.03: (1) any
person who is or was a Director, officer, agent, employee, or member of a
committee of the Corporation, and (2) any person who serves or served at the
Corporation's request as a Director, officer, agent, employee, partner, or
trustee of another corporation or of a partnership, joint venture, trust, or
other enterprise.
5.02 Standard. A person named in Section 5.01 shall be indemnified only
--------
if he has been fully successful, on the merits or otherwise, in the defense of
the proceeding, or if: (1) he conducted himself in good faith, and (2) he
reasonably believed: (a) in the case of conduct in his official capacity with
the Corporation, that his conduct was in the best interest of the Corporation,
and (b) in all other cases, that his conduct was at least not opposed to the
-12-
<PAGE>
Corporation's best interests; and (3) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
a proceeding by judgment, order, settlement, or conviction, or on a plea of nolo
----
contendere or its equivalent shall not of itself be determinative that the
- ----------
person did not meet the requirements of this Section 5.02. A person shall be
deemed to have been found liable in respect to any claim, issue, or matter only
after the person shall have been so adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom.
5.03 Extent. A person named in Section 5.01 may be indemnified by the
------
Corporation, if he satisfies the applicable standards of Section 5.02, against
judgments, penalties (including excise and similar taxes), fines, settlements,
and reasonable expenses actually incurred by the person in connection with the
proceeding; but 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 (1) shall be limited to reasonable expenses actually
incurred by the person in connection with the proceeding and (2) shall not be
made in respect of any proceeding in which the person shall have been found
liable for willful or intentional misconduct in the performance of his duty to
the Corporation.
5.04 Determination. A determination that a person has satisfied the
-------------
standard for indemnification under Section 5.02 may be made by a court or may be
made by: (1) a majority of a quorum consisting of Directors of the Corporation
who at the time of the vote are not named defendants or respondents in the
proceeding; (2) if such a quorum cannot be obtained, by a majority vote of a
committee of the Board of Directors, designated to act in the matter by a
majority vote of all Directors, consisting solely of two or more Directors who
at the time of the vote are not named defendants or respondents in the
proceeding; (3) special legal counsel selected by the Board of Directors or a
committee of the Board of Directors by vote as set forth in (1) or (2) above, or
if such a quorum cannot be obtained and such a committee cannot be established,
by a majority vote of all Directors; or (4) the Shareholders in a vote that
excludes shares held by the persons named in Section 5.01 who are named
defendants or respondents in the proceeding.
-13-
<PAGE>
5.05 Proration. A determination under Section 5.04 may include a
---------
determination that a person has met the standard as to some matters, but not as
to others, and may reasonably prorate amounts to be indemnified.
5.06 Advance Payment. Reasonable expenses incurred by a person named in
----------------
Section 5.01 who was, is, or is threatened to be made a named defendant or
respondent in a proceeding may be paid or reimbursed by the Corporation, in
advance of the final disposition of the proceeding and without any of the
determinations specified in Sections 5.02 and 5.03, after the Corporation
receives a written affirmation by the person of his good-faith belief that he
has met the standard of conduct necessary for indemnification under this Article
V and a written undertaking by or on behalf of such person to repay the amount
paid or reimbursed if it is ultimately determined that he has not met such
requirements. Such written undertaking must be an unlimited general obligation
of such person but need not be secured. It may be accepted without reference to
financial ability to make repayment.
5.07 Nonexclusive and Consistent. The indemnification provided by this
---------------------------
Article V shall not be exclusive of any other rights to which a person may be
entitled by law, these Bylaws, agreement, vote of Shareholders or disinterested
Directors, or otherwise. It is not the intent of the Corporation that any
provision of this Article V be inconsistent with the requirements and
limitations provided in Article 2.02-1 of the Texas Business Corporation Act,
and to the extent that any provision hereof conflicts with any such requirement
or limitation, the provisions of Article 2.02-1 shall govern.
-14-
<PAGE>
5.08 Continuation. The indemnification and advance payments provided by
------------
this Article V shall continue as to a person who has ceased to hold a position
named in Section 5.01 and shall inure to his heirs, executors, and
administrators.
5.09 Insurance. The Corporation may purchase and maintain insurance or
---------
another arrangement on behalf of any person who holds or who has held any
position named in Section 5.01, against any liability asserted against him and
incurred by him in any such position, or arising out of his status as such,
whether or not the Corporation would have power to indemnify him against such
liability under this Article V or Article 2.02-1 of the Texas Business
Corporation Act. If the insurance or other arrangement is with a person or
entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or other arrangement may provide for payment of a
liability with respect to which the Corporation would not have had the power to
indemnify the person only if including coverage for the additional liability has
been approved by the Shareholders of the Corporation. Subject to the foregoing,
the Board of Directors shall determine the terms and conditions of the insurance
or other arrangement and the identity of the insurer or other person
participating in an arrangement.
5.10 Reports. Any indemnification or advance of expenses made under this
-------
Article V shall be reported in writing to the Shareholders of the Corporation
with or before the notice or waiver of notice of the next Shareholders' meeting
or with or before the next submission to Shareholders of a consent to action
without a meeting and, in any case, within twelve (12) months of the
indemnification or advance.
ARTICLE VI
EXECUTION OF INSTRUMENTS
------------------------
-15-
<PAGE>
6.01 Authorization: The Board of Directors may, in its discretion,
-------------
determine the method and designate the signatory officer or officers, or other
person or persons, to execute any corporate instrument or document, or to sign
the corporate name without limitation, except where otherwise provided by law,
and such execution or signature shall be binding upon the Corporation.
ARTICLE VII
ISSUANCE AND TRANSFER OF SHARES
-------------------------------
7.01 Certificates for Paid and Unpaid Shares: Certificates for shares of
----------------------------------------
the Corporation shall be issued only when fully paid.
7.02 Share Certificates: The Corporation shall deliver certificates
-------------------
representing all shares to which Shareholders are entitled, which certificates
shall be in such form as the Board of Directors may provide. Each certificate
shall bear upon its face the statement that the Corporation is organized in
Texas, the name in which it is issued, the number and class of shares and
series, and the par value or a statement that the shares are without par value.
The certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, which signatures may be in facsimile if the
certificates are to be countersigned by a transfer agent or registered by a
registrar, and the seal of the Corporation shall be affixed thereto. The
certificates shall contain on the faces or backs such recitations or references
as are required by law.
7.03 Replacement of Certificates: No new certificates shall be issued
-----------------------------
until the former certificate for the shares represented thereby shall have been
surrendered and cancelled, except in the case of lost or destroyed certificates
for which the Board of Directors may order new certificates to be issued upon
such terms, conditions, and guarantees as the Board may see fit to impose,
including the filing of sufficient indemnity.
-16-
<PAGE>
7.04 Transfer of Shares: Shares of the Corporation may be transferred
--------------------
by endorsement by the signature of the owner, his agent, attorney, or legal
representative, and the delivery of the certificate. The transferee in any
transfer of shares shall be deemed to have full notice of and consent to the
Bylaws of the Corporation to the same extent as if he had signed a written
assent thereto.
7.05 Reasonable Doubts as to Right to Transfer. When a transfer of shares
-----------------------------------------
is requested and there is reasonable doubt as to the right of the person seeking
the transfer, the Corporation or its transfer agent, before recording the
transfer of the shares on its books or issuing any certificate therefor, may
require from the person seeking the transfer reasonable proof of his right to
the transfer. If there remains a reasonable doubt of the right to the transfer,
the Corporation may refuse a transfer unless the person gives adequate security
or a bond of indemnity executed by a corporate surety or by two individual
sureties satisfactory to the Corporation as to form, amount, and responsibility
of sureties. The bond shall be conditioned to protect the Corporation, its
officers, transfer agents, and registrars, or any of them, against any loss,
damage, expense, or other liability to the owner of the shares by reason of the
recordation of the transfer or the issuance of a new certificate for shares.
ARTICLE VIII
RECORDS AND REPORTS
-------------------
8.01 Books and Records: All books and records provided for by statute
-------------------
shall be open to inspection of the Shareholders from time to time and to the
extent expressly provided by statute, and not otherwise. The Directors may
examine such books and records at all reasonable times.
8.02 Closing Stock Transfer Books: The Board of Directors may close the
-------------------------------
transfer books in their discretion for a period not exceeding sixty (60) days
preceding any meeting, annual or special, of the Shareholders, or the day
appointed for the payment of a dividend.
-17-
<PAGE>
ARTICLE IX
AMENDMENT OF BYLAWS
-------------------
9.01 Amendment of Bylaws: The Shareholders may amend or repeal these
---------------------
Bylaws, or adopt new bylaws. The Board of Directors may also amend or repeal
these Bylaws, or adopt new bylaws, unless the Shareholders in amending,
repealing, or adopting a particular bylaw expressly provide that the Board of
Directors may not amend or repeal that bylaw.
ADOPTED by the Board of Directors on the 15th day of September, 1999.
____________________________________________
Secretary
-18-
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report dated
February 3, 2000 relating to the financial statements of NeoSurge Technologies,
Inc. and to the reference to our Firm under the caption, "Experts", in this
Registration Statement and related Prospectus.
Hein + Associates llp
Houston, Texas
February 23, 2000
<PAGE>
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