As filed with the Securities and Exchange Commission on November 12, 2004
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VisiJet, Inc.
(Name of small business issuer in its charter)
Delaware 3841 33-0838660
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of corporation or organization) Classification Code Number) Identification
Number)
192 Technology Drive, Suite Q
Irvine, California 92618
(949) 450-1660
(Address and telephone number of registrant's principal executive offices)
Laurence M. Schreiber
192 Technology Drive, Suite Q
Irvine, California 92618
Ph. (949) 450-1660
Fax:(949) 453-9652
(Name, address and telephone number of agent for service)
Copy of all communications to:
Robert J. Zepfel
Haddan & Zepfel LLP
500 Newport Center Drive, Suite 580
Newport Beach, CA 92660
(949) 706-6000
Fax: (949) 706-6060
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, 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, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box: [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Amount to Be Proposed Maximum Proposed Maximum Amount of
Class of Registered Offering Price Aggregate Registration
Securities to Per Share (1) Offering Price Fee
Be Registered (1)
--------------------------------------------------------------------------------
Common Stock 27,205,614 $ .39 $10,610,189 $1,344.31
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended
(the "Act"), based on the closing price for the Registrant's common stock
as reported on the Nasdaq OTC Bulletin Board on November 10, 2004.
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 this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and it is not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated November 12, 2004
PROSPECTUS
27,205,614 SHARES
VISIJET, INC.
COMMON STOCK
This prospectus relates to the resale by certain selling stockholders of up
to 5,484,376 outstanding shares of Common Stock of VisiJet, Inc., 11,721,238
shares of common stock underlying warrants and 10,000,000 shares underlying
convertible debentures. The selling stockholders may sell the shares at fixed
prices, prevailing market prices at the time of sale, varying prices determined
at the time of sale or at negotiated prices. We will not receive any proceeds
form the resale of shares of common stock by the selling stockholders. We may
receive proceeds from the exercise of warrants held by the selling stockholders,
if and to the extent they are exercised.
Our Common Stock trades on the over-the-counter bulletin board under the
symbol "VJET.OB." The last reported sales price for our common stock on November
10, 2004 was $0.39 per share.
Investment in the shares offered by this prospectus involves a high degree
of risk. You may lose your entire investment. Consider carefully the "risk
factors" beginning on page 4 of this prospectus, before investing.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU
OTHERWISE.
The date of this prospectus is November ,2004.
3
The information in this prospectus is not complete and may be changed
without notice. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities, and the
selling stockholders are not soliciting offers to buy these securities, in any
state where the offer or sale of these securities is not permitted.
You should rely only on the information contained in this prospectus. We
have not, and the selling stockholders have not, authorized anyone to provide
you with different information. If anyone provides you with different
information, you should not rely on it. The selling stockholders are not making
an offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information contained in this
prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
Table of Contents
Page
----
Prospectus Summary 3
Summary Historical Financial Information 6
Risk Factors 6
Use of Proceeds 11
Nature of Trading Market 11
Dividend Policy 12
Capitalization 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Plan of Operations 17
Business 19
Legal Proceedings 27
Management 27
Executive Compensation 30
Security Ownership of Certain Beneficial Owners and Management 32
Certain Relationships and Related Transactions 33
Description of Securities 35
Shares Eligible for Resale 36
Selling Stockholders 37
Plan of Distribution 41
Legal Matters 42
Experts 42
Where You Can Find Additional Information 43
Financial Statements 44
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PROSPECTUS SUMMARY
This following is a summary of the information in this Prospectus. You
should read the entire prospectus carefully, including the more detailed
information regarding our company, the risks of purchasing our common stock
discussed under "risk factors," and our financial statements and the
accompanying notes.
VISIJET, INC.
VisiJet, Inc. ("VisiJet" or "the Company") was incorporated in
California on February 2, 1996 as a wholly owned subsidiary of SurgiJet, Inc. In
May 1999, the Company was spun off from SurgiJet through a distribution of
common stock to its shareholders. In February 2003, the Company completed a
merger agreement with Ponte Nossa Acquisition Corp., a Delaware corporation
incorporated in 1997 ("PNAC"), and became a wholly owned subsidiary of PNAC.
Since this transaction resulted in the shareholders of VisiJet acquiring a
majority of the outstanding shares of PNAC, for financial reporting purposes the
business combination was accounted for as a recapitalization of PNAC (a reverse
acquisition with the Company as the accounting acquirer). Subsequently, PNAC
changed its name to VisiJet, Inc.
The Company is an early-stage medical device company focused on the
marketing and development of ophthalmic surgery products for use in the laser
eye surgery and cataract surgery markets. In May 2004, the Company entered into
an exclusive license agreement with Gebauer Medizintechnik GmbH, of Neuhausen
Germany ("Gebauer"), pursuant to which the Company acquired worldwide marketing,
sales and distribution rights for Gebauer's LASIK and Epi-Lasik products. In May
2004, the Company began marketing these products in Europe and certain other
foreign countries, where the products have received regulatory approval for
sale. In September 2004 the Company began marketing the Epi-Lasik product in the
United States following receipt of approval for marketing from the U.S. Food and
Drug Administration. In addition, the Company is conducting research and
development on additional ophthalmic surgery products based on applications of
its proprietary waterjet technology.
THE OFFERING
Shares Offered by Selling Up to 5,484,376 shares held, and up to an
Stockholders aggregate of 21,721,238 shares that may be
acquired by selling stockholders upon the
exercise of outstanding warrants and
conversion of outstanding debt.
Use of Proceeds We will not receive any proceeds from the
sale of shares of common stock being offered
by the selling stockholders. We will,
however, incur all costs associated with
this registration statement and prospectus.
We may receive proceeds from the exercise of
warrants and conversion of outstanding debt,
if and to the extent they are exercised or
converted.
Risk Factors An investment in our common stock
involves a high degree of risk and could
result in a loss of your entire investment.
Shares Outstanding 28,231,091
OTC Symbol VJET.OB
5
OFFICES
Our offices are located at 192 Technology, Suite Q, Irvine, California
92618. Our telephone number is (949)450-1660 and our website is:
WWW.VISIJET.COM. The information on our website is not part of this prospectus.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information is derived from
the consolidated financial statements of the Company. The information should be
read in conjunction with the consolidated financial statements, related notes,
and other financial information included herein.
For the Fiscal Years Ended For the Six Months
December 31, Ended June 30,
(Audited) (Unaudited)
2003 2002 2004 2003
------------- ------------- ------------- -------------
Operating Data
Revenue $ -- $ -- $ 54,970 $ --
Net income (loss) $ (4,959,152) $ (1,226,676) $ (6,068,366) $ (1,730,711)
Net loss per share $ (0.27) $ (0.16) $ (0.25) $ (0.09)
Weighted average
shares outstanding 18,606,352 7,811,809 24,370,545 19,533,294
Balance Sheet Data:
Current assets $ 124,628 $ 960 $ 331,256 $ 132,411
Total assets $ 326,312 $ 48,403 $ 2,388,949 $ 237,293
Current liabilities $ 2,112,373 $ 2,687,967 $ 4,817,138 $ 1,227,823
Total liabilities $ 2,216,975 $ 2,792,134 $ 4,817,138 $ 1,417,960
Stockholders' equity
(deficiency) $ (1,890,663) $ (2,743,731) $ (2,428,189) $ (1,180,667)
RISK FACTORS
Following is a description of all material risk factors related to the
Company's business and investment in the Company's common stock. Please consider
these risk factors together with the other information presented in this
prospectus, including the financial statements and the notes thereto, before
investing in our common stock. The trading price of our common stock could
decline due to any of the following risks, and you might lose all or part of
your investment.
WE ARE AN EARLY-STAGE BUSINESS WITH A LIMITED OPERATING HISTORY, AND AS A
RESULT, MAKING AN EVALUATION OF OUR BUSINESS PROSPECTS MAY BE DIFFICULT.
We are an early-stage company with limited prior business operations
and no historical operating revenues. You should be aware of the increased
risks, uncertainties, difficulties and expenses we face, and that because of our
limited operating history, you may not have adequate information on which you
can base an evaluation of our business and prospects.
6
OUR FINANCIAL STATEMENTS INCLUDE A GOING CONCERN OPINION FROM OUR OUTSIDE
AUDITORS WHICH RAISES DOUBT AS TO OUR ABILITY TO STAY IN BUSINESS AND MAY LIMIT
OUR ABILITY TO RAISE REQUIRED FUNDING.
The Company received a going concern opinion on its financial
statements for the fiscal years ended December 31, 2003 and 2002. Our auditors
have stated that due to our lack of profitability and our negative working
capital, there is "substantial doubt" about our ability to continue as a going
concern. The going concern opinion from our auditors may limit our ability to
obtain the financing required to stay in business and to continue our product
development efforts, in which case you could lose your entire investment.
WE HAVE GENERATED LIMITED REVENUES AND IF WE ARE UNABLE TO GENERATE SUFFICIENT
REVENUES IN THE FUTURE, WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS.
We are an early-stage company, and prior to May 2004, had not
generated any revenues from operations. We cannot assure our stockholders that
our proposed business plans, as described in this prospectus, will materialize
or prove successful, or that revenues generated through the sale of recently
licensed products, or other potential future products will be sufficient to
result in profitable operations. If we cannot operate profitably, you could lose
your entire investment.
OUR NEAR TERM PROSPECTS ARE HIGHLY DEPENDENT ON THE SUCCESSFUL MARKET
INTRODUCTION OF PRODUCTS WE HAVE RECENTLY LICENSED THROUGH A MARKETING,
MANUFACTURING AND DISTRIBUTION AGREEMENT. IF WE ARE UNABLE TO SUCCESSFULLY
INTRODUCE AND MARKET THESE PRODUCTS, OUR BUSINESS MAY FAIL.
We have recently acquired certain product lines through a licensing
agreement. We began selling these products in certain foreign markets during the
second quarter of 2004, and in the United States in the third quarter of 2004.
As an investor, you should be aware of the potential difficulties encountered by
an enterprise in the introduction of new products, many of which are beyond our
control, including unanticipated delays in the regulatory approval process and
market introduction, uncertainty with respect to customer acceptance and
potential competition, and potential manufacturing and/or distribution problems.
Our efforts to launch these products may not be successful and, even if
successful, such efforts might not result in profitable operations. If we are
unable to successfully market these products, and achieve profitable operations,
you could lose your entire investment.
WE ARE DEPENDENT ON A THIRD PARTY FOR THE MANUFACTURING AND SUPPLY OF ALL
PRODUCTS CURRENTLY BEING SOLD BY THE COMPANY. IF WE ARE UNABLE TO OBTAIN
PRODUCTS ON A TIMELY BASIS, WE MAY NOT BE ABLE TO ACHIEVE PROFITABLE OPERATIONS
AND OUR BUSINESS MAY FAIL.
All products currently being sold by the Company are manufactured by
the licensor of the products. Any interruptions, delays or other problems
encountered by the licensor in the manufacturing of these products could result
in its inability to supply quantities ordered by the Company on a timely basis,
or at all. If we are unable to obtain products from the manufacturer on a timely
basis, we will be unable to fulfill sales orders as planned, which would result
in lost revenues and would affect our ability to achieve profitable operations.
If we cannot operate profitably, you could lose your entire investment.
WE HAVE LIMITED FINANCIAL RESOURCES AND ARE DEPENDENT ON RAISING ADDITIONAL
CAPITAL IN ORDER TO SUCCESSFULLY LAUNCH OUR PRODUCTS AND TO BEGIN GENERATING
REVENUES FROM PRODUCT SALES. IF WE ARE UNABLE TO RAISE SUFFICIENT CAPITAL, OUR
BUSINESS MAY FAIL AND OUR STOCK PRICE MAY BE MATERIALLY ADVERSELY AFFECTED.
7
Because we have limited financial resources and no historical
operating revenues, we need to secure additional funding in order to
successfully launch our products, and to fund operating losses until such time
as we are generating enough revenue to sustain our business. The funds that we
raise by selling stock to SBI and Trilogy under the stock purchase agreements
described in this prospectus may not be sufficient, and we do not have firm
commitments for additional financing. If we are unable to obtain adequate
additional funding, we may not be able to generate sufficient revenues and our
business will most likely fail.
RAISING ADDITIONAL CAPITAL MAY CAUSE SIGNIFICANT DILUTION TO OUR STOCKHOLDERS
AND MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND ON THE
MARKET PRICE OF OUR COMMON STOCK.
To secure additional financing, we may have to sell additional stock
or borrow money. Selling additional stock, either privately or publicly, will
dilute the equity interests of our stockholders. If we borrow more money, we
will incur interest expenses which will negatively impact our operating results,
and may also be subjected to restrictions in the debt agreement that limit our
operating flexibility. Dilution of existing stockholders and/or the incurrence
of additional interest expense may result in a lower stock price.
WE HAVE A HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT AND OUR FAILURE TO
ACHIEVE AND MAINTAIN PROFITABILITY MAY CAUSE OUR STOCK PRICE TO DECLINE.
For the fiscal years ended December 31, 2003 and 2002 and for the six
months ended June 30, 2004, we incurred net losses of $4,959,152, $1,226,676 and
$5,521,962, respectively, and as of June 30, 2004 our accumulated deficit was
$16,298,181. We expect to continue to incur significant operating, marketing and
research and development expenses to support anticipated operations. We cannot
be certain whether we will ever earn a significant amount of revenues to achieve
profitability, or, if we do, that we will be able to continue earning such
revenues or profit. Our failure to achieve and maintain profitability could
cause our stock price to decline and result in you losing all or a portion of
your investment.
MEDICAL APPLICATIONS OF WATERJET TECHNOLOGY HAVE BEEN LIMITED. FAILURE TO
ESTABLISH WATERJET TECHNOLOGY AS AN ACCEPTABLE ALTERNATIVE TO CURRENTLY
AVAILABLE TECHNIQUES USED IN OPHTHALMIC SURGERY WOULD SIGNIFICANTLY LIMIT OUR
ABILITY TO SUCCESSFULLY MARKET OUR PRODUCTS.
Although waterjet technology is an established method for precision
cutting of materials in a variety of industrial applications, until recently,
medical applications of this technology have been limited. If we are unable to
establish our waterjet technology as an acceptable alternative to currently
available techniques used in ophthalmic surgical procedures, we may not be able
to generate sufficient revenues to obtain profitability. This may cause our
stock price to decline and could result in the loss of all or part of your
investment.
OUR RESEARCH AND DEVELOPMENT EFFORTS MAY NOT RESULT IN COMMERCIALLY VIABLE
PRODUCTS WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE AND A LOSS OF YOUR
INVESTMENT.
Our waterjet based technologies are in the development stage. Further
research and development efforts will be required to develop these technologies
to the point where they can be incorporated into commercially viable or salable
products. We have set forth in this prospectus our proposed research and
development program as it is currently conceived. We cannot assure you, however,
that this program will be accomplished in the order or in the time frame set
forth. We reserve the right to modify the research and development program. We
may not succeed in developing commercially viable products from our
technologies. Also, some of our research and development efforts are aimed at
8
technology that facilitates LASIK surgery; if LASIK were to be replaced by
another technology or procedure, certain of our products may become obsolete. If
we are not successful in developing commercially viable products or if such
products become obsolete, our ability to generate revenues from these
technologies will be severely limited. This could result in the loss of all or
part of your investment.
WE MAY NOT BE ABLE TO DEVELOP A MARKET FOR OUR TECHNOLOGY, WHICH WOULD MOST
LIKELY CAUSE OUR STOCK PRICE TO DECLINE.
The demand and price for our technology and related products will be
based upon the existence of markets for the technology and products and the
markets for products of others, which may utilize our technology. The extent to
which we may gain a share of our intended markets will depend, in part, upon the
cost effectiveness and performance of our technology and products when compared
to alternative technologies, which may be conventional or heretofore unknown. If
the technology or products of other companies provide more cost-effective
alternatives or otherwise outperform our technology or products, the demand for
our technology or products maybe adversely affected. Our success will be
dependent upon market acceptance of our technology and related products. Failure
of our technology to achieve and maintain meaningful levels of market acceptance
would materially and adversely affect our ability to generate revenue and
achieve profitability, and would likely cause our stock price to decline.
IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE COMPETITIVE OPHTHALMIC SURGICAL
DEVICE INDUSTRY, OUR FUTURE GROWTH AND OPERATING RESULTS WILL SUFFER.
Our future success depends on our ability to compete effectively with
other manufacturers of ophthalmic surgical devices, including major
manufacturers of microkeratomes, which are mechanical corneal cutting devices
used in LASIK surgical procedures. We may have difficulty competing with larger,
established surgical device companies that have:
* substantially greater financial, technical and marketing
resources;
* larger customer bases;
* better name recognition;
* related product offerings; and
* larger marketing areas.
Companies such as VISX, Alcon, Bausch & Lomb, LaserSight, and Nidek
are major international providers of ophthalmic surgical devices relating to
LASIK and cataract surgery. These companies represent a wide array of devices
and products, technologies and approaches. Most of these companies have more
resources than we do and, therefore, a greater opportunity to develop comparable
products and bring those products to market more efficiently than we. If we do
not compete effectively with current and future competitors, our ability to
generate revenue and achieve profitability will be adversely affected, and would
likely result in a decline in our stock price.
OUR DEVELOPMENT EFFORTS WITH RESPECT TO WATERJET BASED PRODUCTS ARE HIGHLY
DEPENDENT ON OUR PROPRIETARY INTELLECTUAL PROPERTY RIGHTS. FAILURE TO PROTECT
OUR RIGHTS COULD SIGNIFICANTLY IMPAIR OUR BUSINESS AND ENFORCING OUR RIGHTS MAY
CAUSE US TO INCUR SUBSTANTIAL EXPENSE.
Proprietary rights are critically important to us. We currently have
exclusive licenses to thirteen U.S. patents and three foreign patents for our
waterjet technology and we intend to aggressively pursue additional patent
protection for our technologies as we continue to develop them. Although we will
seek to defend our licenses and to protect our other proprietary rights, our
actions may be inadequate to protect our patents and other proprietary rights
from infringement by others, or to prevent others from claiming infringement of
their patents and other proprietary rights.
9
Policing unauthorized use of our technology is difficult and some
foreign laws do not provide the same level of protection as U.S. laws.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or patents that we may obtain, or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources, and may
result in decreased earnings and a decline of our stock price.
THE REGISTRATION OF PREVIOUSLY RESTRICTED SHARES AND SHARES UNDERLYING WARRANTS,
CONVERTIBLE DEBENTURES AND CONVERTIBLE PREFERRED STOCK MAY CAUSE OUR STOCK PRICE
TO DECLINE
The resale by the selling stockholders of their previously restricted
shares, including any shares issuable upon the exercise of convertible
securities, will increase the number of our publicly traded shares, which could
depress the market price of our common stock. The issuance of shares upon the
exercise of convertible securities will dilute the percentage of our shares held
by existing stockholders and could also cause our stock price to decline.
OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND IS EXPECTED TO EXPERIENCE IN
THE FUTURE, SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY
INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE
PRICE THAT YOU PAY FOR THE SHARES.
Because of the limited trading market for our common stock, and
because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. During 2003, and through the
date of this prospectus, our common stock was sold and purchased at prices that
ranged from a high of $2.41 to a low of $0.39 per share. The inability to sell
your shares in a rapidly declining market may substantially increase your risk
of loss because of such illiquidity and because the price for our common stock
may suffer greater declines because of its price volatility.
The price of our stock that will prevail in the market after this
offering may be higher or lower than the price you pay. Certain factors, some of
which are beyond our control, that may cause our share price to fluctuate
significantly include, but are not limited to, the following:
* results of our initial product introduction and sales efforts;
* our ability to obtain timely approval for marketing in the United
States from the U.S. FDA
* variations in our quarterly operating results;
* our ability to complete the research and development of our
technologies;
* the development of a market for our products;
* changes in market valuations of similar companies;
* announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
* loss of a major customer or failure to complete significant
transactions;
10
* additions or departures of key personnel; and
* fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
Over-the-Counter Bulletin Board and technology stocks in particular, have
experienced extreme price and volume fluctuations. In some cases, these
fluctuations are unrelated or disproportionate to the operating performance of
the underlying company. These market and industry factors may cause a material
decline in our stock price regardless of the progress we make with respect to
our product development and marketing efforts and our operating performance.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks
and uncertainties. These include statements about our expectations, plans,
objectives, assumptions or future events. In some cases, you can identify
forward-looking statements by terminology such as "anticipate," "estimate,"
"plans," "potential," "projects," "continuing," "ongoing," "expects,"
"management believes," "we believe," "we intend" and similar expressions. These
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed for the reasons
described in this prospectus. You should not place undue reliance on these
forward-looking statements.
You should be aware that our actual results could differ materially
from those contained in the forward-looking statements due to a number of
factors such as:
* continued development of our technology;
* dependence on key personnel;
* competitive factors;
* the operation of our business; and
* general economic conditions.
The forward-looking statements speak only as of the date on which they
are made, and, except to the extent required by federal securities laws, we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. In addition, we cannot assess
the impact of each factor on our actual results to differ materially from those
contained in any forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of common stock
being offered by the selling stockholders. We will, however, incur all costs
associated with this registration statement and prospectus. We may receive
proceeds from the exercise of warrants and conversion of outstanding debt, if
and to the extent they are exercised or converted.
NATURE OF TRADING MARKET
Our stock is quoted on the OTC Bulletin Board under the symbol
"VJET.OB." Until February 2003 the public entity was an inactive, "shell"
company, and so prices before that date may not be indicative of value. The
following table sets forth, for the fiscal quarters indicated, the high and low
closing prices for shares of our Common Stock for the periods noted, as reported
by the National Daily Quotation Service and the Over-the-Counter Bulletin Board.
11
Quarter Ended High Low
------------- ---- ---
2002:
First Quarter $ .85 $ .85
Second Quarter $ 1.78 $ .86
Third Quarter $ 1.45 $ .77
Fourth Quarter $ 1.45 $ 1.12
2003:
First Quarter $ 2.41 $ 1.22
Second Quarter $ 1.71 $ .94
Third Quarter $ 1.60 $ 1.05
Fourth Quarter $ 1.65 $ 1.10
2004:
First Quarter $ 1.39 $ 0.99
Second Quarter $ 1.10 $ 0.57
Third Quarter $ 0.84 $ 0.49
Fourth Quarter $ 0.57 $ 0.39
On November 10, 2004, the closing price as reported by the OTC
Bulletin Board was $0.39. As of October 15, 2004, there were 28,231,091 shares
of common stock outstanding, held by 212 record holders and approximately 1,045
beneficial holders.
DIVIDEND POLICY
We have never paid cash dividends and have no plans to do so in the
foreseeable future. Our future dividend policy will be determined by our Board
of Directors and will depend upon a number of factors, including our financial
condition and performance, our cash needs and expansion plans, income tax
consequences, and the restrictions that applicable laws and our credit
arrangements then impose.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2004.
You should read this information in conjunction with our financial statements
and the accompanying notes, and the other financial information appearing
elsewhere in this prospectus.
Long-term debt $ -
=============
Stockholders' deficit:
Common stock, $.001 par value
Authorized, 50,000,000 shares
Issued and outstanding,
30,179,663 shares $ 30,180
Additional paid-in capital 14,386,216
Accumulated deficit (16,844,585)
-------------
Total Stockholders' Deficit ($ 2,428,189)
=============
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements, and should be read in conjunction with such financial statements and
notes thereto.
Certain information included herein contain forward-looking statements that
involve risks and uncertainties within the meaning of Sections 27A of the
Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934;
and the Private Securities Litigation Reform Act of 1995. Readers are referred
to the cautionary statement at the beginning of this report, which addresses
forward-looking statements made by the Company.
CORPORATE HISTORY
VisiJet (the "Company" or "VisiJet"), formerly known as Ponte Nossa
Acquisition Corp ("PNAC")), is a Delaware corporation engaged in the marketing
and development of surgical equipment for use in the field of ophthalmology.
The Company was incorporated in California on February 2, 1996 as a wholly
owned subsidiary of SurgiJet, Inc ("SurgiJet"), a developer of waterjet
technology for a variety of medical and dental applications. In May 1999, the
Company was spun off from SurgiJet through a distribution of common stock to its
shareholders, after which SurgiJet had no remaining ownership interest in the
Company.
On February 11, 2003 the Company completed a merger with PNAC, a Delaware
corporation incorporated in 1997. Pursuant to the merger agreement between
VisiJet and PNAC (the "Merger Agreement"), the Company merged into PNAC. Since
this transaction resulted in the shareholders of VisiJet acquiring a majority of
the outstanding shares of PNAC, for financial reporting purposes the business
combination was accounted for as a recapitalization of PNAC (a reverse
acquisition with the Company as the accounting acquirer). Subsequently, PNAC
changed its name to VisiJet, Inc.
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to the Financial
Statements. At this stage of our development, these policies primarily address
matters of revenue and expense recognition. The Company has consistently applied
these policies in all material respects.
OVERVIEW
Through the second quarter of 2004, we were in the development stage, as
our efforts had been principally devoted to organizational activities, raising
capital and research and development efforts related to our proprietary waterjet
based ophthalmic surgery products.
13
In May 2004, the Company entered into an exclusive license agreement with
Gebauer Medizintechnik, GmbH, pursuant to which we acquired worldwide marketing,
sales and distribution rights for Gebauer's LASIK and Epi-Lasik products. We
immediately began marketing these products in Europe and certain other foreign
countries in which the products have received regulatory approval for sale. In
September 2004, we began marketing the Epi-Lasik product in the United States,
following receipt of approval for marketing from the U.S. Food and Drug
Administration ("FDA").
Based on our history of losses and negative working capital balance, our
financial statements for the year ended December 31, 2003 included a going
concern opinion from our outside auditors, which stated there "is substantial
doubt" about our ability to continue operating as a going concern.
VisiJet is actively pursuing additional financing, and in this regard is in
discussions with several parties related to potential financing arrangements.
However, we do not currently have sufficient cash or working capital available
to continue to fund operations, to meet our contractual obligations, to market
the recently licensed products or to complete on-going product development
efforts. As such, our ability to secure additional financing on a timely basis,
is critical to our ability to stay in business and to pursue planned operational
activities.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2004 Compared To Six Months Ended June 30, 2003
SALES AND COST OF SALES
International sales totaled $54,970, and represent revenues recognized
based on sales during the second quarter of 2004 of ophthalmic surgery products
acquired through a licensing agreement completed in May 2004. Cost of sales
during the same period, totaling $26,834, represents related product costs
associated with these revenues. No sales were recorded during the second quarter
of 2004 in the United States as marketing approval for the licensed products in
the U.S. was still pending. Prior to completion of the product licensing
agreement, the Company did not have any products for sale, and accordingly had
no similar sales revenues or cost of sales activity in the comparable 2003
period.
OPERATING EXPENSES
Operating expenses during the six months ended June 30, 2004 increased to
$5,423,957 from $1,692,052 in 2003 as a result of the following activity:
2004 2003
------------ -----------
General and Administrative $ 5,014,976 $ 1,374,272
Research and Development 408,981 317,780
------------ -----------
Total Operating Expenses $ 5,423,957 $ 1,692,052
============ ============
The increase in general and administrative expenses in the 2004 period is
due primarily to the inclusion of $2.5 million of non-cash expenses recorded in
connection with the issuance of a total of 2,605,000 shares of common stock
during the period as payment for consulting services and in connection with
dispute/litigation settlements. Also, we incurred non-cash expenses of $546,403
recorded in connection with the re-pricing of warrants during the second
14
quarter. In addition, general and administrative expenses during the second
quarter of 2004 include $57,042 of non-cash expense recorded based on the
amortization of capitalized patent and licensing agreements. Also contributing
to the increase during 2004 were increases in salaries and wages of
approximately $342,000 and increases in other consulting fees of approximately
$253,000.
The increase in research and development expenses in the 2004 period is
primarily due to increased expenditures during the first quarter of 2004 related
to outside services and testing on our Hydrokeratome and Pulsatome products
under development.
OTHER INCOME AND EXPENSE
Interest expense increased to $671,745 during the six months ended June
30, 2004 from $39,114 in 2003 primarily due to the inclusion in 2004 of
approximately $575,000 of non-cash interest expense recorded in connection with
the amortization of debt discount during the period. Also contributing to the
increased interest expense during the 2004 period was an increase in total debt
outstanding as a result of debt financing transactions completed during the
first and second quarter of 2004.
NET LOSS
As a result of the above revenues and expenses, the net loss for the six
months ended June 30, 2004 increased to $6,068,366, compared to $1,730,711
during the comparable 2003 period.
Subject to the availability of cash and working capital we expect sales
revenue, and related cost of sales to increase significantly during the
remainder of 2004. In addition, expenses related to sales and marketing and
research and development activities are expected to increase during the
remainder of 2004 both due to the planned ramp up of sales and marketing
activities related to recently licensed products and the anticipated move toward
completion of product development and regulatory compliance efforts, and product
introduction, with respect to our other products under development.
LIQUIDITY AND CAPITAL RESOURCES
Through the second quarter of 2004, VisiJet was in the development stage,
as its efforts had been principally devoted to organizational activities,
raising capital and research and development efforts related to its proprietary
waterjet based ophthalmic surgery products.
During the first six months of 2004, we raised net proceeds totaling
$3,211,188 through private placements of debt and equity securities. Of this
total, $1,575,000 came from the issuance of convertible debentures, net of
$225,000 of related costs, $1,109,688 came from the issuance of secured
subordinated debentures, net of $140,312 of related costs and $526,500 resulted
from equity private placements, net of related costs of $58,500. In addition,
during this period, the Company received net proceeds of $56,305 from working
capital advances from shareholders and employees.
During the first six months of 2004, the Company utilized $2,023,387 to
fund operating activities and $1,220,122 in investing activities, and as of June
30, 2004, current liabilities exceeded current assets by approximately $4.5
million. In addition, as discussed in more detail in Notes 6 and 14 to the
Financial Statements, As of June 30, 2004 the Company was not in compliance with
terms in debenture agreements with an aggregate principal balance of $2,550,000.
15
The following summarizes our contractual obligations, commercial
commitments and off-balance sheet arrangements at June 30, 2004 and the effect
such obligations could have on our liquidity and cash flow in future periods:
Less Than 1 - 3 3 - 5 Over 5
1 Year Years Years Years Total
---------- ---------- ---------- ---------- ----------
Notes Payable (1) $ 798,451 $ -- $ -- $ -- $ 798,451
Compensation Settlement
Agreements 93,748 -- -- -- 93,748
Accounts Payable 851,994 -- -- -- 851,994
Accrued Expenses 870,793 -- -- -- 870,793
Secured Debt (2) 2,050,000 1,000,000 -- -- 3,050,000
Minimum Royalty
Obligations (3) 84,000 168,000 168,000 564,000 984,000
Lease Commitments 3,168 6,336 4,356 -- 13,860
---------- ---------- ---------- ---------- ----------
Total $4,752,154 $1,174,336 $ 172,356 $ 564,000 $6,662,846
========== ========== ========== ========== ==========
---------
(1) Includes an aggregate of $518,461, contested by the Company pursuant to
on-going litigation with SurgiJet.
(2) Includes principal balance of secured and convertible debt agreements
entered into during first and second quarters of 2004. Amounts noted do not
include repayment obligations related to an aggregate of $1,850,000 of
convertible debt agreements entered into in July 2004 and October 2004 as
described below.
(3) Term of obligations estimated based on estimated remaining patent life.
Our ability to satisfy the contractual obligations noted above, as well as
our ability to fund on going operating expenses, is dependent on our success in
raising additional capital and in generating working capital from product sales.
FINANCING ARRANGEMENTS SUBSEQUENT TO JUNE 30, 2004
In July 2004 VisiJet entered into a convertible note agreement with an
private lender for a loan of $1,000,000, and received net proceeds of $900,000
after subtracting related placement agent fees and expenses, totaling $100,000.
The note bears interest at an annual rate of 8%, payable quarterly beginning on
October 31, 2004. The principal balance of the note, plus any accrued and unpaid
interest is due and payable on July 23, 2014. However, on or after July 31, 2007
the note holder, may compel us to repurchase the note at the outstanding
principal and accrued interest.
In October 2004 VisiJet entered into convertible note agreements with four
private lenders providing for loans in an aggregate amount of $850,000, and
received net proceeds of $788,000 after subtracting related placement agent fees
and expenses totaling $62,000. The notes bear interest at an annual rate of 8%,
payable quarterly beginning on December 31, 2004. The principal balance of the
note, plus any accrued and unpaid interest, is due and payable on October 6,
2014. However, that on or after October 6, 2007 the note holders may compel us
to repurchase the note at a price equal to 100% of the outstanding principal
balance and accrued interest.
16
In October 2004 VisiJet entered into a stock purchase agreement with a
private equity investment fund pursuant to which the fund agreed to purchase an
aggregate of 4,750,000 shares of the Company's common stock, based on a minimum
per price of $1.00 per share. In addition, under the agreement the investor
would receive five-year warrants to purchase up to 1,900,000 shares of our
common stock, at an exercise price of $1.00 per share. Completion of this
financing and related funding is contingent on the effectiveness of a
Registration Statement covering the shares of common stock and the shares of
common stock underlying the warrants, which the Company anticipates filing with
the Securities and Exchange Commission subsequent to the effective date of the
Registration Statement of which this Prospectus is a part.
Subject to availability of funding, we expect operating expenses, and
related cash requirements, to increase during the remainder of 2004 and 2005 in
connection with anticipated increased sales and marketing and product
development and activities.
VisiJet's management believes that actions currently being undertaken to
raise additional financing, to initiate marketing of its recently licensed
products and to complete the development of, and bring to market its internally
developed products, will ultimately generate sufficient revenue to support its
operations. However, there can be no assurance that any pending financing will
be completed, that sufficient capital will be available when required, that
product marketing and development efforts will be successful, or that if
successful, revenue generated will provide positive cash flows from operations
to permit us to realize our plans.
PLAN OF OPERATIONS
FINANCING ACTIVITY
VisiJet is dependent on raising additional capital to stay in business
and to pursue the following planned activities. As described above under
"Liquidity and Capital Resources," we have recently entered into stock purchase
agreements with investors that, if successfully completed, will result in
initial gross proceeds to the Company of $4.75 million. Completion of this
proposed funding, or alternative financing on a timely basis, is critical to our
future and will be a major focus of the activities of our management.
SALES AND MARKETING ACTIVITY
Sales and marketing efforts during the next twelve months will be
increased significantly in connection with the immediate market introduction of
the recently licensed EpiTome and LasiTome product lines in Europe and certain
other foreign countries, and the subsequently planned market introduction in the
United States of the EpiTome products. During this period, we anticipate sales
and marketing expenditures of approximately $1.2 million, as a result of the
development of a direct sales force in the United States, a network of
distributors outside of the United States, commissions on product sales,
promotional activities, professional education and training.
17
RESEARCH AND DEVELOPMENT ACTIVITY
VisiJet plans to continue in the research and development of ophthalmic
surgery products based on applications of waterjet technology. These products
are designed to result in faster, safer and more efficacious surgery in the
laser eye surgery and cataract surgery markets. During the next twelve months,
research and development activities will be conducted on the following products
under development:
1). HydroKeratome - A corneal cutting device that produces a
bladeless flapcut for the LASIK procedure.
2). Pulsatome - an emulsification device for the quick and safe
removal of a full range of cataract hardnesses, with a lower
cost per procedure and requiring minimal technical
expertise.
3). New Products/Product Extensions - research and development
efforts on other medical applications of our waterjet
technology.
Planned research and development activities during this period will be
focused on completing testing required to obtain final marketing approval from
the FDA with respect to our 510(k) application for the HydroKeratome. In
addition, our research and development efforts will be focused on completing
testing required for the submission of our initial 510(k) application to the FDA
with respect to our Pulsatome product. Planned research and development
expenditures during this period are estimated to be approximately $1.5 million.
PROPERTY, PLANT AND EQUIPMENT
The planned research and development activities and the expansion of
marketing and administrative support will require additional expenditures for
property, plant and equipment within during the next twelve months.
The following is a summary of anticipated purchases of property, plant
and equipment:
1). Production, lab and test equipment $ 275,000
2). Computers and software 275,000
3). Facilities, furniture & fixtures 100,000
------------
Total anticipated capital expenditures: $ 650,000
EMPLOYEE ADDITIONS
We anticipate hiring approximately 30 additional employees during the
next twelve months, resulting in additional salaries and wages of approximately
$1.1 million during this period, to support anticipated company growth and
increased emphasis on sales, marketing, distribution and customer
training/support.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE PLANS AND RESULTS
Planned activities discussed above with respect to anticipated
expenditures for sales and marketing, additions of property, plant and equipment
and employees are contingent on our obtaining sufficient funding, as well as on
the success of our final product development and commercialization efforts
related to our internally developed products.
In addition, see "Risk Factors."
18
BUSINESS
COMPANY BACKGROUND AND SUMMARY
VisiJet is a medical device company focused on the marketing and
development of ophthalmic surgery products for use in the laser eye surgery and
cataract surgery markets. The Company was incorporated on February 2, 1996, as a
wholly owned subsidiary of SurgiJet, Inc. to develop and distribute medical
products based on patented waterjet-based technology licensed from SurgiJet. In
May 1999, the Company was spun off from SurgiJet through a distribution of
common stock to its shareholders, after which SurgiJet had no remaining
ownership interest in the Company.
In December 2002 VisiJet entered into a merger agreement with Ponte
Nossa Acquisition Corp., a Delaware corporation ("the Merger") that had been
incorporated as a blank check company in 1997. The agreement called for the
merger of the two companies into a single company through the merger of an
acquisition subsidiary, VisiJet Acquisition Corporation, into VisiJet. The
merger was consummated on February 11, 2003, and immediately thereafter, VisiJet
was merged into Ponte Nossa Acquisition Corp., and the surviving company's name
was changed to "VisiJet, Inc."
In May 2004, VisiJet entered into an exclusive license agreement with
Gebauer Medizintechnik GmbH, of Neuhausen Germany ("Gebauer"), pursuant to which
we acquired worldwide marketing, sales and distribution rights for Gebauer's
LASIK and Epi-LASIK products. In May 2004, VisiJet began marketing these
products in Europe and certain other foreign countries, where the products have
received regulatory approval for sale, and began generating revenue from product
sales during the second quarter of 2004. In September 2004, we began marketing
the Epi-Lasik product in the United States, following receipt of approval for
marketing from the U.S. Food and Drug Administration. The agreement with Gebauer
is for an initial term of three years, with an option to extend for an
additional two years if we meet certain sales standards. During the term of the
agreement we must meet certain minimum purchase requirements in order to
maintain the exclusivity of the arrangement.
In addition, we are engaged in the research and development of
ophthalmic surgery products based upon applications of our proprietary waterjet
technology, designed to result in faster, safer and more efficacious laser eye
and cataract surgery. To date, these efforts have been focused on bringing to
market two products, with different applications and markets. First, the
HydroKeratome(R) is a device that utilizes waterjet technology to cut the
corneal flap immediately prior to applying an excimer laser in laser eye surgery
to correct myopia, hyperopia and astigmatism. Second, the Pulsatome(R) utilizes
waterjet technology to remove the cataractous human crystalline lens in the eye
during cataract surgery.
MARKETS
THE REFRACTIVE SURGERY MARKET
Our products assist in surgical procedures relating to the cornea. The
cornea is the clear window that provides most of the focusing power of the
vision system of the eye, as well as allowing light into the eye. The anterior
surface of the cornea is covered with a thin layer called the epithelium. The
epithelium is covered with a liquid tear film.
Physicians generally treat vision disorders by prescribing eyeglasses
or contact lenses or through ophthalmic surgery, all of which compensate for or
correct the vision error. The principal surgical techniques available to treat
vision disorders are radial keratotomy ("RK"), Photo Refractive Keratectomy
("PRK")/LASIK and Refractive Lamellar Keratoplasty ("RLK"). In RK, PRK/LASIK and
19
RLK, the object of the surgery is to change the shape of the anterior corneal
surface and to eliminate or reduce refractive error. An additional objective is
to minimize lens aberrations to improve visual acuity, which is not possible
with eyeglasses or contact lenses.
The refractive surgery market in its current form began in late 1995
when the FDA approved the first excimer laser for PRK. Before 1995 refractive
surgery was conducted by various manual, non-laser techniques, the most popular
of which was RK. In RK, the surgeon uses a diamond knife to make radial
incisions in the cornea to flatten it. This technique, and others like it, is
highly dependent on the surgeon's skill, and often produces mixed results.
By contrast, in PRK utilizing the excimer laser, the
computer-controlled laser is programmed to remove the specified amount of
corneal tissue with precision, delivering a consistent outcome. In spite of its
inherent accuracy and predictability, PRK was not widely accepted by patients,
because it uses the laser to burn away the most sensitive top layers of the
cornea. Patients undergoing PRK often experienced considerable pain, and were
left with a persistent cloudiness of the cornea for days or weeks. PRK generally
met the clinical expectations of the surgeon, but failed to satisfy the
patient's desire for comfort and rapid recovery. For this and other reasons, PRK
failed to attain broad market acceptance.
In late 1996 many ophthalmic surgeons started utilizing a new
procedure, Laser In Situ Keratomileusis ("LASIK"), which addressed many of the
negative aspects of PRK from the patient's standpoint, while preserving the
accuracy of PRK. LASIK utilizes a microkeratome, which is a mechanically driven
razor to create a flap in the surface of the cornea. After creation of the flap,
the excimer laser is used on the exposed internal tissue, called the stroma,
underneath the flap. The excimer laser emits ultraviolet light in very short,
high-energy pulses and ablates part of the corneal surface according to a
prescribed spatial pattern, changing the curvature of the anterior corneal
surface. The laser removes a predetermined amount of tissue to achieve the
desired correction, and the hinged flap is reset as closely as possible to its
original position, where it adheres to the underlying stroma. The adherence
increases over a period of many months. The patient's vision is significantly
improved within minutes of surgery.
Because the laser energy is used on the less sensitive inner tissue of
the cornea, the patient experiences very little pain after surgery and there is
generally no clouding of the corneal surface. The patient is usually able to
return to normal function the next day with immediate vision improvement.
The LASIK procedure gained broad market acceptance very quickly.
Currently, There are over 1.2 million LASIK procedures performed annually in the
U.S. and approximately the same in international markets. The success of LASIK
in meeting both surgeon and patient needs has been the principal factor in the
dramatic growth in the refractive surgery market in recent years. By the end of
2002 there were an estimated 1,192 excimer lasers in service in the United
States and at least 1,500 lasers outside of the U.S.
Recently, a new refractive surgery technique, referred to as Epi-LASIK,
was introduced. The Epi-LASIK procedure utilizes an automated device to
mechanically separate the epithelium, or outer layer of the cornea, in a sheath,
approximately 30 microns thick. This is in contrast to cutting into the cornea
using a microkeratome blade and creating a flap, from 120 - 180 microns thick,
as is done in the traditional LASIK procedure. Once the epithelium has been
separated, the curvature of the corneal surface is changed to predetermined
specifications using an excimer laser. Following the laser procedure, the
epithelium sheath is then returned to its original position.
20
THE CATARACT SURGERY MARKET
Currently, the majority of cataract surgical procedures are performed
using an ultrasonic phacoemulsifier device. The phaco, as it is commonly called,
utilizes an ultrasonic generator which vibrates the tip of the phaco hand piece
40,000 times per second. When the tip is introduced into the eye and placed in
contact with the cataractous lens, the lens is gradually reduced to smaller
pieces until it can be aspirated out of the eye.
In the U.S., there were an estimated 2,7 million cataract surgical
procedures performed in 2003. The worldwide cataract surgery market is estimated
to be approximately 14.4 million procedures annually. In many developing
countries, cataracts are the leading cause of blindness.
THE COMPANY'S PRODUCTS
EpiTome and LasiTome
Pursuant to its agreement with Gebauer, the Company acquired exclusive
worldwide marketing, sales and distribution rights for Gebauer's LASIK and
Epi-LASIK product lines. The product lines include EpiTome, a mechanical device
used for performing the epithelium separation procedure in Epi-LASIK refractive
surgery, and LasiTome, a mechanical device used for creating a corneal flap in
traditional LASIK surgical procedures. In additional to complete EpiTome and
LasiTome systems, the product lines include individual components and
accessories for both systems, as well as necessary disposable products required
for each procedure performed.
In May 2004, the Company began marketing these products in Europe and
certain other foreign countries, where the products have received regulatory
approval for sale. In September 2004, the Company began marketing the Epi-Lasik
product in the United States, following receipt of approval for marketing from
the U.S. Food and Drug Administration.
WATERJET TECHNOLOGY AND PRODUCTS
Waterjet technology is an established method for precision cutting of
materials in a variety of industrial applications. It uses the principle of
pressurizing water to extremely high levels, and allowing the water to escape in
a controlled manner through a very small opening, or orifice. Water jets use the
high pressure beam of water exiting the orifice to cut various materials,
including tile, wood, plastic, metal, and stone. In general, industrial
applications of waterjet technology are used in place of a laser or other device
when the "cut" needs to be quicker, cleaner, and with minimum distortion and
temperature increase.
VisiJet holds an exclusive license with respect to the ophthalmic
applications of a series of U.S. and foreign patents relating to the waterjet
technology. The technology uses a pneumatic-hydraulic pressure intensifier to
produce a collimated high pressure water beam that is approximately the diameter
of a human hair. This self-cleaning, eversharp "hydro-laser" can cut through
tissue at 12mm (.5 inch) per second. The hydraulics are controlled by an
embedded central processing unit with displays, gauges, controls, aspiration and
irrigation fluidics familiar to ophthalmic surgeons.
21
Although each of our waterjet products has a different application,
they share certain basic characteristics. Each of the waterjet products consists
of a modular console with an intensifier and a hand piece. The modular unit is
attached to a delivery tube, which is in turn attached to a hand piece. The hand
piece delivers the water jet to the tissue and its integral aspirator removes
any debris tissue and water through a disposable tube that returns to the
console.
HYDROKERATOME(R) CORNEAL CUTTING DEVICE. The HydroKeratome is a
corneal cutting device for use in the LASIK procedure. The HydroKeratome is
simple, and easy to use. In general, the cuts from a Hydrokeratome are smoother
and cleaner than those of conventional microkeratome, leaving no debris.
The HydroKeratome works by using a high-pressure micro beam of water
to force a blunt dissection of tissue in the path of the water beam. Since it
will compete directly with products already on the market from several other
companies, VisiJet plans to position the HydroKeratome(R) in the market as a
replacement for the microkeratome. We anticipate that the HydroKeratome will be
priced comparably to existing products, with the disposable component to be
priced at a slight premium.
The HydroKeratome is designed to address many of the problems that are
common with mechanical "blade" microkeratomes, such as poor visualization,
inconsistent thickness of flaps, hazing, loose flaps, off center cuts, and
lashes caught in gears. The HydroKeratome uses an embedded CPU controlled
pneumatic-hydraulic pressure intensifier to make the corneal flap for the LASIK
procedure. The suction ring and applanation plate on the hand piece allow
holding the eye centered while the corneal flap is cut underneath the
applanation plate. The water jet traverses perpendicular to the visual axis,
driven by a precision miniature Swiss motor with gear box and encoder. A foot
switch controls the start of the transverse water jet motion, and the travel
distance pre-programmed by the surgeon stops the travel and shuts off the water
jet beam. Approximate travel time is one-half second. Subject to the
availability of adequate financing, progress in on-going product development the
Company hopes to file a response during the first half of 2005 to the
outstanding issues/questions raised from the U.S. FDA based on their
510(k)review.
PULSATOME(R) CATARACT EMULSIFIER. The Pulsatome(R) Cataract Emulsifier
is an emulsification device designed for the quick and safe removal of the
cataractous human crystalline lens in the eye, a necessary procedure before
installing a new intraocular lens ("IOL"). The device creates a pulsating stream
of saline solution, and the impact from the pulsating fluid emulsifies the
cataractous human lens and breaks the lens into small pieces. The Pulsatome
simultaneously aspirates the emulsified tissue and removes it from the interior
of the eye.
Based on the experience of our management team and consultants in the
ophthalmic industry, we believe that the waterjet platform of the Pulsatome will
be easier to learn to use and will require less skill than that required by
current ultrasound phaco emulsification devices. The Pulsatome should be
attractive not only to established phaco surgeons but also to surgeons who have
not mastered ultrasound or simply cannot afford the device. With the Pulsatome,
many more surgeons, should be able to perform the state of the art, "no stitch,
foldable lens" procedure.
The Company anticipates that Pulsatome and its disposable package will
be priced in the low range of current ultrasound devices, which will make it
attractive in underdeveloped markets, and also attractive in the U.S. and other
nations where cost containment is critical.
22
The Pulsatome requires minimal technical skill, as it functions like a
hydraulic eraser or paint brush. No sculpting or lens elevation or rotation is
necessary. The balanced irrigation/aspiration fluidics complement the embedded
CPU controlled micro pulses. The foot switch initiates the mode activity
selected by surgeon for the balanced and ergonomically shaped hand piece.
Subject to the availability of adequate financing, progress in on-going product
development efforts and receipt of required regulatory approvals, the Company
hopes to file its 510(k) submission to the U.S. FDA for marketing approval of
Pulsatome during the first quarter of 2005.
COMPETITION
The medical technology industry for ophthalmologic surgery products is
highly competitive. Many other companies are engaged in refractive surgery
research and development activities, and many of these have substantially
greater financial, technical and human resources. As such, they may be better
equipped to develop, manufacture and market their technologies. In addition,
many of these companies have extensive experience in clinical testing and human
clinical studies. Certain of these companies may develop and introduce products
or processes competitive with or superior to our products and processes.
COMPETITION IN THE EPI-LASIK MARKET. Currently, the Company is aware
of only one competing Epi-LASIK product, which is being marketed by Norwood
Abbey, which recently purchased this product from Ciba Vision. Based on our
evaluation, we believe that our EpiTome product will compete effectively with
Norwood Abbey's product based on both technical specifications and product
performance. In addition, we are currently aware of two other products under
development using similar technology that may become competition in the future.
COMPETITION IN THE MICROKERATOME MARKET. There are approximately ten
companies that offer mechanical microkeratomes to the market. However, with
about 60% of the installed base and 70% market share of sales, Chiron Vision,
now a division of Bausch & Lomb, is the clear market leader.
Currently there is only one competitor which we are aware of,
Intralase, which offers "bladeless" LASIK surgery. This laser product creates a
lamellar flap for LASIK using tiny laser "explosions" within the cornea to
separate the tissue. Based on testing performed to date, and anticipated product
pricing, we believe that the HydroKeratome, when introduced to the market, will
offer a faster, more effective and will be less expensive alternative.
COMPETITION IN THE CATARACT EMULSIFICATION MARKET. The dominant
instrument in modern cataract surgery is the ultrasonic phacoemulsifier.
Coopervision developed and brought to market dominance the modern
phacoemulsifier during the period from 1975 to 1989. With its acquisition of
Coopervision in 1989, Alcon, a division of the Swiss food giant Nestle, became
the leader in the phaco market, with an estimated market share of 60% of the
phaco equipment and associated disposable packs. Bausch & Lomb is a distant
second, with an estimated 20% market share. There are another fifteen phaco
manufacturers who split up the remaining 20% of the global market, including
Advanced Medical Optics.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on completion of
final product development and testing and securing of regulatory approval for
our two internally developed products, Hydrokeratome and Pulsatome. During the
fiscal years ended December 31, 2003 and 2002, we spent approximately $1.3
million and $295,000, respectively, on research and development activities.
23
MANUFACTURING
Manufacturing of our EpiTome and LasiTome products is be performed by
Gebauer, pursuant to the Manufacturing, Supply and Distribution agreement
entered into in April 2004. We plan to outsource manufacturing for our
internally developed products to an ISO 9001 approved local contract
manufacturing facility. This contractor will purchase and stock parts, assemble,
test and burn-in units, and will stock finished goods and ship as required from
a bonded warehouse.
GOVERNMENT REGULATION
UNITED STATES. VisiJet's products are medical devices. As such, we are
subject to the relevant provisions and regulations of the Federal Food, Drug and
Cosmetic Act, under which the United States Food and Drug Administration ("FDA")
regulates the manufacture, labeling, distribution, and promotion of medical
devices in the United States. The Act provides that, unless exempted by
regulation, medical devices may not be commercially distributed in the United
States unless they have been approved or cleared by the FDA for marketing. There
are two review procedures by which medical devices can receive such approval or
clearance. Some products may qualify for clearance under a 510(k) notification.
Under the 510(k) procedure, the manufacturer submits to the FDA a pre-market
notification that it intends to begin marketing its product. The notification
must demonstrate that the product is substantially equivalent to another legally
marketed product (i.e., it has the same intended use, is as safe and effective,
and does not raise different questions of safety and effectiveness than does a
legally marketed device).
A successful 510(k) notification results in the issuance of a letter
from the FDA in which the FDA acknowledges the substantial equivalence of the
reviewed device to a legally marketed device and clears the reviewed device for
marketing. In September 2004, VisiJet received an approval letter from the FDA
with respect to the Epi-Lasik products licensed from Gebauer.
VisiJet has received successful 510(k) notification with respect to
its initial filing for the HydroKeratome, and has filed a 510(k) submission with
the FDA for upgrades to the product. Before commencement of marketing the
HydroKeratome, we must obtain 510 (k) approval from the FDA for the product
enhancements. We are currently addressing issues raised by the FDA in our
product enhancement submission for HydroKeratome, and hope to file our response
during the first half of 2005. In addition, we are currently addressing required
product development and testing issues related to the Pulsatome, and hope to
file our initial 510(k)application with the FDA during the first quarter of
2005.
In addition to laws and regulations enforced by the FDA, our products
may also be subject to labeling laws and regulations enforced by the United
States Federal Trade Commission ("FTC"). Any additional requirements related to
FTC laws and regulations will be addressed and monitored by the Company's
Regulatory Affairs department, although we do not expect that any such laws
and/or regulations will have a significant impact on our products.
OTHER COUNTRIES. Sales of medical devices outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. The time required to obtain approvals required by foreign countries may
be longer or shorter than that required for FDA approval, and requirements for
licensing may differ from FDA requirements.
24
DISTRIBUTION METHODS
VisiJet is marketing its products in the United States through a
combination of direct sales employees and independent sales representatives.
We are distributing our products internationally through a series of
agreements with distribution companies in major countries that handle other
American and European manufactured ophthalmic products, and that are familiar
with applicable local government rules and regulations, as well as with the
customer base and key ophthalmic surgeons in the region. To date, we have signed
distribution agreements with companies in the major international markets,
including France, Germany, Italy, Spain, the UK and Korea. In addition, we have
ongoing contract negotiations with potential distributors in other important
international markets including China, Hong Kong, Japan and South Africa.
Distribution of our products in countries other than the United States
may be subject to regulation in those countries. In some countries, the
regulations governing such distribution are less burdensome than in the United
States, and we may pursue marketing our products in such countries prior to
receiving permission to market from the FDA in the United States. We will
endeavor to obtain the necessary government approvals in those foreign countries
where we decide to manufacture, market and sell our products.
PATENTS AND TRADEMARKS
VisiJet does not own any of the patents utilized in the products under
development. Most of the technology utilized by the Company is covered by
patents owned by SurgiJet, Inc., a developer of waterjet technology for a
variety of medical and dental applications, and VisiJet's former parent company.
We have been granted an exclusive worldwide license to these patents for
ophthalmological applications for the life of the patents. It intends to protect
its development work by means of licensing additional patents and trademarks as
necessary and to protect its own inventions with additional patent applications.
The license agreements with SurgiJet include twelve issued U.S. patents twelve
and four issued international patents. VisiJet has also exclusive licenses to
certain non-patented technology developed by SurgiJet related to ophthalmic
applications, and holds exclusive licenses for certain registered trademarks,
including VisiJet(R), HydroKeratome(R), and Pulsatome(R).
Under the terms of the license agreements with SurgiJet, Inc., entered
into October 23, 1998, VisiJet is obligated to pay a royalty of 7% of revenues
received from sales of the products utilizing licensed patents and technology,
up to $400 million of revenues over the course of the Agreements, and 5% of
revenues thereafter. The license agreements with SurgiJet also provide for a
minimum royalty of $60,000 per year. To date, the Company has paid a total of
$180,000 in minimum royalty payments to SurgiJet, and, as of June 30, 2004
$30,000 in minimum royalty payments were accrued.
On September 17, 2003, VisiJet entered into a license agreement with
Robert M. Campbell, Jr., M.D., pursuant to which the Company obtained exclusive
worldwide rights for all medical applications for a patented technology invented
by Dr. Campbell that provides for the sterile flow of fluid through a surgical
water jet apparatus. The license agreement provides for a royalty of 6% on
revenues from products utilizing licensed technology and is subject to a minimum
royalty of $24,000 per year. To date, $24,000 in minimum royalty payments have
been made, and as of June 30, 2004 $50,000 of the license fee balance owed was
due and payable.
25
Following is a listing of patents licensed by the Company:
PATENT NUMBER DATE ISSUED EXPIRATION DATE NAME
------------- ----------- --------------- -------------------------------
5,037,431 Aug. 6, 1991 Nov. 3, 2009 Surgical Lance Apparatus
5,322,504 June 21, 1994 May 7, 2012 Method and Apparatus for Tissue
Excision and Removal by Fluid
Jet
5,562,692 Oct. 8, 1996 Oct. 8, 2013 Fluid Jet Surgical Cutting Tool
5,591,184 Jan. 7, 1997 Oct. 13, 2014 Fluid Jet Surgical Cutting
Instrument
5,643,299 July 1, 1997 Jan. 16, 2016 Hydrojet Apparatus for
Refractive Surgery
5,674,226 Oct. 7, 1997 May 7, 2012 Method and Apparatus for Tissue
Excision and Removal by Fluid
Jet
5,735,815 April 7, 1998 July 26, 2013 Method of Using Fluid Jet
Surgical Cutting Tool
5,853,384 Dec. 29, 1998 Dec. 29, 2015 Fluid Jet Surgical Cutting Tool
and Aspiration Device
5,865,790 Feb. 2, 1999 July 26, 2013 Method and Apparatus for Thermal
Phacoemulsification by Fluid
Throttling
6,143,011 Nov. 7, 2000 April 13, 2018 HydroKeratome for Refractive
Surgery
6,312,440 Nov. 6, 2001 April 13, 2018 Fluid Jet Keratome Apparatus and
Method for Refractive Surgery
6,440,103 Aug. 27, 2002 March 17, 2019 Method and Apparatus for Thermal
Emulsification
636345 Feb. 1, 1995 July 18, 2014 Method and Apparatus for Tissue
Excision and Removal by Fluid
Jet (Australia)
677061 Nov. 4, 1997 July 14, 2014 Fluid Jet Surgical Cutting Tool
(Australia)
WO98/36717 Aug. 27, 1998 Aug. 27, 2015 Hydrojet Apparatus for
Refractive Surgery (PCT)
A 61 B 17/32 May 5, 1999 May 5, 2016 Chirurgische Flussigstrahl
Schneidvorrichtung (Germany)
5,620,414 April 15, 1997 April 15,2014 Apparatus and Method for
Effecting Surgical Incision
Through Use of a Fluid Jet
26
EMPLOYEES
As of October 15 2004, we had fifteen full-time employees, none of
whom is covered by any collective bargaining agreement. We consider our
relationship with our employees to be good.
DESCRIPTION OF PROPERTY
We lease an office/research facility in Irvine, California. Our lease,
which is currently on a month to month basis, is for approximately 4,800 square
feet, which we lease for an aggregate of $9,500 per month. We are currently
evaluating options for leasing facilities on a longer term basis.
LEGAL PROCEEDINGS
VisiJet is currently engaged in the following legal proceedings:
VisiJet is a defendant in Steven J. Baldwin vs. VisiJet, Inc. et al, a
case pending in San Francisco County Superior Court, filed on February 9,
2004(Case NO. 04-428696). The Plaintiff alleges the VisiJet failed to compensate
him for services performed, prior to the merger with PNAC, pursuant to a
consulting agreement and is seeking monetary damages in the approximate amount
of $450,000. The case is currently in the preliminary stage.
MANAGEMENT
The officers and directors of VisiJet are as follows:
Director
Name Age Position Since
---- --- -------- -----
Richard H. Keates, M.D.(1)(2) 72 Chairman of the Board 2003
of Directors
Randal A. Bailey 61 President, Chief Executive
Officer and a Director 2003
Laurence M. Schreiber 63 Chief Operating Officer, 2003
Secretary, Treasurer and
a Director
Adam Krupp(1)(2) 41 Director 2003
Norman Schwartz(1)(2) 61 Director 2003
(1) Member of the Executive Committee
(2) Member of the Audit Committee
Dr. Keates has been Chairman of the Board of Directors since February
2003. He is an ophthalmologist, consultant, and professor, and has been a
Professor of Ophthalmology at New York Medical College since 1997. Dr. Keates
has served on various boards of directors, including Frigitronics (NYSE), Med
Chem (NYSE), Autonomous Technologies (NASDAQ) and Chiron Vision. Dr. Keates has
consulted for leading health care companies including IO Lab, Alcon, and Bausch
27
& Lomb. He is a founding partner of Intelligent Biocides, and has published over
100 articles in ophthalmology. Among his many faculty appointments, Dr. Keates
has been a professor at Ohio State University, Professor and Chairman of the
Ophthalmology Department at the University of California, Irvine. He is the
President of the New York Introcular Lens Society and recently completed his
term as the President of the New York Keratorefractive Society. Dr. Keates
graduated from the University of Pennsylvania and from the Jefferson Medical
College. He completed his Ophthalmology training at Harvard Basic Sciences in
Ophthalmology and The Manhattan Eye, Ear & Throat Hospital.
Mr. Bailey has served as President of VisiJet since February 2003, and
was appointed to the Board of Directors in September 2003. Between 1995 and 2003
he had been affiliated with VisiJet's predecessors in an executive management
capacity. He has more than twenty-five years experience in management roles at
both medical device and pharmaceutical companies. From 1991 to 1995, Mr. Bailey
was the leader of the sales organization of Pharmacia Ophthalmics, Inc. Between
1989 and 1991, Mr. Bailey was the Vice President of Sales and Marketing for
Novoste, Inc. (NASDAQ) a start up cardiovascular company. Mr. Bailey was a
co-founder and Vice President of Sales and Marketing for Chiron Vision, Inc.,
which was acquired by Bausch & Lomb in 1997. Chiron Vision, now Bausch & Lomb
Surgical, is a leader in the manufacturing and sales of ophthalmic devices
worldwide. From 1980 to 1986 Mr. Bailey was the initial Vice President of Sales
and Marketing for Allergan Medical Optics, Inc.
Mr. Schreiber has served as Chief Operating Officer, Secretary and
Treasurer of VisiJet since February 2003, and was appointed to the Board of
Directors in September 2003. Prior to February 2003, Mr. Schreiber was an
executive officer and a member of the Board of Directors of Ponte Nossa
Acquisition Corporation, where he played an integral role in the merger between
Ponte Nossa and VisiJet that was finalized in February 2003. Prior to joining
Ponte Nossa in 2001, he founded Diversified International, a multilevel
marketing system, and served as Chief Executive Officer of Learn America, a
multimedia productions company combining advanced computer technology and
educational systems. Mr. Schreiber also served as President and a director of
Philibus Systems, a private educational system, and was President of Advanced
Nutritional Associates, which distributed health care products in the United
Kingdom and Europe. He has developed an independent sales distribution system
for Herbalife, and pioneered markets in the United Kingdom, Spain and Israel.
Mr. Krupp has over eighteen years of business experience with emerging
growth companies. He is currently a Managing Director and a member of the
Executive Committee of CS Technology, Inc, a New York based technology
consulting firm. Prior to joining CS Technology, Inc., Mr. Krupp spent ten years
in the real estate industry working for several organizations in development,
construction, and leasing. Mr. Krupp holds a B.A. from the University of
Michigan and an M.S. from New York University.
Mr. Schwartz has been a member of the board of directors since
February 2003, and has served as VisiJet's contract and legal coordinator since
March 2003. Mr. Schwartz has over thirty years of experience in providing legal
and financial advice to individuals and companies. He has acted as Chief
Financial Officer and president of several companies, both public and private,
including Acubid International, Ameritrust, and Farm Energy Corp. He served on
the Board of International Acuvision Systems, a public company that developed
and patented vision Training equipment. He is an active member of the Arizona
Bar Association. Mr. Schwartz graduated from Arizona State University, completed
his JD at the University Of Arizona, and received his LLM in taxation from New
York University.
Directors hold office until a successor is elected and qualified or
until their earlier resignation in the manner provided in the Bylaws.
28
Scientific Advisors
Richard Lindstrom, M.D. is the Chief Ophthalmic Consultant to VisiJet,
and is in charge of assisting and advising us in connection with product
development in the ophthalmic surgical arena. After serving as Clinical
Professor of Ophthalmology at the University of Minnesota from 1980 to 1990, Dr.
Lindstrom entered private practice and now directs an outpatient clinic adjacent
to the Phillips Eye Institute in Minneapolis. He conceptualized the Phillips Eye
Institute Center for Teaching and Research, a state-of-the-art ophthalmic
research and surgical skills education facility, where he currently serves as
Medical Director. Dr. Lindstrom plays an active role in the teaching program at
the Phillips Eye Institute and at the University of Minnesota Hospital. He also
serves as an Associate Director of the Minnesota Lions Eye Bank. Dr. Lindstrom
holds 27 patents in ophthalmology in intraocular lens implant technology,
corneal preservation, irrigation solutions, viscoelastic solutions, intracorneal
lenses, and associated surgical instruments. Dr. Lindstrom serves on the editing
board of a variety of medical journals, including Journal of Cataract and
Refractive Surgery, Ophthalmic Surgery, European Journal of Implant and
Refractive Surgery, Implants in Ophthalmology, Ocular Surgery News,
Ophthalmology Times, and Journal Review of Ophthalmology. He is Chief Medical
Advisor to Laser Vision Centers and Vision 21 Centers.
29
EXECUTIVE COMPENSATION
The following table summarizes the annual compensation paid to our
named executive officers during the three years ended December 31, 2003:
Long Term Compensation
----------------------------------
Annual Compensation Awards
-------------------------------------- ----------------------------------
Other Annual Securities
Salary Bonus Compensation Restricted Underlying All Other
Name and Principal Position Year ($) ($) ($) Stock Awards Options Compensation
------------------------------ ---------- ------------ --------- --------------- ----------------- ---------------- ---------------
Randal A. Bailey, 2003 165,000 - 6,800 - 200,000 62,500
President and Chief 2002 - - - - - -
Executive Officer (1)(2) 2001 - - - - - -
Laurence M. Schreiber, 2003 97,000 - 22,500 - 200,000 -
Chief Operating Officer, 2002 - - - - - -
Treasurer, Secretary (2) 2001 - - - - - -
Larry Hood, 2003 122,500 - - - 75,000 83,333
Director of Research and 2002 - - - - - -
Development, Chief Engineer 2001 - - - - - -
(1)(2)
-----------
(1) During 2003, VisiJet issued 164,319 shares of common stock, and issued a
two year promissory note in the amount of $150,000 to Mr. Bailey and
46,948 shares of common stock, and issued a one year promissory note in
the amount of $100,000 to Mr. Hood in satisfaction of an aggregate of
$700,000 of unpaid compensation accrued between 1999 and 2002. Amounts
noted as All Other Compensation represent respective payments made by
the Company pursuant to these promissory notes.
(2) Messrs. Bailey, Schreiber, and Hood became President and CEO, Chief
Operating Officer, Director. of Research & Development respectively, on
March 1, 2003 and earned consulting income from January to February
2003. Amounts noted as Other Annual Compensation represent respective
consulting fees paid in 2003 prior to March 1, 2003. Messrs. Bailey,
Schreiber and Hood did not receive any compensation from VisiJet in 2001
or 2002.
Stock Options
On November 10, 2003, the Board of Directors adopted the VisiJet, Inc.
2003 Stock Option Plan. The Option Plan provides for the grant of incentive and
non-qualified stock options to selected employees, the grant of non-qualified
options to selected consultants and to directors and advisory board members. The
Option Plan is administered by the Compensation Committee of the Board of
Directors and authorizes the grant of options for 3,000,000 shares. The
Compensation Committee determines the individual employees and consultants who
participate under the Plan, the terms and conditions of options, the option
price, the vesting schedule of options and other terms and conditions of the
options granted pursuant thereto.
As of October 15, 2004, a total of 1,145,000 options to purchase shares
of our common stock were outstanding pursuant to the 2003 Option Plan.
30
The following table summarizes information concerning stock options
granted to the named executive officers:
Percent of
Total
Number of options/SARs
Securities granted
underlying to Exercise
options/SARs employees or base
granted in fiscal price Expiration
Name (#) year ($/Sh) date
--------------------------------------------------------------------------------
Randal A. Bailey 200,000 17.17% $1.10 November 10, 2014
Laurence M. Schreiber 200,000 17.17% $1.10 November 10, 2014
No named executive officer exercised options in the fiscal year ended
December 31, 2003. The following table presents the number and values of
exercisable and unexercisable options as of December 31, 2003:
Number of
securities Value of
underlying unexercised in-
unexercised the-money
options/SARS at options/SARs at
FY-end (#) FY-end ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------------------------------------------
Randal A. Bailey 25,000/175,000 $6,000/$42,000
Laurence M. Schreiber 25,000/175,000 $6,000/$42,000
31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below lists the beneficial ownership of our common stock, as
of October 15, 2004, by each person known by us to be the beneficial owner of
more than 5% of our common stock, by each of our directors and officers, and by
all of our directors and officers as a group.
Name and Address of Number of Shares Percent
Beneficial Owner Beneficially Owned(1)(2) of Class
-------------------------------------------------------------------------------
Lance Doherty 4,585,758(3) 15.79%
9342 Jeronimo Road
Irvine, CA 92618
Financial Entrepreneurs, Inc. (4) 3,383,001(3) 11.86%
300 South 4th Street
Las Vegas, Nevada 89101
David E. Eisenberg Trust (5) 2,950,000(3) 9.85%
520 Madison, 38th Floor
New York, NY 10022
Taika Investments, Inc. (6) 2,400,000 8.50%
Calle Los Mangos C/Alameda
Edificio Los Mangos PB
OFC 1 y 2
La Campina
Caracas 1030
Venezuela
Lewis Family Interest, LP (7) 1,950,000(3) 6.73%
520 Madison, 38th Floor
New York, NY 10022
Randal A. Bailey ** 475,213(3) 1.68%
192 Technology, Suite Q
Irvine, CA 92618
Richard H. Keates, M.D.** 400,000(3) 1.40%
20 Sutton Place South
New York, NY 10022
Laurence Schreiber** 208,334(3) *
192 Technology, Suite Q
Irvine, CA 92618
Norman Schwartz** 97,766(3) *
192 Technology, Suite Q
Irvine, CA 92618
Adam Krupp** 25,000(3) *
535 Eighth Avenue, 14th Floor
New York, NY 10018
All directors and executive
officers as a group (5 persons) 1,206,313(3) 4.18%
32
---------
* Denotes less than one percent.
** Denotes Member of the Board of Directors.
(1) Except as set forth, the persons named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
(2) Applicable percentage of ownership is based on 28,231,091 shares outstanding
as of October 15, 2004, together with applicable warrants and options for such
stockholder. Beneficial ownership is determined in accordance with the rules of
the SEC and includes voting and investment power with respect to shares. Shares
subject to options or warrants currently exercisable or exercisable within 60
days after October 15, 2004 are included in the number of shares beneficially
owned and are deemed outstanding for purposes of computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage of any other stockholder.
(3) Includes shares issuable upon exercise of currently exercisable options or
warrants.
(4) Controlled by Norton Cooper
(5) Controlled by David E. Eisenberg
(6) Controlled by Carlos Fernandez
(7) Controlled by Peter C. Lewis
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2002, VisiJet issued a promissory note for $345,000 to
Financial Entrepreneurs Incorporated ("FEI"), one of our principal stockholders.
In February of 2003, in connection with the merger, FEI converted the promissory
note held by it, plus accrued interest, into 378,997 shares of Common Stock at a
conversion rate of $1.00 per share. Also in February 2003, under an agreement
entered into in connection with the merger, we agreed to assume a promissory
note originally issued to FEI by PNAC prior to the merger in the amount of
$193,163. As of June 30, 2004 the outstanding principal amount was $265,990 and
accrued interest was $39,752.
In February of 2003, VisiJet issued 164,319 shares of Common Stock to
Randal A. Bailey, its President and Chief Executive Officer, in cancellation of
$350,000 of unpaid salary. VisiJet also issued Bailey a two year promissory note
for $150,000 in satisfaction of unpaid salary. The note bears interest at a rate
of 3.5% per annum, and calls for twenty-four equal monthly installments. At June
30, 2004, the unpaid principal and accrued interest payable on the note were
$70,000 and $5,596, respectively.
In February of 2003, pursuant to an agreement entered into in
connection with the merger between Ponte Nossa Acquisition Corp. and VisiJet,
FEI cancelled 7,957,000 shares of VisiJet Common Stock owned by it, and VisiJet
issued FEI a five year warrant to purchase 1,543,000 shares of Common Stock at
an exercise price of $5.00 per share.
33
During 2003, and through June 30, 2004, the Company paid finders fees
totaling $52,500 and $15,000, respectively, to FEI in connection with amounts
raised through private equity placements by the Company. In addition during
2003, the Company recorded consulting expenses totaling $75,000 to FEI, that
were added to an outstanding note payable with the corporation, and reimbursed
the corporation for travel expenses related to business of the Company totaling
$19,279.
In February 2003, the Company issued five-year warrants to purchase
25,000 shares of its Common Stock at an exercise price of $3.00 per share, to
Laurence Schreiber, a director and officer of the Company, pursuant to an
agreement entered into in connection with the merger.
In March of 2003, we began making consulting payments of $2,500 per
month to M & N Consulting, a corporation owned by Norman Schwartz, a director of
VisiJet, for consulting services provided by Mr. Schwartz. In June of 2003, the
payments were increased to $5,000 per month. Through December 31, 2003
consulting fees and related expenses totaling $41,250 and $2,604, respectively,
were expensed pursuant to this arrangement, of which $2,500 is included in
accounts payable at
December 31, 2003. During the six months ended June 30, 2004 the Company
recorded, and paid $30,000 in consulting fees pursuant to this agreement. In
addition, in September 2003, VisiJet issued 150,000 shares of Common Stock to M
& N Consulting for services provided by Mr. Schwartz in connection with the
finalization of the merger with Ponte Nossa. In connection with the issuance of
these shares, VisiJet recorded consulting expenses of $225,000, based on the
fair market value of the common stock at the date of issuance. Subsequent to the
issuance of these shares, beneficial ownership with respect to 100,000 shares
was transferred by M & N Consulting to Laurence Schreiber, Secretary/Chief
Financial Officer and a Director.
In February of 2003, VisiJet entered into a consulting agreement with
Richard H. Keates, M.D., a director. Pursuant to this agreement, Dr. Keates
receives a monthly retainer of $5,000 per month plus a fee of $1,500 per day for
consulting work performed. Through December 31, 2003 consulting fees and related
expenses totaling $118,000 and $24,581, respectively, were recorded pursuant to
this agreement, of which $14,721 is included in accounts payable at December 31,
2003. In January 2004, the agreement was modified to provide for a Monthly
retainer of $15,000, and to eliminate the per diem rate. During the six months
ended June 30, 2004 the Company recorded $90,000 of consulting fees in
connection with this agreement. As of June 30, 2004, $85,104 related to this
agreement was included in accounts payable at June 30, 2004.
In February 2003, the Company paid consulting fees in the amount of
$110,000 to a corporation controlled by Peter Lewis and David Eisenberg, two
shareholders, each of whom own beneficially in excess of 5% of the outstanding
shares of common stock of the Company, related to services provided in
connection with the finalization of the Merger Agreement. In April 2003, the
Company entered into a consulting agreement with this corporation pursuant to
which, the Corporation is entitled to receive a monthly fee of $15,000, provided
however that payment of accrued fees is not payable by the Company until such
time as the Company has a minimum cash balance of $2.5 million. During 2003, and
for the three months ended March 31, 2004 a total of $135,000 and $45,000,
respectively, in fees have been expensed and accrued pursuant to this agreement.
During 2003, the Company recorded finders fee expenses totaling $30,000 for
amounts earned by Peter Lewis and the corporation, in connection with private
equity placements by the Company. Of the total finders fees earned, $15,000 was
paid during 2003, and $15,000 is included in accrued expenses at December 31,
2003 and June 30, 2004.
In July 2003, Richard H. Keates, M.D., a director, purchased 100,000
shares of the Company's common stock in a private placement of equity securities
for $100,000. In connection with this investment, Dr. Keates also received
100,000 5-year warrants to purchase common stock at an exercise price of $2.25.
34
In November 2003, directors Richard H. Keates, M.D., Norman Schwartz
and Adam Krupp were granted 200,000, 75,000 and 25,000 10-year options,
respectively, to purchase shares of the company's common stock at an exercise
price of $1.10.
In April 2004, the Company and FEI entered into an agreement pursuant
to which FEI loaned the Company shares owned by FEI, for use by the Company as
collateral in subsequent financing transactions. In return, the Company agreed
to reduce the exercise price of 1,543,000 warrants previously issued to FEI from
$5.00 per share to $1.00 per share. In connection with the warrant re-pricing
the Company recorded a non-cash expense of $546,403 during the second quarter
based on a Black-Scholes model valuation. As of June 30, 2004 all shares
borrowed by the Company from the corporation pursuant to this agreement had been
returned to the corporation.
In April 2004, the Company and Taika Investment, Inc. a corporation
that beneficially owns in excess of 5% of the outstanding shares of Common Stock
of the Company, entered into an agreement pursuant to which Taika agreed to make
available 3 million shares of the Company's common stock, for use by the Company
in subsequent financing transactions. In accordance with the terms of this
agreement, the Company is obligated to pay interest on the value of shares
borrowed (assuming a value of $1.00 per share) based on the LIBOR rate plus 50
basis points, and must return the borrowed shares by November 30, 2004. In the
event of default, the Company has agreed to file a Registration Statement and to
return any shares, within 72 hours, that had not previously been returned by the
due date. As of June 30, 2004 the Company had borrowed a total of 1,550,000
shares pursuant to this agreement, and the Company had accrued interest expense
totaling $9,515.
In May 2004 the Company received a working capital advance in the
amount of $200,000 from an individual related to the controlling stockholder of
FEI, and in June 2004, the advance was repaid.
DESCRIPTION OF SECURITIES
The following summary is a description of our common stock and certain
provisions of our Certificate of Incorporation, Bylaws and Delaware law.
GENERAL
Our authorized capital consists of 50,000,000 shares of common stock,
par value $.001 per share and 10,000,000 shares of preferred stock, par value
$.001 per share. In July 2004, our board of directors approved an increase in
the number of authorized shares of Common Stock to 100,000,000. The increase has
been approved by a majority of shareholders of record as of August 31, 2004, and
the increase is expected to be effective upon filing of an amendment to our
Certificate of Incorporation with the Delaware Secretary of State, anticipated
to be approximately twenty-one days after an Information Statement describing
the transaction has been distributed to our stockholders.
Common Stock
As of October 15, 2004, we had 28,231,091 shares of Common Stock
outstanding. Each share is entitled to one vote at all meetings of our
stockholders. All shares of our common stock are equal to each other with
respect to liquidation rights and dividend rights. There are no preemptive
rights to purchase any additional shares of our common stock. In the event of
our liquidation, dissolution or winding up, holders of our common stock will be
entitled to receive, on a pro rata basis, all of our assets remaining after
satisfaction of all liabilities and preferences of outstanding preferred stock,
if any. Neither our Certificate of Incorporation nor our Bylaws contain any
provisions which limit or restrict the ability of another person to take over
our company.
35
Preferred Stock
SERIES A CONVERTIBLE PREFERRED
As of October 15, 2004, we had 450,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock")outstanding. The Preferred Stock was
issued with an aggregate stated value of $4,500,000 and is nonvoting, except as
required by Delaware law. The holders of the Series A Preferred Stock are not
entitled to receive any dividends, and the Series A Preferred Stock is
convertible, at any time at the holder's option, for a period of three years
from the date of issuance, into shares of our Common Stock. The number of shares
of Common Stock to be issued upon conversion is determined by dividing the
stated value being converted by the conversion price then in effect. The
conversion price of the Series A Preferred Stock is the lower of (i) $0.609 per
share and (ii) eighty percent of the lowest closing bid price of the Common
Stock in the ten trading days preceding the date of conversion, but in no event
less than $.18 per share. The conversion price is subject to further adjustment
based on anti-dilution provisions. Any shares not previously converted are
automatically converted at the expiration of the three year period
OPTIONS AND WARRANTS
As of October 15, 2004, we had outstanding options to purchase an
aggregate of 1,145,000 shares of our Common Stock pursuant to our 2003 Stock
Option Plan, at a weighted-average exercise price of $1.10 per share. These
options are held by directors, officers, key employees and consultants. As of
October 15, 2004, options to purchase 370,000 shares were exercisable.
As of October 15, 2004 we also have outstanding warrants to purchase
18,749,146 shares of our Common Stock, with a weighted-average exercise price of
$1.57 per share.
TRANSFER AGENT
The transfer agent for our common stock is Nevada Agency and Trust
Company, Reno, Nevada.
SHARES ELIGIBLE FOR RESALE
Future sales of a substantial number of shares of our common stock in
the public market could adversely affect market prices prevailing from time to
time. Under the terms of this offering, the shares of common stock offered may
be resold without restriction or further registration under the Securities Act
of 1933, except that any shares purchased by our "affiliates," as that term is
defined under the Securities Act, may generally only be sold in compliance with
Rule 144 under the Securities Act.
Certain shares of our outstanding common stock were issued and sold by
us in private transactions in reliance upon exemptions from registration under
the Securities Act and have not been registered for resale. Additional shares
may be issued pursuant to outstanding warrants and options. Such shares may be
sold only pursuant to an effective registration statement filed by us or an
applicable exemption, including the exemption contained in Rule 144 promulgated
under the Securities Act.
36
In general, under Rule 144 as currently in effect, a stockholder,
including one of our affiliates, may sell shares of common stock after at least
one year has elapsed since such shares were acquired from us or our affiliate.
The number of shares of common stock which may be sold within any three-month
period is limited to the greater of: (i) one percent of our then outstanding
common stock, or (ii) the average weekly trading volume in our common stock
during the four calendar weeks preceding the date on which notice of such sale
was filed under Rule 144. Certain other requirements of Rule 144 concerning
availability of public information, manner of sale and notice of sale must also
be satisfied. In addition, a stockholder who is not our affiliate, who has not
been our affiliate for 90 days prior to the sale, and who has beneficially owned
shares acquired from us or our affiliate for over two years may resell the
shares of common stock without compliance with many of the foregoing
requirements under Rule 144.
SELLING STOCKHOLDERS
The shares are being offered by certain selling stockholders. To our
knowledge, none of the selling shareholders are broker-dealers, or affiliates of
broker-dealers. The selling stockholders may offer and sell up to 27,205,614
shares now owned by them or issuable to them upon the exercise of warrants and
conversion of debt.
The selling stockholders may from time to time offer and sell any or
all of the shares that are registered under this prospectus. Because the selling
stockholders are not obligated to sell their shares, and because the selling
stockholders may also acquire publicly traded shares of our common stock, we
cannot estimate how many shares the selling stockholders will own after the
offering.
All expenses incurred with respect to the registration of the shares
will be borne by us, but we will not be obligated to pay any underwriting fees,
discounts, commissions or other expenses incurred by the selling stockholders in
connection with the sale of their shares.
The following table sets forth, with respect to the selling
stockholders (i) the number of shares of common stock beneficially owned as of
October 15, 2004 and prior to the offering contemplated hereby, (ii) the maximum
number of shares of common stock which may be sold by the selling stockholder
under this prospectus, and (iii) the number of shares of common stock which will
be owned after the offering by the selling stockholder:
Prior to Offering After Offering (1)
----------------------- -----------------------
Name Shares Percent Offered Shares Percent
------------------------- ------ ------- ------- ------ -------
Libertyview Special Opportunities
Fund, LP (2) 5,965,689 17.45 % 5,965,689 - 0.00%
Bushido Capital Master Fund LP (3) 3,099,549 9.89% 3,099,549 - 0.00%
Bridges & Pipes LLC (4) 2,742,681 8.85% 2,742,681 - 0.00%
Stan Chessed 1,407,000 4.86% 1,407,000 - 0.00%
Gamma Opportunity Capital
Partners (5) 1,352,632 4.57% 1,352,632 - 0.00%
639604 Ontario Limited(6) 1,250,000 4.24% 1,250,000 - 0.00%
Wyatt Landesmann 965,000 3.35% 965,000 - 0.00%
Mallos Living Trust(7) 900,000 3.14% 900,000 - 0.00%
Platinum Long Term Growth (8) 733,332 2.53% 733,332 - 0.00%
HIT Credit Union (9) 500,000 1.74% 500,000 - 0.00%
37
Prior to Offering After Offering (1)
----------------------- -----------------------
Name Shares Percent Offered Shares Percent
------------------------- ------ ------- ------- ------ -------
Little Gem Life Sciences
Fund, LLC (10) 450,877 1.57% 450,877 - 0.00%
Ronald P. Russo, Jr. 449,286 1.57% 449,286 - 0.00%
Fridolin Fackelmayer 400,000 1.41% 400,000 - 0.00%
Marshalarts, LLC (11) 400,000 1.41% 400,000 - 0.00%
Cethron Property Management Inc.(12) 350,000 1.23% 350,000 - 0.00%
Rock II, LLC (13) 333,334 1.17% 333,334 - 0.00%
Brandon D. Cohen 220,000 0.78% 220,000 - 0.00%
Transcontinental Financial
Resources(14) 200,000 0.71% 200,000 - 0.00%
Wachovia Securities C/F Charles
Pierce IRA(15) 200,000 0.71% 200,000 - 0.00%
Elizabeth Wheeler 200,000 0.71% 200,000 - 0.00%
Mark Wheeler 200,000 0.71% 200,000 - 0.00%
Mark M. Wheeler IRA 200,000 0.71% 200,000 - 0.00%
Zorina Bennett 200,000 0.71% 200,000 - 0.00%
Charles E. Blair 200,000 0.71% 200,000 - 0.00%
John P. Dempsey 200,000 0.71% 200,000 - 0.00%
Stephen & Kathleen Guarino 187,500 0.66% 187,500 - 0.00%
Sattinwood Inc.(16) 160,000 0.57% 160,000 - 0.00%
Westcap Securities(17) 150,000 0.53% 150,000 - 0.00%
Shipman & Goodwin LLP Profit
Sharing Plan FBO James T. Betts(18) 100,000 0.35% 100,000 - 0.00%
James T. Betts, Trustee U/A T.J.
and H.M. Betts Dated May 26, 1983(18) 100,000 0.35% 100,000 - 0.00%
Roman Feldman & Irina Krym, JTTEN 100,000 0.35% 100,000 - 0.00%
One Six Partners(19) 100,000 0.35% 100,000 - 0.00%
Goren Brothers LP(20) 100,000 0.35% 100,000 - 0.00%
Alan Gray 100,000 0.35% 100,000 - 0.00%
J. Charles Pierce 100,000 0.35% 100,000 - 0.00%
Olen C. Wilson 100,000 0.35% 100,000 - 0.00%
38
Prior to Offering After Offering (1)
----------------------- -----------------------
Name Shares Percent Offered Shares Percent
------------------------- ------ ------- ------- ------ -------
Richard L. Tuch 100,000 0.35% 100,000 - 0.00%
Richard Payne & Sherry Payne 100,000 0.35% 100,000 - 0.00%
Jon Bolker 100,000 0.35% 100,000 - 0.00%
Porter Family Trust(21) 100,000 0.35% 100,000 - 0.00%
Brooke Niemi 100,000 0.35% 100,000 - 0.00%
Douglas G. May 100,000 0.35% 100,000 - 0.00%
James V. May 100,000 0.35% 100,000 - 0.00%
Capital Investment Services, Inc.(22) 100,000 0.35% 100,000 - 0.00%
Edge Trading, LLC(23) 100,000 0.35% 100,000 - 0.00%
US Euro Securities, Inc. (24) 79,286 0.28% 79,286 - 0.00%
Martin A. Benowitz 75,000 0.27% 75,000 - 0.00%
N.J. Olivieri 75,000 0.27% 75,000 - 0.00%
Smedly Hendrickson 70,000 0.25% 70,000 - 0.00%
Ascendiant Capital Group, LLC(25) 60,000 0.21% 60,000 - 0.00%
Zach Alcyone & Anne Alcyone 50,000 0.18% 50,000 - 0.00%
Felix Aronsky 50,000 0.18% 50,000 - 0.00%
Daniela Brabner-Smith 50,000 0.18% 50,000 - 0.00%
Robert M. Campbell Jr. 50,000 0.18% 50,000 - 0.00%
Hoa Le Duong 50,000 0.18% 50,000 - 0.00%
Vallery Dubovikov 50,000 0.18% 50,000 - 0.00%
Steven Efman 50,000 0.18% 50,000 - 0.00%
Fred Efman 50,000 0.18% 50,000 - 0.00%
Marvin Schwartz 50,000 0.18% 50,000 - 0.00%
Vladamir Lieberman 50,000 0.18% 50,000 - 0.00%
Richard Monka 50,000 0.18% 50,000 - 0.00%
Mikhail Nemets 50,000 0.18% 50,000 - 0.00%
Alexander Onik 50,000 0.18% 50,000 - 0.00%
Roslyn Pinkus and Frank Pinkus 50,000 0.18% 50,000 - 0.00%
Van S. Bohne 50,000 0.18% 50,000 - 0.00%
Michael Bergman 50,000 0.18% 50,000 - 0.00%
Michael Hamblett 50,000 0.18% 50,000 - 0.00%
Larry L. Hood(26) 246,948 0.87% 46,948 200,000 0.71%
Michael Cimaron 45,000 0.16% 45,000 - 0.00%
Stuart Russo 37,500 0.13% 37,500 - 0.00%
39
Prior to Offering After Offering (1)
----------------------- -----------------------
Name Shares Percent Offered Shares Percent
------------------------- ------ ------- ------- ------ -------
George Haralanpoudis 37,500 0.13% 37,500 - 0.00%
SBI USA, LLC(9) 37,500 0.13% 37,500 - 0.00%
Phoenix Capital, Inc.(27) 37,500 0.13% 37,500 - 0.00%
Timothy Roberts 37,500 0.13% 37,500 - 0.00%
Jay Standish 30,000 0.11% 30,000 - 0.00%
Alan Stone & Co., Ltd.(28) 27,000 0.10% 27,000 - 0.00%
Thomas DeMele 25,000 0.09% 25,000 - 0.00%
Robert F. Kull 25,000 0.09% 25,000 - 0.00%
Ranchers Management Service Inc.
Profit Sharing Plan(29) 25,000 0.9% 25,000 - 0.00%
Starboard Capital (30) 25,000 0.09% 25,000 - 0.00%
Anthony Spatacco 25,000 0.09% 25,000 - 0.00%
David Bench 20,000 0.07% 20,000 - 0.00%
Asher & Danielle Weinfeld, JTTEN 19,200 0.07% 19,200 - 0.00%
Kenneth D. & Ethne S. Katz, JTTEN 16,000 0.06% 16,000 - 0.00%
Mordechai & Melanie Smith, JTTEN 16,000 0.06% 16,000 - 0.00%
Hershel & Lara Goulson, JTTEN 16,000 0.06% 16,000 - 0.00%
Simon & Eva Weinfeld, JTTEN 12,800 0.05% 12,800 - 0.00%
Rand Brenner 9,000 0.03% 9,000 - 0.00%
Tafkid, LLC (31) 9,000 0.03% 9,000 - 0.00%
----------
(1) For purposes of this table, we have assumed that the Selling Stockholders
will sell in this offering all shares offered.
(2) Controlled by Ryan Hay
(3) Controlled by Louis Rabman
(4) Controlled by David Fuchs
(5) Controlled by Jonathon P. Knight
(6) Controlled by Melvyn Solmon
(7) Controlled by C. Thomas Mallos and Barbara K. Mallos, trustees.
(8) Controlled by Mark Nordlitch
(9) Controlled by Shelly Singhal
(10)Controlled by Jeffrey Benison
(11)Controlled by Dana Marshall Cook
(12)Controlled by Robert I. Adatto
(13)Controlled by Mike Grady
(14)Controlled by Kenneth Rubinstein
(15)Controlled by Charles Pierce
(16)Controlled by Yosef Ram
(17)Controlled by Thomas Rubin
(18)Controlled by James T. Betts
(19)Controlled by Robert Gopen
(20)Controlled by James G. Goren and Alexander M. Goren
(21)Controlled by Sanford Porter, trustee
(22)Controlled by Robert J. Escobio
(23)Controlled by Chris Dillow
(24)Controlled by Ronald P. Russo, Jr.
(254)Controlled by Bradley J. Wilhite(26)Mr. Hood is VisiJet's Chief Engineer.
(27)Controlled by Roger Tischenor
(28)Controlled by Alan Stone
(29)Controlled by Robert L. Kull
(30)Controlled by Anthony Spatacco
(31)Controlled by Antony Gordon
40
PLAN OF DISTRIBUTION
GENERAL
Shares of common stock offered through this prospectus may be sold from
time to time directly by the selling stockholders or, alternatively, through
underwriters, broker-dealers or agents. If the shares are sold through
underwriters, broker-dealers or agents, the selling stockholders will be
responsible for underwriting discounts or commissions or agents' commissions.
Shares may be sold in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. Sales may be effected in transactions (which may
involve block transactions) (i) in the over-the-counter market, (ii) on any
securities exchange or quotation service on which the shares may be listed or
quoted at the time of sale, (iii) in transactions otherwise than in the
over-the- counter market or on such exchanges or services, or (iv) through the
writing of options. In connection with sales of shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the shares in the course of hedging positions
they assume. The selling stockholders may also sell our common stock short and
deliver shares to close out short positions, or loan or pledge shares to
broker-dealers that in turn may sell such securities.
The selling stockholders will act independently from us in making decisions
with respect to the manner, timing, price and size of each sale. The selling
stockholders may sell the shares in any manner permitted by law, including one
or more of the following:
* a block trade in which a broker-dealer engaged by a selling
stockholder will attempt to sell the Shares as agent, but may position
and resell a portion of the block as principal to facilitate the
transaction;
* purchases by a broker-dealer as principal and resale by such
broker-dealer for its account under this prospectus;
* an over-the-counter distribution in accordance with the rules of the
OTC Bulletin Board;
* ordinary brokerage transactions in which the broker solicits
purchasers; and
* privately negotiated transactions.
In the event that the sale of any shares covered by this prospectus
qualifies for an exemption from the registration requirements of the Securities
Act, such shares may be sold pursuant to that exemption rather than pursuant to
this prospectus.
USE OF UNDERWRITERS, BROKERS, DEALERS OR AGENTS
If the selling stockholders effect sales of shares through underwriters,
brokers, dealers or agents, such underwriters, brokers, dealers or agents may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders or commissions from purchasers of common stock for whom
they may act as agent (which discounts, concessions or commissions as to
41
particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). Any brokers, dealers or agents
that participate in the distribution of the shares may be deemed to be
underwriters, and any profit on the sale of common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
If a selling stockholder sells shares through an underwriter, broker,
dealer or agent, it may agree to indemnify such underwriter, broker, dealer or
agent against certain liabilities arising from such sale, including liabilities
arising under the Securities Act. We have been informed by SBI and Trilogy that
there are no existing arrangements between them and any underwriter, broker,
dealer or agent relating to the distribution of the shares.
PENNY STOCK RULE
THE "PENNY STOCK RULE" COULD MAKE IT DIFFICULT FOR BROKERS AND DEALERS TO TRADE
IN OUR STOCK, WHICH COULD CAUSE THE MARKET FOR OUR STOCK TO BE LESS LIQUID,
WHICH COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE.
Trading of our common stock on the OTC Bulletin Board may be subject to
certain provisions of the Securities Exchange Act of 1934, commonly referred to
as the "penny stock" rule. A penny stock is generally defined to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. If our stock is deemed to be a penny stock, trading in our stock
will be subject to additional sales practice requirements on broker-dealers.
These may require a broker dealer to:
* make a special suitability determination for purchasers of our
shares;
* receive the purchaser's written consent to the transaction prior
to the purchase; and
* deliver to a prospective purchaser of our stock, prior to the first
transaction, a risk disclosure document relating to the penny stock
market.
Consequently, penny stock rules may restrict the ability of broker- dealers
to trade and/or maintain a market in our common stock. Also, prospective
investors may not want to get involved with the additional administrative
requirements, which may have a material adverse effect on the trading of our
shares.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Haddan & Zepfel LLP, Newport Beach, California.
EXPERTS
The financial statements of VisiJet as of and for the years ended December
31, 2003 and 2002, appearing in this prospectus have been audited by Peterson &
Co., LLP, Certified Public Accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
42
WHERE YOU CAN FIND ADDITIONAL INFORMATION
VisiJet files current, quarterly and annual reports with the SEC on forms
8-K, 10-QSB and 10-KSB. VisiJet has filed with the SEC under the Securities Act
of 1933 a registration statement on Form SB-2 with respect to the shares being
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement, certain items of which are
omitted in accordance with the rules and regulations of the SEC. The omitted
information may be inspected and copied at the Public Reference Room maintained
by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
You can obtain information about operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at HTTP://WWW.SEC.GOV.
Copies of such material can be obtained from the public reference section of the
SEC at prescribed rates. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete and in each instance
reference is made to the copy of the document filed as an exhibit to the
registration statement, each statement made in this prospectus relating to such
documents being qualified in all respect by such reference.
For further information with respect to VisiJet and the securities being
offered hereby, reference is hereby made to the registration statement,
including the exhibits thereto and the financial statements, notes, and
schedules filed as a part thereof.
43
VISIJET, INC.
(A Development Stage Company)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
AND
UNAUDITED CONSOLIDATED FINACIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004
INDEX
-----
Page
----
Independent Auditor's Report 45
Balance Sheets, December 31, 2003 and 2002 46
Statements of Operations for the years ended December 31, 2003 and
2002 and for the period February 2, 1996 (inception) to
December 31, 2003 47
Statements of Changes in Stockholders' Deficit, February 2, 1996
(inception) to December 31, 2003 48
Statements of Cash Flows for the years ended December 31, 2003
and 2002 and for the period February 2, 1996 (inception) to
December 31, 2003 49
Notes to Financial Statements, December 31, 2003 50
Balance Sheets, June 30, 2004 (unaudited) and December 31, 2003 67
Unaudited Statements of Operations for the Three and Six Months
Ended June 30, 2004 and 2003 68
Unaudited Statements of Cash Flows for the Three and Six Months
Ended June 30, 2004, and for the period February 2, 1996
(inception) to June 30, 2004 69
Notes to Unaudited Financial Statements 70
44
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
VISIJET, INC.
(A Development Stage Company)
Irvine, California
We have audited the accompanying balance sheets of VisiJet, Inc. (A Development
Stage Company) as of December 31, 2003 and 2002, and the related statements of
operations, shareholders' equity (deficit), and cash flows for the years then
ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 Visijet, Inc. (A Development
Stage Company) as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for the years then ended and for the period from
February 2, 1996 (inception) to December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, Visijet, Inc. (A Development
Stage Company) has reported accumulated losses during the development stage
aggregating $10,776,219 and without additional financing, lacks sufficient
working capital to fund operations beyond March 2004, which raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
Peterson & Co., LLP
March 26, 2004 (except for Note 14 for which
the date is April 14, 2004)
45
VisiJet, Inc.
(A development stage company)
Balance Sheets
December 31,
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 35,879 $ 960
Prepaid expenses 88,749 --
------------- -------------
Total current assets 124,628 960
Property and equipment, net 104,440 47,443
Patents and trademarks, net 97,244 --
------------- -------------
Total assets $ 326,312 $ 48,403
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable $ 679,885 $ 196,985
Compensation settlement agreement - current portion 86,708 595,833
Accrued interest 109,232 160,837
Accrued expenses 481,106 130,469
Royalty payable 60,000 60,000
Notes payable to related parties 681,442 1,543,843
Notes payable - current portion 14,000 --
------------- -------------
Total current liabilities 2,112,373 2,687,967
Compensation settlement agreement, net of current portion 17,458 104,167
Notes payable to related parties, net of current portion 87,144 --
------------- -------------
Total liabilities 2,216,975 2,792,134
------------- -------------
Shareholders' deficit:
Common stock, no par value; no shares authorized or issued at December 31,
2003, and 10,000,000 shares authorized;
7,997,735 shares issued and outstanding at December 31, 2002, -- 615,248
Common stock, 50,000,000 shares authorized, $.001 par value,
21,691,163 shares issued and outstanding at December 31, 2003, and
no shares authorized or issued at December 31, 2002 21,691 --
Preferred stock, 10,000,000 shares authorized, $.001 par value,
no shares outstanding at December 31, 2003 and no shares authorized
or issued at December 31, 2002 -- --
Preferred stock, no par value; 5,000,000 shares authorized;
no shares outstanding at December 31, 2003
140,306 Series A shares issued and outstanding at December 31,2002, -- 550,000
no shares outstanding at December 31, 2003
636,364 Series B shares authorized; 363,946 shares issued and
outstanding at December 31, 2002, -- 1,908,088
Additional paid in capital 7,845,365
Common stock subscriptions 1,018,500 --
Deficit accumulated during development stage (10,776,219) (5,817,067)
------------- -------------
Shareholders' deficit (1,890,663) (2,743,731)
------------- -------------
Total liabilities and shareholders' deficit $ 326,312 $ 48,403
============= =============
The accompanying notes are an integral part of these financial statements
46
Visijet, Inc.
(A development stage company)
Statements of Operations
For the period
Twelve months ended December 31, February 2, 1996
(inception) to
2003 2002 Dec 31, 2003
------------- ------------- -------------
Operating expenses:
General and administrative expenses $ 3,736,604 $ 751,717 $ 5,568,736
Research and development expenses 1,256,259 294,736 4,858,009
------------- ------------- -------------
Total operating expenses 4,992,863 1,046,453 10,426,745
------------- ------------- -------------
Loss from operations (4,992,863) (1,046,453) (10,426,745)
Other income (expense):
Interest income 455 455
Interest expense (56,247) (131,319) (364,245)
Gain on debt restructure 90,303 90,303
Loss on judgment (21,483)
Loss on disposal of assets (48,104) (48,104)
------------- ------------- -------------
Total other expense 34,511 (179,423) (343,074)
------------- ------------- -------------
Loss before provision for taxes (4,958,352) (1,225,876) (10,769,819)
Provision for Income taxes 800 800 6,400
------------- ------------- -------------
Net loss $ (4,959,152) $ (1,226,676) $(10,776,219)
============= ============= =============
Net loss per common share - basic and diluted $ (0.27) $ (0.16) $ (2.01)
============= ============= =============
Basic and diluted weighted average
number of common shares outstanding 18,606,352 7,811,809 5,351,763
============= ============= =============
The accompanying notes are an integral part of these financial statements
47
Visijet, Inc.
(A development stage company)
Statement of Shareholders' Equity
Deficit
Accumulated Net
Common Stock Preferred Stock Common Additional during the Shareholders'
----------------------- ----------------------- Stock Paid In Development Equity
Shares Amount Shares Amount Subscription Capital Stage (Deficit)
----------- ----------- ---------- ------------ ------------- ------------- ------------- -------------
Balance,
December 31, 2002 7,997,735 $ 615,248 504,252 $ 2,458,088 -- -- $ (5,817,067) $ (2,743,731)
=========== =========== ========== ============ ============= ============= ============= =============
Common stock issued
for consideration
of merger, net of
shares cancelled 6,084,000 6,084 -- -- -- $ 8,058 -- 14,142
Common stock issued
in connection with
private placement
and debt conversion 3,528,481 3,528 -- -- -- 1,130,152 -- 1,133,680
Common stock issued
upon conversion of
preferred shares 826,530 (606,424) (504,252) (2,458,088) -- 3,064,512 -- --
Common stock issued in
connection with debt
conversion 378,997 379 -- -- -- 378,618 -- 378,997
Common stock issued in
connection with
settlement agreements 211,267 211 -- -- -- 449,789 -- 450,000
Common stock issued for
services 60,069 60 -- -- -- 1,141 -- 1,201
Common stock canceled (204,409) (204) -- -- -- 204 -- --
Common stock issued
in connection with
post-merger placements 2,712,500 2,713 -- -- -- 2,689,777 -- 2,692,490
Costs of private
placements -- -- -- -- -- (228,700) -- (228,700)
Common stock given
for services 150,000 150 -- -- -- 224,850 -- 225,000
Common stock
subscriptions -- -- -- -- $ 1,018,500 -- -- 1,018,500
Merger shares
reconciliation (54,007) (54) -- -- -- 54 -- --
Warrants issued
for services -- -- -- -- -- 33,483 -- 33,483
Options issued
for services -- -- -- -- -- 93,427 -- 93,427
Net Loss -- -- -- -- -- -- (4,959,152) (4,959,152)
----------- ----------- ---------- ------------ ------------- ------------- ------------- -------------
Balance,
December 31, 2003 21,691,163 $ 21,691 -- -- $ 1,018,500 $ 7,845,365 $(10,776,219) $ (1,890,663)
=========== =========== ========== ============ ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
48
Visijet, Inc.
(A development stage company)
Statements of Cash Flows
For the period
February 2, 1996
Twelve months ended December 31, (inception) to
2003 2002 December 31, 2003
------------- ------------- -------------
Cash flows from operating activities
Net loss $ (4,959,152) $ (1,226,676) $(10,776,219)
Adjustment to reconcile net loss to net
cash used by operating activities:
Depreciation 23,949 13,627 312,311
Loss from disposal of fixed assets -- 48,104 48,104
Common stock issued for services 353,111 6,487 455,468
Gain from Debt Restructure (90,303) -- (90,303)
Changes in assets and liabilities: -- --
Prepaid expenses (88,749) -- (88,749)
Accounts payable and other accrued expenses 482,900 (33,172) 679,885
Compensation settlement agreement (145,834) 291,651 104,166
Royalties payable -- 60,000 60,000
Foreign exchange effect on notes payable 3,121 -- 3,121
Accrued fees 180,848 -- 181,648
Accrued paid time off 55,191 -- 55,191
Accrued judgment 39,598 -- 169,267
Accrued patent payable 75,000 -- 75,000
Accrued interest 40,044 42,389 200,881
------------- ------------- -------------
Net cash used by operating activities (4,030,276) (797,590) (8,610,229)
------------- ------------- -------------
Cash flows from investing activities
Acquisition of property and equipment (78,190) (4,633) (462,099)
Acquisition of patents (100,000) -- (100,000)
------------- ------------- -------------
Net cash used in investing activities (178,190) (4,633) (562,099)
------------- ------------- -------------
Cash flows from financing activities
Advance from related party 337,543 830,665 1,908,868
Repayment of advances from related parties (185,138) (27,482) (212,620)
Repayment of notes payable (20,000) -- (20,000)
Proceeds from issuance of common stock, net 3,027,790 -- 3,990,681
Proceeds from common stock subscriptions 1,018,500 -- 1,018,500
Proceeds from issuance and conversion of preferred stock, net -- -- 2,458,088
Cash acquired in reverse merger 30,693 -- 30,693
Interest converted to equity in connection with merger 33,997 -- 33,997
------------- ------------- -------------
Net cash provided by financing activities 4,243,385 803,183 9,208,207
------------- ------------- -------------
Net increase in cash 34,919 960 35,879
Cash, beginning of period 960 -- --
------------- ------------- -------------
Cash, end of period $ 35,879 $ 960 $ 35,879
============= ============= =============
Supplemental disclosures of cash flow information
Conversion of Debt to Equity 1,398,677
Conversion of Series A preferred stock to common stock 550,000
Conversion of Series B preferred stock to common stock 1,908,088
Fair value of net liabilities assumed at date of reverse merger 189,458
The accompanying notes are an integral part of these financial statements
49
VISIJET, INC.
(A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
-----------------------------
VisiJet, Inc. ("VisiJet", or "the Company"), a Delaware corporation, is
a development stage company engaged in the research and development of
surgical equipment for use in the field of ophthalmology based on
proprietary waterjet technology. Potential customers include
physicians, surgical centers and hospitals. The Company's efforts
through December 31, 2003, have been principally devoted to
organizational activities, raising capital and research and development
efforts. To date, the Company has not received any revenues from
product sales.
HISTORY AND MERGER
The Company was incorporated in California on February 2, 1996 as a
wholly owned subsidiary of SurgiJet, Inc ("SurgiJet"). In May 1999, the
Company was spun off from SurgiJet through a distribution of common
stock to its shareholders, after which SurgiJet had no remaining
ownership interest in the Company. In connection with this spin-off
transaction, certain operating assets and liabilities were assumed by
the Company.
On February 11, 2003 the Company completed a merger with Ponte Nossa
Acquisition Corp., a Delaware corporation incorporated in 1997
("PNAC"). Pursuant to the merger agreement between VisiJet and PNAC
(the "Merger Agreement"), the Company became a wholly owned subsidiary
of PNAC. Since this transaction resulted in the shareholders of Visijet
acquiring a majority of the outstanding shares of PNAC, for financial
reporting purposes the business combination was accounted for as a
recapitalization of PNAC (a reverse acquisition with the Company as the
accounting acquirer). Subsequently, PNAC changed its name to Visijet,
Inc. See Note 7.
As a result of the merger, the following assets were acquired and
liabilities were assumed:
Assets:
Cash $ 30,693
Liabilities:
Notes payable to related parties (220,151)
-----------
Net liabilities assumed $ (189,458)
===========
GOING CONCERN
The Company has incurred net operating losses since inception, has
generated no revenue, and has working capital and stockholders'
deficits. The Company is likely to incur substantial and increasing
operating losses as it continues its research and development efforts
until such time, if ever, as product sales, royalties, license and
development and other fees can generate sufficient revenue to fund its
continuing operations. The Company's future capital requirements will
50
NOTE 1 - NATURE OF OPERATIONS (CONTINUED)
depend on many factors, including but not limited to the Company's
ability to finalize development and successfully market its waterjet
technology, overall product development costs including the cost of
clinical trials and competing technological and market developments.
To address the going concern issue, the Company has been attempting to
secure additional financing that will be adequate to fund its
operations until such time as sufficient revenue from product sales or
other operating activities are being generated. In this regard, as
discussed in more detail in Note 14, in April 2004, the Company entered
into two stock purchase agreements, that if finalized and funded, would
result in initial gross proceeds to the Company of $9.5 million.
Completion of this financing, and receipt of funding by the Company, is
contingent on the effectiveness of a Registration Statement, which the
Company has recently filed with the United States Securities and
Exchange Commission covering the resale of the shares of common stock
and the shares of common stock underlying the warrants. Whereas the
Company believes that the funding contemplated by these stock purchase
agreements will be obtained in a timely manner, there can be no
assurances that the Registration Statement will be declared effective,
or that the anticipated proceeds will be received by the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Certain corporate overhead expenses, such as professional fees,
salaries, rent and travel are allocated to research and development
based on estimates made by management.
STOCK-BASED COMPENSATION
The Company measures compensation expense related to the grant of stock
options and stock-based awards to employees in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, under
which compensation expense, if any, is generally based on the
difference between the exercise price of an option, or the amount paid
for the award and the market price or fair value of the underlying
common stock at the date of the award. Stock-based compensation
arrangements involving non-employees are accounted for under Statement
of Financial Accounting Standards ("SFAS") No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," under which such arrangements are accounted
for based on the fair value of the option or award. The Company adopted
the disclosure requirements of SFAS No. 148, "ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE," an amendment of
SFAS No. 123 as of January 1, 2003, which require certain disclosures
about stock-based employee compensation plans in an entity's accounting
policy note.
Those disclosures include a tabular format of pro forma net income and,
if applicable, earnings per share under the fair value method if the
intrinsic value method is used in any period presented.
51
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The adoption of SFAS No. 148 did not have a material impact to these
consolidated financial statements and the disclosure requirements are
included below.
On November 10, 2003, the Board of Directors adopted the VisiJet, Inc.
2003 Stock Option Plan. The Option Plan provides for the grant of
incentive and non-qualified stock options to selected employees, the
grant of non-qualified options to selected consultants and to directors
and advisory board members. The Option Plan is administered by the
Compensation Committee of the Board of Directors and authorizes the
grant of options for 3,000,000 shares. The Compensation Committee
determines the individual employees and consultants who participate
under the Plan, the terms and conditions of options, the option price,
the vesting schedule of options and other terms and conditions of the
options granted pursuant thereto.
During the fourth quarter of 2003, the Company issued 125,000 stock
options to consultants to purchase the Company's common stock in
exchange for services rendered. The Company has accounted for these
issuances in accordance with SFAS No. 123 and has recorded an expense
of $93,427 representing the fair value of the options using a
Black-Scholes option-pricing model. The options are exercisable at
price of $1.10 per share and have a term of 10 years.
Also during the fourth quarter of 2003, the Company issued options to
employees and directors to purchase 1,040,000 shares of its common
stock, at an exercise price of $1.10. All options granted during the
period have a term of ten years and were issued at an exercise price
equal to the market value of the underlying stock at the date of grant.
As of December 31, 2003 a total of 1,165,000 options to purchase shares
of the Company's common stock were outstanding pursuant to the 2003
Plan.
A summary of changes in common stock options during 2003 and 2002
follows:
Number of Weighted Average Exercisable
Shares Exercise Price Shares
-----------------------------------------
Outstanding at December 31, 2002 -- -- --
Granted 1,165,000 $ 1.10 390,000
Forfeited -- -- --
Cancelled -- -- --
Outstanding at December 31, 2003 1,165,000 $ 1.10 390,000
SFAS No. 123 requires the Company to provide pro forma information
regarding net income (loss) and income (loss) per share as if
compensation cost for the Company's stock option issuances had been
determined in accordance with the fair value based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model with
the following assumptions used for grants in fiscal 2003: dividend
yield of zero percent, risk-free interest rate of 3.29%, expected life
of five years, and expected volatility of 83.82%.
52
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under the accounting provisions of SFAS No. 123, as amended by SFAS No.
148, the Company's pro forma net loss and loss per share for the years
ended December 31, 2003 and 2002 would have been as follows:
2003 2002
---- ----
Net Loss:
As reported $ (4,959,152) $ (1,226,676)
SFAS No. 123 effect (308,724) --
------------- -------------
Pro forma net loss $ (5,267,876) $ (1,226,676)
============= =============
Loss per share:
As reported $ (0.27) $ (0.16)
============= =============
Pro forma $ (0.28) $ (0.16)
============= =============
Basic and diluted weighted
average shares outstanding 18,606,352 7,811,809
============= =============
The following table summarizes information about stock options
outstanding at December 31, 2003:
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Life in Exercise Number Exercise
Price Outstanding Years Price Exercisable Price
----- ----------- ----- ----- ----------- -----
$1.10 1,165,000 9.83 $1.10 390,000 $1.10
SEGMENT INFORMATION
The Company complies with SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION" that requires public business
enterprises to report information regarding reportable operating
segments. SFAS No. 131 supersedes SFAS No. 14, "FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE."
During 2003 and 2002, the Company had only one primary business unit,
the research and development of ophthalmic surgical instruments.
Accordingly, separate operating segment information is not being
presented.
DEPRECIATION
Depreciation of property and equipment is computed using the
straight-line method over estimated useful lives ranging from three to
five years.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
53
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
LOSS PER SHARE
The Company calculates loss per share in accordance with SFAS No. 128,
"EARNINGS PER SHARE," and Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 98. Accordingly, basic loss per
share is computed using the weighted average number of common shares
and diluted loss per share are computed based on the weighted average
number of common shares and all common equivalent shares outstanding
during the period in which they are dilutive. Common equivalent shares
consist of shares issuable upon the exercise of stock options, using
the treasury stock method, or warrants; common equivalent shares are
excluded from the calculation if their effect is anti-dilutive.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements of
the prior year and for the period February 2, 1996 (inception) to
December 31, 2003 in order to conform to current year presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued Interpretation No. 45, "GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING
INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS" - an interpretation of
SFAS Nos. 5, 57 and 107 and rescission of FASB Interpretation No. 34.
This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
54
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. Implementation of these provisions of the Interpretation is not
expected to have a material impact on the
Company's consolidated financial statements. The disclosure
requirements of the Interpretation are effective for financial
statements of interim or annual periods ended after December 15, 2002,
and have been adopted in the accompanying consolidated financial
statements with no additional disclosure required.
In December 2002, FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION, TRANSITION AND DISCLOSURE ("SFAS 148"). SFAS 148 amends
the disclosure requirements of SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") to require prominent disclosures in both
interim and annual financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. SFAS 148 also amends SFAS 123 to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
As the Company has decided not to voluntarily adopt the SFAS 123 fair
value method of accounting for stock-based employee compensation, the
new transition alternatives of SFAS 148 will not have a material impact
on its financial position or results of operations. The Company adopted
the quarterly footnote disclosure of the fair value based method of
accounting for stock-based employee compensation as of the beginning of
fiscal 2003, although no options were issued by the Company until the
fourth quarter of 2003.
NOTE 3 - PROPERTY AND EQUIPMENT
-------------------------------
At December 31, property and equipment consist of the following:
2003 2002
---------- ----------
Computer and test equipment $ 82,584 $ 21,833
Furniture and fixtures 33,505 16,067
Trade show equipment 47,002 47,002
---------- ----------
163,091 84,902
Less: Accumulated depreciation (58,651) (37,459)
---------- ----------
$ 104,440 $ 47,443
========== ==========
Depreciation expense for the years ended December 31, 2003 and 2002
amounted to $21,193 and $13,627, respectively. Depreciation expense for
the period from February 2, 1996 (inception) to December 31, 2003 was
$309,555.
55
NOTE 4 - LICENSE AGREEMENT
--------------------------
During 2003, the Company entered into a license agreement with the
inventor of a patented technology through which the Company obtained
exclusive worldwide rights for all medical applications for the
technology that provides for the sterile flow of fluid through a
surgical water jet apparatus. The purchase price of the license has
been capitalized and is being amortized on a straight-line basis over
the remaining life of the patent. The license agreement provides for
royalty payments based on the sale of products utilizing licensed
technology and for minimum annual royalty payments. See Note 6 -
Commitments.
At December 31, license agreements consist of:
2003 2002
---------- ---------
License agreements $ 100,000 $ --
Less: accumulated amortization (2,756) --
---------- ---------
$ 97,224 $ --
========== =========
Amortization expense for the years ended December 31, 2003 and 2002
amounted to $2,756 and $0, respectively. Amortization expense for the
period from February 2, 1996 (inception) to December 31, 2003 was
$2,756.
NOTE 5 - NOTES PAYABLE - RELATED PARTIES
----------------------------------------
SURGIJET, INC.
On October 23, 1998, the Company issued a demand promissory note in the
amount of $400,000 in favor of SurgiJet, Inc., a company then related
through common shareholders. Interest accrued on the unpaid principal
at a variable interest rate based on the prime rate totaled $139,955 on
February 11, 2003. In connection with the Merger Agreement, an
amendment to the note was executed on February 11, 2003 under which the
accrued interest was reduced to $49,652 and scheduled principal and
interest payments were established. Under the amended note, the first
payment of $30,000 was due on February 11, 2003 with equal monthly
installments of $15,000, including interest due on the first of each
month, and all outstanding principal and interest is due and payable
upon successful completion of the Company's 2002 financial statements.
As a result of the amendment, the Company recorded a $90,303 gain based
on the difference between the total accrued interest expense included
on the amended note and the total interest of $139,955 previously
accrued. Through December 31, 2003 payments totaling $45,000 were made
by the Company, resulting in an outstanding principal balance of
$360,976 at December 31, 2003, of which $87,144 is classified as
long-term debt, and accrued interest payable of $43,676.
As discussed more fully at Note 11, the validity of the underlying
note, as well as the amended note is disputed by the Company, and is a
subject of on-going litigation between the Company and SurgiJet.
Pending the outcome of the litigation, the Company ceased making
scheduled payments on this note.
56
NOTE 5 - NOTES PAYABLE - RELATED PARTIES (CONTINUED)
DENTAJET, INC.
During 2002, the Company entered into a promissory note for a principal
sum of $91,000, plus interest at the rate of 10% per annum with
DentaJet Inc. ("DentaJet"), a Company then related through common
shareholders. During 2002, the Company borrowed an additional $70,000
from, and made payments totaling $27,482 to DentaJet, resulting in an
outstanding principal balance of $133,518 at December 31, 2002.
Interest expense related to this note totaling $9,567 was recorded by
the Company in 2002, and was included in accrued interest payable at
December 31, 2002. During 2003, the Company borrowed an additional
$2,000 from DentaJet, and recorded interest expense totaling $15,178
related to this note. As of December 31, 2003 the outstanding principal
balance and accrued interest payable on this noted totaled $135,518 and
$24,745, respectively. Pursuant to the Merger Agreement, the loan is
due and payable upon successful completion of an independent audit of
the Company's 2002 financial statements.
As discussed more fully at Note 11, the validity of this note is being
disputed by the Company, and is a subject of on-going litigation
between the Company and SurgiJet.
FINANCIAL ENTREPRENEURS, INC. ("FEI")
During 2002 the Company entered into a promissory note agreement with
FEI, a significant shareholder of the Company. The note was due on
demand and was non-interest bearing. In connection with the Merger
Agreement, FEI converted the outstanding note balance at the date of
the merger, $378,997 into 378,997 shares of the Company's common stock.
There was no beneficial conversion feature on this note.
In connection with the Merger Agreement, the Company assumed a
promissory note during 2003 originally entered into between PNAC and
FEI during 2002. The note is payable on demand and bears interest at an
annual rate of 7.5%. Upon consummation of the merger in February 2003,
the outstanding principal and accrued interest payable balances were
$206,649 and $11,462, respectively. During 2003, the Company added net
borrowings of $43,476 to the note, and accrued additional interest
expense of $17,072, resulting in an outstanding principal balance and
accrued interest payable balances at December 31, 2003 of $250,125 and
$28,534, respectively.
SHAREHOLDERS
During 2002, the Company entered into a promissory note with Lance
Doherty, a significant shareholder of the Company, for a principal sum
of $19,000 plus interest at the rate of 10% per annum. As of December
31, 2003 the outstanding principal balance of this note was $19,000,
and accrued interest payable totaled $3,920. Pursuant to the Merger
Agreement, this note is due and payable upon successful completion of
an independent audit of the Company's 2002 financial statements. As
discussed more fully at Note 11, the validity of this note is being
disputed by the Company, and is a subject of on-going litigation
between the Company and Mr. Doherty.
57
NOTE 5 - NOTES PAYABLE - RELATED PARTIES (CONTINUED)
In addition, during 2002 the Company recorded a liability of $2,967
related to expenses paid by Rex Doherty, a significant shareholder of
the Company. Pursuant to the Merger Agreement, this liability, plus
interest at the rate of 10% per annum, is due and payable upon
successful completion of an independent audit of the Company's 2002
financial statements. At December 31, 2003, the outstanding liability
and accrued interest payable related to this debt are $2,967 and $298,
respectively. As discussed more fully at Note 11, the validity of this
liability is being disputed by the Company, and is a subject of
on-going litigation between the Company and Mr. Doherty.
PONTE NOSSA ACQUISITION CORPORATION ("PNAC")
During 2002, the Company entered into various loan agreements with PNAC
to provide funding to facilitate transactions contemplated by the then
pending merger with the Company. Principal and accrued interest on the
notes were due on the earlier of i) the date on which the closing of
the transactions of the merger agreement by and between the Company and
PNAC, ii) termination of the merger agreement, iii) sale of the Company
or iv) the maturity date. The notes were collateralized by a security
interest in certain assets and common stock of the Company.
At December 31, 2002, notes payable to PNAC consisted of the following:
Note payable - PNAC
Senior secured promissory notes,
interest at 3% per annum, due May 2003 $236,000
Note payable - PNAC
Working capital note, interest at 10% per annum,
due August 2003 309,752
Note payable - PNAC
Milestone note payable,
interest at 10% per annum, due August 2003 97,606
---------
$643,358
=========
At December 31, 2002, accrued interest payable on the above notes was
$12,354.
During 2003, prior to the completion of the Merger Agreement, the
Company borrowed an additional $115,073, pursuant to the working
capital note referenced above, and accrued additional interest expense
in the amount of $2,495. As a result of the Merger Agreement, the
outstanding principal and accrued interest payable balances related to
these notes, in the aggregate amount of $773,280 were eliminated, and
as of December 31, 2003 there are no remaining outstanding balances.
NOTE 6 - COMMITMENTS
--------------------
OPERATING LEASES
The Company leases approximately 5,100 square feet of office and
laboratory space in Irvine, California at a total rent, inclusive of
common area charges, of $7,600 per month under a lease that runs
through April 20, 2004. Rent expense was $82,398 and $62,160 for the
years ended
58
NOTE 6 - COMMITMENTS (CONTINUED)
December 31, 2003 and 2002, respectively. Rent expense for the period
from February 2, 1996 (inception) to December 31, 2003 was $376,246.
The Company also leases certain office equipment under operating
leases.
The approximate future minimum annual rental payments under operating
leases as of December 31, 2003 are as fo1lows:
Year Ending December 31,
------------------------
2004 $ 31,037
2005 3,168
2006 3,168
2007 3,168
2008 1,188
LICENSE AGREEMENTS
Under the terms of the technology license agreements with SurgiJet, the
Company is obligated to pay a royalty of 7% of revenues received from
sales of the products, up to $400 million of revenues over the course
of the agreements, and 5% of revenues thereafter. The license
agreements with SurgiJet also provide for a minimum royalty of $60,000
per year that may be used as a credit toward payment future royalties
due on product sales.
Under the terms of the patent license agreement entered into during
2003, the Company is obligated to pay a royalty of 6% of net sales of
products utilizing the licensed patent technology. The license
agreement also provides for a minimum royalty of $24,000 per year that
may be used as a credit toward payment future royalties due on product
sales.
NOTE 7 - SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------
MERGER
In connection with the completion of the Merger Agreement in February
2003, the Company agreed to issue a total of 8,600,000 shares of common
stock and 1,720,000 warrants to purchase common stock in exchange for
all of the outstanding common and preferred stock of Visijet prior to
the merger, and in exchange for services rendered by three individuals
prior to the merger. In addition, the Company issued an aggregate of
3,528,481 shares of common stock and warrants to purchase 4,528,481
shares of common stock at an initial exercise price of $1.00 per share
(with the exercise price increasing by $0.50 per share each year) to
certain private investors in connection with the conversion of debt
totaling $569,680, and a private placement investment of $564,000, that
occurred concurrently with the consummation of the merger.
Based on a reconciliation of share activity recorded in connection with
the merger, the Company recorded an adjustment during the fourth
quarter of 2003 to reduce the number of outstanding shares of common
stock by 54,007.
Pursuant to the Merger Agreement, PNAC shareholders received a total of
6,084,000 shares of the Company's common stock upon consummation of the
59
NOTE 7 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
merger. In a separate agreement entered into in connection with the
merger, FEI converted a promissory note held by it into 378,997 shares
of common stock at a conversion rate of $1.00 per share. Also, FEI
agreed to cancel 7,957,000 shares of the PNAC stock owned by it prior
to completion of the Merger Agreement, and the Company issued FEI a
five year warrant to purchase 1,543,000 shares of common stock at an
exercise price of $5.00 per share.
OTHER COMMON STOCK ACTIVITY
In February 2003, the Company issued 211,267 shares of common stock to
two employees in satisfaction of unpaid salary accrued prior to the
merger. See Note 9 - Settlement Agreements and Loan Payable.
In September 2003, the Company issued 150,000 shares of common stock to
a consultant in connection with services rendered. See Note 13 -
Related Party Transactions.
During 2003, the Company issued 2,712,500 shares of common stock, and
five year warrants to purchase 3,711,000 shares of the Company's common
stock at an exercise price of $2.25 per share in connection with
private equity placements. In addition, the Company recorded common
stock subscriptions in the amount of $918,500 based on proceeds
received from private placements for which the stock has not yet been
issued, and reclassified $100,000 to common stock subscriptions based
on pre-merger private placement funds received for which the stock has
not yet been issued.
OTHER WARRANT ACTIVITY
During 2002 and 2003, PNAC issued common stock warrants to purchase
235,000 shares and 270,000 shares of common stock, respectively, in
connection with private equity placements that occurred prior to
completion of the Merger Agreement that remained outstanding subsequent
to the merger. The warrants are exercisable for a period of five years
at an exercise price of $2.50.
Pursuant to an agreement entered into in connection with the merger,
the Company issued a five-year warrants to purchase 25,000 shares of
its common stock at an exercise price of $3.00, each to an officer of
the Company and a former officer of PNAC.
During 2003, the Company issued 5-year warrants to purchase 3,711,000
shares of its common stock, at an exercise price of $2.25 per share, in
connection with private equity placements. In addition, during 2003,
the Company issued 5-year warrants to purchase 45,000 shares of its
common stock, at an exercise price of $1.23 per share, for services
rendered to the Company. In connection with the 45,000 warrants issued
for services rendered, the Company recorded consulting expense in the
amount of $33,483 based on the fair value of the warrants using a
Black-Scholes model valuation.
The following table summarizes the number of outstanding common stock
warrants in 2003 and 2002:
60
NOTE 7 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Weighted Average
Number Exercise Price
----------- -----------------
Outstanding at December 31, 2001 - -
Granted 235,000 $2.50
Forfeited - -
Exercised - -
----------- -----------------
Outstanding at December 31, 2002 235,000 $2.50
Granted 11,867,480 $2.53
Forfeited - -
Exercised - -
----------- -----------------
Outstanding at December 31, 2003 12,102,480 $2.53
The following table summarizes additional information with respect to
outstanding common stock warrants at December 31, 2003:
Number Weighted Average Life Number
Exercise Price Outstanding Remaining in Months Exercisable
-------------- ------------ --------------------- -----------
$1.00 4,528,480 49 3,528,480
$1.23 45,000 55 45,000
$2.25 3,711,000 58 3,711,000
$2.50 505,000 46 505,000
$3.00 50,000 49 50,000
$5.00 3,263,000 49 3,263,000
------------ -----------
12,102,480 11,102,480
============ ===========
NOTE 8 - INCOME TAXES
---------------------
The provision for income taxes consist of the following for the years
ended December 31:
2002 2001
------------ ------------
Current:
Federal $ -- $ --
State 800 800
------------ ------------
Total provision $ 800 $ 800
============ ============
The components of the net deferred income tax assets are as follows as
of December 31:
2003 2002
------------ ------------
Deferred income tax assets:
Net operating loss carry forward $ 4,192,639 $ 2,398,000
Other temporary timing adjustments 400,764 257,000
------------ ------------
4,593,403 2,655,000
Deferred tax liability:
State taxes (37,585) (191,000)
------------ ------------
Deferred income tax asset, net before
Valuation allowance 4,555,818 2,464,000
Less: valuation allowance (4,555,818) (2,464,000)
------------ ------------
Deferred income tax asset, net $ -- $ --
============ ============
61
NOTE 8 - INCOME TAXES (CONTINUED)
---------------------------------
Since 1996, the company has generated a net operating loss (NOL) of
approximately $5,404,011. The total carry forward amounts are available
to offset future taxable income and expire in various years through
2022. The ability to use some or all of this carryforward is limited by
future events such as a failure to generate positive taxable income or
a change in ownership as stated under the rules of Internal Revenue
Code Section 382.
The net deferred tax asset is primarily associated with its net
operating loss carryforwards, state taxes and other timing adjustments.
The Company has recorded a valuation allowance for the entire amount
due to the uncertainty surrounding the likelihood of the Company
generating sufficient taxable income in the future.
NOTE 9 - SETTLEMENT AGREEMENTS AND LOAN PAYABLE
-----------------------------------------------
On November 4, 2002, the Company entered into settlement agreements
with Randal A. Bailey, its President and Chief Executive Officer, and
Larry Hood, its Director of Engineering, related to accrued, but unpaid
fees for consulting services previously rendered by them in the
aggregate of $700,000. Under the agreements a total of $450,000 was
converted into 211,267 shares of the Company's common stock based upon
the closing price on the effective date the merger, of which Mr. Bailey
received 164,319 shares and Mr. Hood received 46,948 shares. The
balance owed of $250,000 was converted into two-year notes payable,
that bear interest at an annual rate of 3.5% and provide for the
principal to be paid over twenty-four equal installments. At December
31, 2003, the balance on these notes was $104,166, of which $17,458 is
classified as long-term, and accrued interest payable was $6,330.
NOTE 10 - SELECTED QUARTERLY DATA
---------------------------------
------ Quarter Ended ------
2003 March 31 June 30 September 30 December 31 Total
----------------------- ------------- ------------- -------------- -------------- --------------
Expenses $ 814,387.00 $ 885,338.00 $1,239,737.00 $2,053,401.00 $4,992,863.00
------------- ------------- -------------- -------------- --------------
Operating loss (814,387) (885,338) (1,239,737) (2,053,401) (4,992,863)
Interest Expense (14,336) (17,037) (5,944) (18,930) (56,247)
Other income (expense) 26 361 90,303 (732) 89,958
------------- ------------- -------------- -------------- --------------
Net loss $ (828,697) $ (902,014) $ (1,155,378) $ (2,073,063) $ (4,959,152)
============= ============= ============== ============== ==============
Loss per share $ (0.06) $ (0.046) $ (0.056) $ (0.10) $ (0.27)
============= ============= ============== ============== ==============
Weighted average shares
Outstanding 14,171,631 19,533,294 20,468,856 21,179,696 18,606,352
============= ============= ============== ============== ==============
62
NOTE 10 - SELECTED QUARTERLY DATA (CONTINUED)
---------------------------------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
2002 March 31 June 30 September 30 December 31 Total
----------------------- ------------- ------------- -------------- -------------- --------------
Expenses 142,008 353,344 253,573 297,528 1,046,453
------------- ------------- -------------- -------------- --------------
Operating loss (142,008) (353,344) (253,573) (297,528) (1,046,453)
Interest Expense (17,754) (22,944) (68,681) (131,319) (21,940)
Other income (expenses) -- -- -- (48,904) (48,904)
------------- ------------- -------------- -------------- --------------
Net loss $ (159,762) $ (376,288) $ (275,513) $ (415,113) $ (1,226,676)
============= ============= ============== ============== ==============
Loss per share $ (0.020) $ (0.048) $ (0.040) $ (0.052) $ (0.16)
============= ============= ============== ============== ==============
Weighted average shares
Outstanding 7,713,943 7,817,735 7,817,735 7,916,811 7,811,809
============= ============= ============== ============== ==============
NOTE 11 - CONTINGENCIES
-----------------------
During 2003, the Company initiated litigation against SurgiJet, Inc.,
its former parent company, and certain directors, officers and
shareholders of SurgiJet. The action was initially filed by the Company
for a judicial determination that a $400,000 Promissory Note issued by
the Company and payable to SurgiJet "SurgiJet Note"), prior to the
completion of the Merger Agreement, is not enforceable, and for
recovery of payments previously made on the note. Subsequently, a
challenge of the validity of other notes payable carried on the
Company's books at the effective date of the Merger Agreement,
including notes to Dentajet, Lance Doherty (former President of VisiJet
and beneficial owner of more than 5% of its outstanding Common Stock)
and Rex Doherty was added to the litigation. SurgiJet and its
principals filed a cross-action against the Company, and its directors
and certain officers, seeking damages of approximately $800,000,
rescission of the Merger Agreement, other specified damages, interest
and attorney's fees.
In the cross-complaint, SurgiJet and its principals allege breach of
the Merger Agreement between the Company and SurgiJet, breach of an
Assumption of Liabilities Agreement (including Notes Payable to
DentaJet, Lance Doherty and Rex Doherty) entered into in connection
with the Merger Agreement, and breach of the SurgiJet Note, along with
fraud and unfair business practices.
The Company's management believes that the cross-complaint is merely a
diversionary effort by SurgiJet to draw attention away from the main
action. The Company believes the allegations to the cross-complaint are
wholly without merit and plans to vigorously pursue its claims and
contest the cross-complaint.
63
NOTE 11 - CONTINGENCIES (CONTINUED)
-----------------------------------
The Company is also a defendant in an action filed by an individual
claiming entitlement to a finder's fee arising out of the merger
between Ponte Nossa and Visijet. The complaint alleges that the
plaintiff is entitled to 105,000 shares of the Company's common stock.
In January 2004 the Company and plaintiff reached a settlement in this
matter whereby the Company agreed to issue plaintiff 45,000 shares of
the Company's common stock as full settlement of the claim.
The Company is also a defendant in a breach of contract claim from an
outside provider of accounting services for work performed for the
Company prior to the effective date of the Merger Agreement for
$43,500, plus interest. The Company has denied the allegations of the
complaint and is vigorously contesting the action.
In December 2003, a former consultant who had performed services for
the Company prior to the effective date of the Merger Agreement
obtained a judgment award in the amount of $40,398 from the Labor
Commissioner of the State of California in an action related to claimed
unpaid wages and expenses previously filed against the Company.
Although the Company has filed an appeal in the California Superior
Court contesting the action taken by the Labor Commissioner, an accrual
for the awarded amount has been recorded as of December 31, 2003
pending the outcome of the appeal.
In January 2004, the Company was served a summons which named the
Company and certain of its officers as defendants in an action filed by
a corporation claiming it was owed fees related to professional
employment placement services in the approximate amount of $114,500.
The Company denies the allegations of the complaint and plans to
vigorously contest the action.
NOTE 12 - RESTATEMENT
---------------------
During the 2002 audit, it was discovered that certain accounting
matters related to the financial statements for the year ended December
31, 2001 required restatement. The Company's prior management
overstated expenses in 2001 by recording $93,595 of accrued personal
expense of the Company's prior management, as general and
administrative and research and development expenses. The financial
statements for the year ended December 31, 2001 have been restated to
decrease operating expenses by $93,595. In addition, it was discovered
that certain general and administrative expenses and research and
development expenses related to the period ended December 31, 2001 were
included in the financial statements for the year ended December 31,
2002. The financial statements for the year ended December 31, 2001
have been restated for this error by increasing operating expenses by
$129,166.
The net effect of these adjustments was to increase net loss $35,571
for the year ended December 31, 2001 as shown below:
64
NOTE 12 - RESTATEMENT (CONTINUED)
As Reported As Restated
----------- -----------
General and administrative expenses $ 436,122 $ 458,773
Research and development expenses 944,745 957,665
----------- -----------
Total operating expenses 1,380,867 1,416,438
=========== ===========
Net loss $1,439,602 $1,475,173
=========== ===========
NOTE 13 - RELATED PARTY TRANSACTIONS
------------------------------------
During 2003, the Company began making consulting payments of $2,500 per
month to a corporation owned by a director of the Company. In June of
2003, the payments were increased to $5,000 per month. Through December
31, 2003 consulting fees and related expenses totaling $41,250 and
$2,604, respectively, were expensed, of which $2,500 is included in
accounts payable at December 31, 2003. In addition, in September 2003,
the Company issued 150,000 shares of common stock to the corporation
for services provided by in connection with the finalization of the
Merger Agreement. In connection with the issuance of these shares, the
Company recorded consulting expenses of $225,000, based on the fair
market value of the common stock at the date of issuance.
In February 2003, the Company entered into a consulting agreement with
director of the Company. Pursuant to this agreement, the director
receives a monthly retainer of $5,000 per month plus a fee of $1,500
per day for consulting work performed. Through December 31, 2003
consulting fees and related expenses totaling $118,000 and $24,581,
respectively, were recorded pursuant to this agreement, of which
$14,721 is included in accounts payable at December 31, 2003.
In February 2003, the Company paid consulting fees in the amount of
$110,000 to a corporation controlled by the two shareholders, each of
whom own beneficially in excess of 5% of the outstanding shares of
common stock of the Company, related to services provided in connection
with the finalization of the Merger Agreement. In April 2003, the
Company entered into a consulting agreement with this corporation
pursuant which, the Corporation is entitled to receive a monthly fee of
$15,000, provided however that payment of accrued fees is not payable
by the Company until such time as the Company has a minimum cash
balance of $2.5 million. Through December 31, 2003 a total of $135,000
in fees has been expensed and accrued pursuant to this agreement.
During 2003, the Company recorded finders fee expenses totaling $30,000
for amounts earned by one of these shareholders and the corporation, in
connection with private equity placements by the Company. Of the total
finders fees earned, $15,000 was paid during the year and $15,000 is
included in accrued expenses at December 31, 2003.
During 2003, the Company paid finders fee expenses in the amount of
$52,500, to a corporation controlled by an individual who beneficially
owns in excess of 5% of the outstanding shares of common stock of the
Company. In addition, during 2003, the Company recorded consulting
expenses totaling $75,000 that were added to an outstanding note
payable with the corporation, and reimbursed the corporation for travel
expenses related to business of the Company totaling $19,279.
65
NOTE 14 - SUBSEQUENT EVENTS
---------------------------
In February 2004, the Company entered into a bridge financing
agreements with five (5) accredited investors pursuant to which the
Company issued a total of $500,000 of secured subordinated debentures
and received net proceeds of $447,500 after subtracting related
placement agent fees and legal expenses totaling $52,500. The
debentures bear interest at an annual rate of 24%, which is payable
monthly beginning April 1, 2004. In addition, the debenture holders
received an aggregate of 250,000 warrants to purchase shares of the
Company's common stock, through March 1, 2009, at an exercise price of
$1.10
The principal balance of the debentures is due and payable on the
earlier of (i) thirty (30) days from the date the Company's
registration statement filed on Form SB-2 is declared effective by the
Securities and Exchange Commission, provided that SBI (as defined in
the Registration Statement) has not defaulted in its obligation to
purchase shares of the Company's common stock or (ii) twelve (12)
months from the date the Registration Statement is declared effective
or (iii) eighteen (18) months from the date of the date of the
debenture agreement.
In April 2004, the Company entered into stock purchase agreements with
two (2) private equity investment funds pursuant to which the funds
agreed to purchase and aggregate of 4,750,000 shares of the Company's
common stock for a total amount of $9,500,000. In addition, under the
agreements, one of the funds would receive 5-year warrants to purchase
up to 1,900,000 shares of the Company's common stock at a price of
$2.00 per share. Completion of this financing and related funding is
contingent on the effectiveness of a registration statement filed with
the Securities and Exchange Commission covering the resale of the
shares of common stock and the shares of common stock underlying the
warrants.
66
VisiJet, Inc.
(A development stage company)
Balance Sheets
June 30, December 31,
2004 2003
(Unaudited) (Audited)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 59,863 $ 35,879
Inventory 179,984 --
Prepaid expenses 83,409 68,749
Prepaid royalty 8,000 20,000
------------- -------------
Total current assets 331,256 124,628
Property and equipment, net 120,815 104,440
Distribution agreement 1,844,358 --
Patents and trademarks, net 92,520 97,244
------------- -------------
Total assets $ 2,388,949 $ 326,312
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable 851,994 679,885
Compensation settlement agreement - current portion 93,748 86,708
Accrued interest 159,928 109,232
Accrued expenses 670,425 481,106
Royalty payable 30,000 60,000
Notes payable to related parties 824,892 681,442
Notes payable - current portion 14,000 14,000
Convertible debenture debt, net 1,090,993 --
Secured debenture debt, net 1,081,158 --
------------- -------------
Total current liabilities 4,817,138 2,112,373
Compensation settlement agreement, net of current portion -- 17,458
Notes payable to related parties, net of current portion -- 87,144
------------- -------------
Total liabilities 4,817,138 2,216,975
------------- -------------
Shareholders' deficit:
Common stock, 50,000,000 shares authorized, $.001 par value, 30,179,663
shares issued and outstanding at June 30, 2004, and
21,691,163 shares issued and outstanding at December 31, 2003 30,180 21,691
Preferred stock, 10,000,000 shares authorized, $.001 par value,
no shares outstanding at June 30, 2004 and no shares authorized
or issued at December 31, 2003 -- --
Additional paid in capital 14,386,216 7,845,365
Common stock subscriptions -- 1,018,500
Deficit accumulated during development stage (16,844,585) (10,776,219)
------------- -------------
Shareholders' deficit (2,428,189) (1,890,663)
------------- -------------
Total liabilities and shareholders' deficit $ 2,388,949 $ 326,312
============= =============
The accompanying notes are an integral part of these financial statements
67
VisiJet, Inc.
(A development stage company)
Statements of Operations
(Unaudited)
For the period
Three months Three months Six months Six months February 2, 1996
ended ended ended ended (inception) to
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 June 30, 2004
------------- ------------- ------------- ------------- -------------
Sales - International $ 54,970 -- $ 54,970 -- $ 54,970
Cost of Goods Sold 26,834 -- 26,834 -- 26,834
------------- ------------- ------------- ------------- -------------
Gross Profit 28,136 -- 28,136 -- 28,136
Operating expenses:
General and administrative expenses 3,979,679 671,065 5,014,976 1,374,272 10,583,712
Research and development expenses 162,496 214,273 408,981 317,780 5,266,990
------------- ------------- ------------- ------------- -------------
Total operating expenses 4,142,175 885,338 5,423,957 1,692,052 15,850,702
------------- ------------- ------------- ------------- -------------
Loss from operations (4,114,039) (885,338) (5,395,821) (1,692,052) (15,822,566)
Other income (expense):
Interest income -- 361 -- 455 455
Interest expense (615,107) (17,037) (671,745) (39,114) (1,035,990)
Gain on debt restructure -- -- -- -- 90,303
Loss on judgment (21,483)
Loss on disposal of assets -- -- -- -- (48,104)
------------- ------------- ------------- ------------- -------------
Total other expense (615,107) (16,676) (671,745) (38,659) (1,014,819)
------------- ------------- ------------- ------------- -------------
Loss before provision for taxes (4,729,146) (902,014) (6,067,566) (1,730,711) (16,837,385)
Provision for Income taxes -- -- 800 -- 7,200
------------- ------------- ------------- ------------- -------------
Net loss $ (4,729,146) $ (902,014) $ (6,068,366) $ (1,730,711) $(16,844,585)
============= ============= ============= ============= =============
Net loss per common share - basic and diluted $ (0.18) $ (0.05) $ (0.25) $ (0.09) $ (2.14)
============= ============= ============= ============= =============
Basic and diluted weighted average
number of common shares outstanding 26,625,762 19,533,294 24,370,545 19,533,294 7,882,996
============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
68
VisiJet, Inc.
(A development stage company)
Statements of Cash Flows
(Unaudited)
For the period
February 2, 1996
Six months ended June 30, (inception) to
2004 2003 June 30, 2004
------------- ------------- -------------
Cash flows from operating activities
Net loss $ (6,068,366) $ (1,730,711) $(16,844,585)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 76,614 7,995 388,925
Debt discount amortization 575,133 33,997 575,133
Loss from disposal of fixed assets -- -- 48,104
Common stock, options, warrants issued for services 2,649,954 75,000 3,105,422
Fee for borrowed collateral 546,403 -- 546,403
Gain from debt restructure -- -- (90,303)
Changes in assets and liabilities: -- -- --
Prepaid expenses (2,660) (41,436) (91,409)
Change in inventory (179,984) -- (179,984)
Accounts payable 172,109 (85,910) 851,994
Compensation settlement agreement (10,418) (56,336) 93,748
Royalties payable (30,000) 30,000 30,000
Foreign exchange effect on notes payable -- -- 3,121
Other accrued expenses 189,319 -- 670,425
Accrued interest 58,509 39,114 259,390
------------- ------------- -------------
Net cash used by operating activities (2,023,387) (1,728,287) (10,633,616)
------------- ------------- -------------
Cash flows from investing activities
Acquisition of property and equipment (31,222) (67,104) (493,321)
Acquisition of patents -- -- (100,000)
Purchase of distribution agreement (1,188,900) -- (1,188,900)
------------- ------------- -------------
Net cash used in investing activities (1,220,122) (67,104) (1,782,221)
------------- ------------- -------------
Cash flows from financing activities
Advance from related party 256,305 128,009 2,131,173
Repayment of advances from related parties (200,000) (71,988) (412,620)
Proceeds from notes payable -- 143,740 143,740
Repayment of notes payable -- (65,740) (129,740)
Proceeds from secured debentures 1,109,688 -- 1,109,688
Proceeds form convertible debentures 1,575,000 -- 1,575,000
Proceeds from private placements-net 526,500 1,741,000 5,535,681
Proceeds from issuance and conversion of preferred stock, net -- -- 2,458,088
Cash acquired in reverse merger -- -- 30,693
Interest converted to equity in connection with merger -- -- 33,997
------------- ------------- -------------
Net cash provided by financing activities 3,267,493 1,875,021 12,475,700
------------- ------------- -------------
Net increase / (decrease) in cash 23,984 79,630 59,863
Cash, beginning of period 35,879 960 --
------------- ------------- -------------
Cash, end of period $ 59,863 $ 80,590 $ 59,863
============= ============= =============
Supplemental disclosures of cash flow information
Interest paid $ 45,916 $ -- $ --
Taxes paid 800 1,600 7,200
Debenture costs and fees paid 357,500 -- --
Non-cash transactions
Warrants issued in connection with secured debentures 988,983
Common Stock issued in connection with secured debentures 106,500
Common Stock issued in connection with distribution agreement 712,500
Common Stock issued as collateral 3,400
The accompanying notes are an integral part of these financial statements
69
VISIJET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-QSB, press releases and certain information provided
periodically in writing or orally by our officers or our agents contain
forward-looking statements that involve risks and uncertainties within the
meaning of Sections 27A of the Securities Act, as amended; Section 21E of the
Securities Exchange Act of 1934; and the Private Securities Litigation Reform
Act of 1995. The words, such as "may," "would," "could," "anticipate,"
"estimate," "plans," "potential," "projects," "continuing," "ongoing,"
"expects," "believe," "intend" and similar expressions and variations thereof
are intended to identify forward-looking statements. These statements appear in
a number of places in this Form 10-QSB and include all statements that are not
statements of historical fact regarding intent, belief or current expectations
of the Company, our directors or our officers, with respect to, among other
things: (i) our liquidity and capital resources; (ii) our financing
opportunities and plans; (iii) our continued development of our technology;
(iv)market and other trends affecting our future financial condition; (v) our
growth and operating strategy.
Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The factors that might cause such differences include, among others,
the following: (i) we have incurred significant losses since our inception; (ii)
any material inability to successfully develop our products; (iii) any adverse
effect or limitations caused by government regulations; (iv) any adverse effect
on our ability to obtain acceptable financing; (v) competitive factors; and (vi)
other risks including those identified in our other filings with the Securities
and Exchange Commission. The Company undertakes no obligation to update or
revise the forward-looking statements made in this Form 10-QSB to reflect events
or circumstances after the date of this Form 10-QSB or to reflect the occurrence
of unanticipated events.
HISTORY AND MERGER
VisiJet, Inc. ("VisiJet", or "the Company") is a development-stage
medical device company focused on the marketing and development of ophthalmic
surgery products for use in the laser eye surgery and cataract surgery markets.
Through June 30, 2004, the Company's efforts have been principally devoted to
organizational activities, raising capital and research and development.
The Company was incorporated on February 2, 1996, as a wholly owned
subsidiary of SurgiJet, Inc. to develop and distribute medical products based on
patented waterjet-based technology licensed from SurgiJet. In May 1999, the
Company was spun off from SurgiJet through a distribution of common stock to its
shareholders, after which SurgiJet had no remaining ownership interest in the
Company.
In December 2002 VisiJet entered into a merger agreement with Ponte
Nossa Acquisition Corp., a Delaware corporation ("the Merger") that had been
incorporated as a blank check company in 1997. The agreement called for the
merger of the two companies into a single company through the merger of an
acquisition subsidiary, VisiJet Acquisition Corporation, into VisiJet. The
merger was consummated on February 11, 2003, and immediately thereafter, VisiJet
was merged into Ponte Nossa Acquisition Corp., and the surviving company's name
was changed to "VisiJet, Inc."
70
NATURE OF OPERATIONS (Continued)
In May 2004, the Company entered into a Manufacturing, Supply and
Distribution Agreement with a German company pursuant to which the Company
acquired exclusive worldwide distribution, sales and marketing rights for
ophthalmic surgical products used in LASIK refractive surgery procedures. The
licensed products are approved for marketing in Europe and certain other
countries, and during the second quarter of 2004, an application for marketing
approval in the United States was filed with the U.S. Food and Drug
Administration.
BASIS OF PRESENTATION
The accompanying financial statements are unaudited and do not include
certain information and disclosures required by accounting principles generally
accepted in the United States of America for complete financial statements.
However, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments considered necessary to present fairly the
Company's financial position and results of operations, have been included.
These interim financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2003. Results for interim periods
are not necessarily indicative of trends or of results for a full year.
GOING CONCERN
The accompanying unaudited consolidated financial statements have been
prepared using the going concern basis of accounting, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As more fully discussed in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2003, the Company's audited financial
statements included a "going concern" qualification from its independent
auditors due to the Company's losses accumulated during the development stage
and lack of working capital.
For the three and six months ended June 30, 2004, the Company incurred
net losses of $4,729,146 and $6,068,366, respectively, and as of June 30, 2004,
the Company's current liabilities exceeded its current assets by approximately
$4.5 million. The Company's future capital requirements will depend on many
factors, including but not limited to the Company's ability to successfully
market and generate operating revenue through product sales, its ability to
finalize development and successfully market its waterjet technology, its
on-going operational expenses and overall product development costs, including
the cost of clinical trials, and competing technological and market
developments.
To address the going concern issue, the Company has continued to raise
operating capital through private placements of debt and equity securities, and
is currently in discussions with several parties regarding additional financing
arrangements. In addition, during the second quarter of 2004, the Company
initiated sales of ophthalmic surgery products acquired through an exclusive
worldwide marketing and distribution license agreement that was finalized in May
2004. The Company expects that revenue and cash flow from sales of these
products will contribute significantly to its future operating results and
working capital requirements.
While the Company believes that the additional financing arrangements
will be completed, and that near-term operating revenues and cash flow will be
generated from the recently completed license agreement, there can be no
assurance that new financing will be completed or that the proceeds from new
financing received by the Company and/or that revenues generated from product
sales will be sufficient for the Company to meet its contractual obligations and
on-going operating expenses.
The accompanying consolidated financial statements do not include any
adjustments that might result from the resolution of these matters.
71
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from product sales relates to sales of ophthalmic surgical
products pursuant to the Manufacturing, Supply and Distribution Agreement
completed in May 2004. Revenue from such sales is recognized when the earnings
process is complete, as evidenced by an agreement with the customer, transfer of
title and acceptance, a firm price and probable collection.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
Certain corporate overhead expenses, such as professional fees, salaries, rent
and travel are allocated to research and development based on estimates made by
management.
STOCK-BASED COMPENSATION
The Company measures compensation expense related to the grant of stock
options and stock-based awards to employees in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, under which compensation
expense, if any, is generally based on the difference between the exercise price
of an option, or the amount paid for the award and the market price or fair
value of the underlying common stock at the date of the award. Stock-based
compensation arrangements involving non-employees are accounted for under
Statement of Financial Accounting Standards ("SFAS") No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," under which such arrangements are accounted for based
on the fair value of the option or award. The Company adopted the disclosure
requirements of SFAS No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION -
TRANSITION AND DISCLOSURE," an amendment of SFAS No. 123 as of January 1, 2003,
which require certain disclosures about stock-based employee compensation plans
in an entity's accounting policy note. The adoption of SFAS No. 148 did not have
a material impact on these consolidated financial statements and the disclosure
requirements are included below.
On November 10, 2003, the Board of Directors adopted the VisiJet, Inc.
2003 Stock Option Plan. The Option Plan provides for the grant of incentive and
non-qualified stock options to selected employees, the grant of non-qualified
options to selected consultants and to directors and advisory board members. The
Option Plan is administered by the Compensation Committee of the Board of
Directors and authorizes the grant of options for 3,000,000 shares. The
Compensation Committee determines the individual employees and consultants who
participate under the Plan, the terms and conditions of options, the option
price, the vesting schedule of options and other terms and conditions of the
options granted pursuant thereto.
During the second quarter of 2004, no new options were granted by the
Company, and options to purchase a total of 20,000 shares were forfeited and
cancelled.
72
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
As of June 30, 2004, a total of 1,145,000 options to purchase shares of the
Company's common stock were outstanding pursuant to the 2003 Plan.
The following table summarizes information about stock options
outstanding at June 30, 2004:
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Life in Exercise Number Exercise
Price Outstanding Years Price Exercisable Price
----- ----------- ----- ----- ----------- -----
1.10 1,145,000 9.37 1.10 390,000 1.10
SFAS No. 123 requires the Company to provide pro forma information
regarding net income (loss) and income (loss) per share as if compensation cost
for the Company's stock option issuances had been determined in accordance with
the fair value based method prescribed in SFAS No. 123. The Company estimates
the fair value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following assumptions used for grants in fiscal
2003: dividend yield of zero percent, risk-free interest rate of 3.29%, expected
life of five years, and expected volatility of 83.82%.
Under the accounting provisions of SFAS No. 123, as amended by SFAS No.
148, the Company's pro forma net loss and loss per share for the three and six
months ended June 30, 2004, 2003 and from inception to date, would have been as
follows:
For the Three Months For the Six Months For the Period
Ended June 30, Ended June 30, February 2,
--------------------------------------------------------------- 1996
(inception)
2004 2003 2004 2003 June 30, 2004
------------ ------------ ------------ ------------ ------------
Net Loss
As reported (4,729,146) (902,014) (6,068,366) (1,730,711) (16,844,585)
SFAS No. 123 effect (84,499) -- (168,999) -- (477,723)
------------ ------------ ------------ ------------ ------------
Pro forma net loss (4,813,645) (902,014) (6,237,365) (1,730,711) (17,322,308)
Loss per share, basic and diluted
As reported (0.18) (0.05) (0.25) (0.09) (2.14)
============ ============ ============ ============ ============
Pro forma (0.18) (0.05) (0.26) (0.09) (2.20)
============ ============ ============ ============ ============
Basic and diluted weighted
average common shares outstanding 26,625,762 19,533,294 24,370,545 19,533,294 7,882,996
============ ============ ============ ============ ============
DEPRECIATION
Depreciation of property and equipment is computed using the
straight-line method over estimated useful lives ranging from three to seven
years.
73
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
LOSS PER SHARE
The Company calculates loss per share in accordance with SFAS No.
128,"EARNINGS PER SHARE," and Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin ("SAB") No. 98. Accordingly, basic loss per share is
computed using the weighted average number of common shares and diluted loss per
share are computed based on the weighted average number of common shares and all
common equivalent shares outstanding during the period in which they are
dilutive. Common equivalent shares consist of shares issuable upon the exercise
of stock options, using the treasury stock method, or warrants; common
equivalent shares are excluded from the calculation if their effect is
anti-dilutive.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statement of
the prior year and for the period February 2, 1996 (inception) to June 30, 2004
in order to conform to current year presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
There are no recent accounting pronouncements that have had, or are
expected to have, a material effect on the Company's financial statements.
74
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 2004 and
December 31, 2003:
June 30, 2004 December 31, 2003
------------- -------------
Computer and test equipment $ 98,197 $ 82,584
Furniture and fixtures 33,505 33,505
Trade show equipment 62,613 47,002
------------- -------------
194,313 163,091
Less: Accumulated depreciation (73,498) (58,651)
------------- -------------
$ 120,815 $ 104,440
============= =============
Depreciation expense for the six months ended June 30, 2004, and for
the period from February 2, 1996 (inception) to June 30, 2004 was $14,847 and
$324,402, respectively.
NOTE 4 - DISTRIBUTION AND PATENT AGREEMENTS
In May 2004, the Company entered into a Manufacturing, Supply and
Distribution Agreement with a German company ("licensor") pursuant to which the
Company acquired exclusive worldwide distribution, sales and marketing rights
for certain ophthalmic surgical products used in LASIK refractive surgery
procedures. The licensed products are approved for marketing in Europe and
certain other countries, and during the second quarter of 2004, an application
for marketing approval in the United States was filed with the U.S. Food and
Drug Administration.
The Company capitalized a total of $1,901,400 in connection with this
agreement based on non-refundable cash license fee paid, plus the fair market
value of 750,000 shares of common stock issued to the licensor, as consideration
under the agreement. The total capitalized amount is being amortized on a
straight-line basis over the term of the agreement.
During 2003, the Company entered into a patent license agreement with
the inventor of a patented technology through which the Company obtained
exclusive worldwide rights for all medical applications for the technology that
provides for the sterile flow of fluid through a surgical water jet apparatus.
The purchase price of the license has been capitalized and is being amortized on
a straight-line basis over the remaining life of the patent. The license
agreement provides for royalty payments based on the sale of products utilizing
licensed technology and for minimum annual royalty payments.
Distribution and Patent agreements consist of the following at June 30,
2004 and December 31, 2003:
June 30, 2004 December 31, 2003
------------- -------------
Distribution agreements $ 1,901,400 $ --
Patent agreements 100,000 100,000
Less: accumulated amortization (64,522) (2,756)
------------- -------------
$ 1,936,878 $ 97,244
============= ==============
75
DISTRIBUTION AND PATENT AGREEMENTS (Continued)
Amortization expense for the six months ended June 30, 2004 and for the
period from February 2, 1996 (inception) to June 30, 2004 was $61,766 and
$64,522, respectively. In connection with these agreements, the Company expects
to record the following amortization expense over the next five years:
Fiscal Year Ended Amortization Total
----------------- ------------------
12/31/04 194,864
12/31/05 389,729
12/31/06 389,729
12/31/07 389,729
12/31/08 389,729
12/31/09 137,822
------------------
Total 1,891,602
==================
NOTE 5 - SECURED DEBENTURES
In February 2004, the Company entered into bridge financing agreements
with five investors pursuant to which the Company issued a total of $500,000 of
secured subordinated debentures and received net proceeds of $447,500 after
subtracting related placement agent fees and legal expenses totaling $52,500.
The debentures bear interest at an annual rate of 24%, which is payable
monthly beginning April 1, 2004. In addition, the debenture holders received
warrants to purchase 250,000 shares of the Company's common stock, exercisable
through March 1, 2009, at an exercise price of $1.10 per share.
The Company is obligated to file a Registration Statement covering the
shares issued, as well as the shares issuable upon conversion of the debentures.
The principal balance of the debentures is due and payable on the earlier of (i)
thirty (30) days from the date the Registration Statement is declared effective
by the Securities and Exchange Commission, provided that a specified affiliate
of the investors has not defaulted in its obligation to purchase shares of the
Company's common stock, or (ii) twelve (12) months from the date the
Registration Statement is declared effective, or (iii) eighteen (18) months from
the date of the debenture agreement.
The debentures are secured by all accounts and equipment of the
Company, now owned, existing or hereafter acquired.
The debenture debt was recorded net of discounts totaling $230,668
recorded in connection with the $52,500 of loan fees and expenses, and $178,168,
based on a Black-Scholes model valuation, related to the 250,000 warrants issued
to debenture holders. During the six months ended June 30, 2004, the Company
recorded total interest expense of $118,475 in connection with the debenture
debt, of which $88,475 resulted from the non-cash amortization of debt discount
and $30,000 related to interest accrued during the periods on the outstanding
principal balance. Of the interest accrued, $27,000 was paid during the period,
and $3,000 was payable as of June 30, 2004.
In May 2004, the Company entered into an agreement with an
institutional lender pursuant to which the Company issued a total of $750,000 of
secured subordinated debentures and received net proceeds of $662,188 after
subtracting related placement agent fees and expenses totaling $80,000 and
prepaid interest totaling $7,812.
76
SECURED DEBENTURES (Continued)
The principal balance of the debentures is due and payable on July 5,
2004, and the debentures bear interest at an annual rate of 15%, which is
payable monthly beginning June 1, 2004 (See Note 14). In addition, the debenture
holder received a warrant to purchase 500,000 shares of the Company's common
stock, exercisable through May 6, 2009, at an exercise price of $0.90 per share.
The debentures are secured by an aggregate of 1,500,000 shares of the
Company's common stock, of which 750,000 shares were issued by the Company and
750,000 shares were borrowed by the Company pursuant to a security lending
agreement between the Company and a third party.
The debenture debt was recorded net of discounts totaling $319,807
recorded in connection with the $80,000 of loan fees and expenses, and $239,807,
based on a Black-Scholes model valuation, related to the 500,000 warrants issued
to the debenture holder. During the six months ended June 30, 2004, the Company
recorded total interest expense of $310,345 in connection with the debenture
debt, of which $293,157 resulted from the non-cash amortization of debt discount
and $ 17,188 related to interest accrued, and paid during the period on the
outstanding principal balance.
As of June 30, 2004 and December 31, 2003, secured debenture debt
balance consists of the following:
June 30, 2004 December 31, 2003
------------- -------------
Secured subordinated debenture $ 1,250,000 $ --
Secured debenture discount (168,842) --
------------- -------------
Secured debenture debt $ 1,081,158 $ --
============= =============
Note 6 - CONVERTIBLE DEBENTURES
In May 2004, the Company entered into convertible debenture agreements
with two institutional lenders with an aggregate principal balance of $800,000,
and received net proceeds of $695,000 after subtracting related placement agent
fees and expenses totaling $105,000.
The debentures bear interest at an annual rate of 10%, which is due and
payable on the maturity date. In addition, the debenture holders received an
aggregate of 533,000 warrants to purchase shares of the Company's common stock,
exercisable through May 6, 2009 at an exercise price of $0.90 per share.
The principal balance of the debentures is due and payable on the
earlier of (i) one hundred and five (105) days from the issue date, or (ii) ten
(10) business days from the date the Company's Registration Statement is
declared effective by the Securities and Exchange Commission.
The debentures are secured by an aggregate of 800,000 shares of the
Company's common stock borrowed by the Company pursuant to a security lending
agreement between the Company and a third party. Under certain circumstances,
the outstanding principal of the debentures may be converted into shares of the
Company's common stock based on an initial conversion price of $0.90, subject to
adjustment as defined in the agreement.
The debenture debt was recorded net of discounts totaling $360,793
recorded in connection with the $105,000 of loan fees and expenses, and
$255,793, based on a Black-Scholes model valuation, related to the 533,000
warrants issued to debenture holders. During the six months ended June 30, 2004,
the Company recorded total interest expense of $201,042 in connection with the
debenture debt, of which $188,987 resulted from the non-cash amortization of
debt discount and $12,055 related to interest accrued during the periods on the
outstanding principal balance.
77
CONVERTIBLE DEBENTURES (Continued)
In connection with these debentures, the Company entered into a
registration rights agreement with the debenture holders covering 533,333 shares
of common stock underlying the warrants issued in connection with these
debentures. As of June 6, 2004 the Company had not completed the filing of the
Registration Statement as required by the registration rights agreement, and
accordingly, the Company is currently in default of its obligations to timely
file the Registration Statement.
In June 2004, the Company entered into convertible debenture agreements
with two institutional lenders with an aggregate principal balance of
$1,000,000, and received net proceeds of $880,000 after subtracting related
placement agent fees and expenses totaling $120,000. The principal balance of
the debentures is due and payable on June 24, 2006.
The debentures bear interest at an annual rate of 8%, which is payable
quarterly beginning December 31, 2004. In addition, the debenture holders
received an aggregate of 150,000 shares of the company's common stock, and an
aggregate of 750,000 warrants to purchase shares of the Company's common stock,
exercisable through June 24, 2009, at an exercise price of $1.50 per share,
provided however that the exercise price with respect to an aggregate of 500,000
of the warrants is reduced to $0.60 per share during the period from the date of
issuance through the date twelve (12) months after the Securities and Exchange
Commission declares effective a registration statement registering the resale of
shares underlying the warrants.
The debentures are secured by an aggregate of 350,000 shares of the
Company's common stock issued by the Company, and the outstanding principal of
the debentures may be converted, subject to redemption rights of the Company,
into shares of the Company's common stock based on an initial conversion price
of $0.50, subject to adjustment as defined in the agreement.
The debenture debt was recorded net of discounts totaling $541,714
recorded in connection with the $120,000 of loan fees and expenses, $106,500
recorded based on the fair market value of the common stock on the date of
issuance and $315,214, based on a Black-Scholes model valuation, related to the
533,000 warrants issued to debenture holders. During the three months ended June
30, 2004, the Company recorded total interest expense of $5,829 in connection
with the debenture debt, of which $4,514 resulted from the non-cash amortization
of debt discount and $1,315 related to interest accrued during the periods on
the outstanding principal balance.
In connection with these debentures, the Company entered into a
Registration Rights Agreement with the debenture holders covering 500,000 shares
of common stock, 750,000 shares of common stock underlying the warrants and
2,000,000 shares of common stock underlying the conversion provision included in
the debenture agreements. Pursuant to this agreement, the Company is obligated
to file a Registration Statement with the Securities and Exchange within 30 days
of the closing of the transaction (See Note 14).
78
CONVERTIBLE DEBENTURES (Continued)
As of June 30, 2004 and December 31, 2003, convertible debenture debt
balance consists of the following:
June 30, 2004 December 31, 2003
------------- -------------
Secured subordinated debenture $ 1,800,000 $ --
Secured debenture discount (709,007) --
------------- -------------
Secured debenture debt $ 1,090,993 $ --
============= =============
NOTE 7 - NOTES PAYABLE - RELATED PARTIES
SURGIJET, INC.
On October 23, 1998, the Company issued a demand promissory note in the
amount of $400,000 in favor of SurgiJet, Inc., a company then related through
common shareholders. Interest accrued on the unpaid principal at a variable
interest rate based on the prime rate totaled $139,955 on February 11, 2003. In
connection with the Merger Agreement, an amendment to the note was executed on
February 11, 2003 under which the accrued interest was reduced to $49,652, the
accrual of additional interest was halted, and scheduled principal and interest
payments were established. Under the amended note, the first payment of $30,000
was due on February 11, 2003 with equal monthly installments of $15,000,
including interest due on the first of each month, and all outstanding principal
and interest was due and payable upon successful completion of the Company's
2002 financial statements. As a result of the amendment, the Company recorded a
$90,303 gain during the third quarter of 2003 based on the difference between
the total accrued interest expense included on the amended note and the total
interest of $139,955 previously accrued. During 2003 payments totaling $45,000
were made by the Company. As discussed more fully in Note 11, the validity of
the underlying note, as well as the amended note, is disputed by the Company,
and is a subject of on-going litigation between the Company and SurgiJet.
Pending the outcome of the litigation, the Company ceased making scheduled
payments on this note. As of June 30, 2004 and December 31, 2003, the
outstanding principal balances and accrued interest payable balances on this
note were $360,976 and $43,676, respectively. At June 30, 2004 the entire
principal balance of the note is reflected as a current liability, and as of
December 31, 2003, $273,832 of the principal balance is reflected as a current
liability and $87,144 was reflected as long term debt.
DENTAJET, INC.
During 2002, the Company entered into a promissory note for a principal
sum of $91,000, plus interest at the rate of 10% per annum with DentaJet, Inc.
("DentaJet"), a Company then related through common shareholders. During 2002
and 2003, the Company borrowed an additional $72,000 from, and made payments
totaling $27,482, to DentaJet, resulting in an outstanding principal balance of
$135,518 at December 31, 2003 and June 30, 2004. During the six months ended
June 30, 2004 the Company recorded $8,046 of interest expense related to this
note, and as of June 30, 2004 and December 31, 2003 accrued interest payable on
this note totaled $32,790 and $24,745, respectively.
Pursuant to the Merger Agreement, the loan was due and payable upon
successful completion of an independent audit of the Company's 2002 financial
statements. However, as discussed more fully at Note 11, the validity of this
note is being disputed by the Company, and is a subject of on-going litigation
between the Company and SurgiJet.
79
NOTES PAYABLE - RELATED PARTIES (Continued)
FINANCIAL ENTREPRENEURS, INC. ("FEI")
In connection with the Merger Agreement in 2003, the Company assumed a
promissory note during 2003 originally entered into between PNAC and FEI, a
significant shareholder of the Company, during 2002. The note bears interest at
an annual rate of 7.5%, and matures on April 3, 2009. Upon consummation of the
merger in February 2003, the outstanding principal and accrued interest payable
balances were $206,649 and $11,462, respectively. During 2003, the Company added
net borrowings of $43,476 to the note, and accrued additional interest expense
of $17,072, resulting in an outstanding principal balance and accrued interest
payable balances at December 31, 2003 of $250,125 and $28,534, respectively.
During the six months ended June 30, 2004, net activity resulted in an increase
to the outstanding principal of $15,865, and $11,219 of additional interest was
accrued. As of June 30, 2004 the outstanding principal and accrued interest
payable on this note were $265,990 and $39,752, respectively.
SHAREHOLDERS
During 2002, the Company entered into a promissory note with Lance
Doherty, a shareholder of the Company, for a principal sum of $19,000 plus
interest at the rate of 10% per annum. As of June 30, 2004 and December 31, 2003
the outstanding principal balance of this note was $19,000. During the six
months ended June 30, 2004 $1,151 of additional interest was accrued, and as of
June 30, 2004 accrued interest payable totaled $5,071. Pursuant to the Merger
Agreement, this note was due and payable upon successful completion of an
independent audit of the Company's 2002 financial statements. However, as
discussed more fully at Note 11, the validity of this note is being disputed by
the Company, and is a subject of on-going litigation between the Company and Mr.
Doherty.
NOTE 8 - COMMITMENTS
LICENSE AGREEMENTS
Under the terms of the technology license agreements with SurgiJet, the
Company is obligated to pay a royalty of 7% of revenues received from sales of
the products, up to $400 million of revenues over the course of the agreements,
and 5% of revenues thereafter. The license agreements with SurgiJet also provide
for a minimum royalty of $60,000 per year that may be used as a credit toward
payment of future royalties due on product sales.
Under the terms of the patent license agreement entered into during
2003, the Company is obligated to pay a royalty of 6% of net sales of products
utilizing the licensed patent technology. The license agreement also provides
for a minimum royalty of $24,000 per year that may be used as a credit toward
payment of future royalties due on product sales.
80
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ACTIVITY
During the second quarter of 2004, the Company issued a total of
7,490,000 shares of common stock. Of this total, 115,000 shares were issued in
connection with private equity placements, 600,000 shares were issued from
common stock subscriptions received in 2003, 2,400,000 shares were issued as
compensation for consulting services, 750,000 shares were issued in connection
with a product licensing agreement, 75,000 shares were issued pursuant to
litigation settlement agreements, and 150,000 shares were issued pursuant to a
securities purchase agreement entered into in connection with one of the secured
debt agreements completed during the quarter.
In connection with the issuance of these shares, the Company recorded
expenses of $2,280,000 related to the shares issued for consulting services and
$59,250 related to the shares issued pursuant to litigation settlements. In
addition, 712,500 was capitalized in connection with the shares issued in
connection with the product license agreement and $106,500 was recorded as debt
discount related to the shares issued pursuant to the securities purchase
agreement. All amounts recorded in connection with the issuance of these shares
were based on the fair value of the stock on the date of issuance.
In addition, during the second quarter of 2004, the Company issued an
aggregate of 3,400,000 shares of common stock as collateral under completed and
pending debt agreements. The issuance of these shares was recorded as reductions
to Additional Paid in Capital based on the par value of shares issued.
WARRANT ACTIVITY
During the second quarter of 2004, the Company issued 5-year warrants
to purchase an aggregate of 2,080,833 shares of its common stock. Of this total,
an aggregate of 1,903,333 warrants were issued in connection with secured
debenture agreements completed during the quarter at exercise prices ranging
from $0.60 to $1.50 (see Note 5), 110,000 warrants were issued in connection
with private equity placements at an exercise price of $2.25 per share, 37,500
warrants were issued at an exercise price of $2.25 per share for services
provided to the company and 30,000 warrants were issued at an exercise price of
$1.00 in connection with a working capital advance made to the Company.
During this period, the Company recorded debt discount totaling
$810,815 and professional fees totaling $64,238 related to warrants issued in
connection with the debenture agreements, professional fees totaling $17,032
related to warrants issued in connection with the working capital advance and
consulting expense in the amount of $11,612 in connection with the warrants
issued for services. All amounts recorded in connection with these warrants were
based on the fair value of the warrants issued using a Black-Scholes model
valuation.
The following table summarizes the number of outstanding common stock
warrants as of June 30, 2004:
Weighted Average
Number Exercise Price
------------ ------------
Outstanding at December 31, 2003 12,102,480 $ 2.53
Granted 825,000 1.87
Forfeited -- --
Exercised -- --
------------ ------------
Outstanding at March 31, 2004 12,927,480 $ 2.49
Granted 2,080,833 1.00
Forfeited -- --
Exercised -- --
------------ ------------
Outstanding at June 30, 2004 15,008,313 $ 1.87
============ ============
81
SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
The following table summarizes additional information with respect to
outstanding common stock warrants at June 30, 2004:
Number Weighted Average Life Number
Exercise Price Outstanding Remaining in Months Exercisable
-------------- ------------ --------------------- -----------
$0.60 500,000 60 500,000
$0.90 1,153,333 58 1,153,333
$1.00 6,101,480 43 5,101,480
$1.10 250,000 56 250,000
$1.23 45,000 49 45,000
$1.50 280,000 56 280,000
$2.25 4,403,500 49 4,403,500
$2.50 505,000 40 505,000
$3.00 50,000 43 50,000
$5.00 1,720,000 43 1,720,000
------------ -----------
15,008,313 14,008,313
============ ===========
NOTE 10 - SETTLEMENT AGREEMENTS AND LOAN PAYABLE
In November 2002, the Company entered into settlement agreements with
an officer and an employee related to accrued but unpaid fees for consulting
services rendered by them prior to the consummation of the Merger in the
aggregate of $700,000. Under the agreements a total of $450,000 was converted
into 211,267 shares of the Company's common stock, during 2003, based upon the
closing price on the effective date the Merger Agreement. The balance owed of
$250,000 was converted into two notes payable that bear interest at an annual
rate of 3.5% and provide for the principal to be paid over equal installments
for the duration of the loans. At June 30, 2004 and December 31, 2003, the
aggregate balances on these notes were $93,749 and $104,166, respectively and
the respective accrued interest payable balances were $8,125 and $6,330.
NOTE 11 - CONTINGENCIES
During 2003, the Company initiated litigation against SurgiJet, Inc.,
its former parent company, and certain directors, officers and shareholders of
SurgiJet. The action was initially filed by the Company for a judicial
determination that a $400,000 Promissory Note issued by the Company and payable
to SurgiJet ("SurgiJet Note"), prior to the completion of the Merger Agreement,
is not enforceable, and for recovery of payments previously made on the note.
Subsequently, the Company challenged the validity of other notes payable carried
on the Company's books at the effective date of the Merger Agreement, including
notes to DentaJet, Lance Doherty (former President of VisiJet and beneficial
owner of more than 5% of its outstanding Common Stock) and Rex Doherty.
SurgiJet and its principals filed a cross-action against the Company,
and its directors and certain officers, seeking damages of approximately
$800,000, rescission of the Merger Agreement, other specified damages, interest
and attorney's fees. In the cross-complaint, SurgiJet and its principals allege
breach of the Merger Agreement between the Company and SurgiJet, breach of the
Assumption of Liabilities Agreement (including Notes Payable to DentaJet, Lance
Doherty and Rex Doherty) entered into in connection with the Merger Agreement,
and breach of the SurgiJet Note, along with fraud and unfair business practices.
82
CONTINGENCIES (Continued)
The Company believes the allegations to the cross-complaint are wholly
without merit and plans to vigorously pursue its claims and contest the
cross-complaint.
The Company is also a defendant in a breach of contract claim from an
outside provider of accounting services for work performed for the Company prior
to the effective date of the Merger Agreement, for $43,500, plus interest. The
Company has denied the allegations of the complaint and is vigorously contesting
the action. The Company has filed a Cross Complaint alleging professional
negligence, breach of contract, breach of covenant of good faith and fair
dealing and aiding and abetting breach of fiduciary duty.
In January 2004, the Company was served a summons which named the
Company and certain of its officers as defendants in an action filed by a
corporation claiming it was owed fees related to professional employment
placement services in the approximate amount of $114,500. The Company denies the
allegations of the complaint and plans to vigorously contest the action.
In February 2004, the Company was served a summons which named the
Company as one of several defendants in an action filed by an individual seeking
damages of approximately $450,000 based on claims including breach of contract,
promissory fraud and negligent misrepresentation related to activities that
occurred, and involving owners and management of the Company, prior to the
effective date of the Merger Agreement. The Company denies any involvement in
the activities included in the allegations, and does not anticipate the
necessity to defend this action.
NOTE 12 - RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 2004 the Company
recorded $15,000 and $30,000, respectively, of consulting fees to a corporation
owned by a director of the Company. As of June 30, 2004, $2,500 related to this
agreement was included in accounts payable.
In January 2004, the retainer due under a consulting agreement between
the Company and a director was increased from $5,000 to $15,000 per month.
During the three and six months ended June 30, 2004 the Company recorded $45,000
and $90,000, respectively of consulting fees and expenses of $6,221 and $8,753,
respectively, in connection with this agreement. As of June 30, 2004, $85,104
related to this agreement was included in accounts payable.
During the three and six months ended June 30, 2004 the Company
recorded $45,000 and $90,000, respectively, of consulting fees in connection
with an agreement with a corporation controlled by two shareholders, each of
whom own beneficially in excess of 5% of the outstanding shares of the Company's
common stock. Pursuant to this agreement, entered into in April 2003, the
Corporation is entitled to receive a monthly fee of $15,000, provided however
that payment of accrued fees is not payable by the Company until such time as
the Company has a minimum cash balance of $2.5 million. At June 30, 2004 a total
of $225,000 in fees recorded pursuant to this agreement is included in accrued
expenses.
During the three months ended March 31, 2004 the Company recorded
finders' fee expenses in the amount of $15,000, to a corporation controlled by
an individual who beneficially owns in excess of 5% of the outstanding shares of
common stock of the Company. In addition, during the three and six months ended
June 30, 2004 the Company reimbursed the corporation for travel expenses related
to business of the Company totaling $5,600 and $9,937, respectively. As of June
30, 2004, all amounts accrued related to finders' fees and expenses had been
paid.
83
RELATED PARTY TRANSACTIONS (Continued)
During the second quarter of 2004, the Company and the same corporation
entered into an agreement pursuant to which the corporation agreed to loan the
Company shares of the Company's common stock owned by the corporation for use by
the Company as collateral in subsequent financing transactions. In return, the
Company agreed to reduce the exercise price of 1,543,000 warrants previously
issued to the corporation from $5.00 per share to $1.00 per share. In connection
with the warrant re-pricing the Company recorded a non-cash expense of $546,403
during the second quarter based on a Black-Scholes model valuation. As of June
30, 2004 all shares borrowed by the Company from the corporation pursuant to
this agreement had been returned to the corporation.
In May 2004 the Company received a working capital advance in the
amount of $200,000 from an individual related to the controlling stockholder of
the same corporation, and in June 2004, the advance was repaid.
NOTE 13 - Security Lending Agreement
In April 2004, the Company and a corporation that beneficially owns in
excess of 5% of the outstanding shares of common stock of the Company entered
into an agreement pursuant to which the corporation agreed to make available 3
million free-trading shares of the Company's common stock, for use by the
Company as collateral in subsequent financing transactions. In accordance with
the terms of this agreement, the Company is obligated to pay interest on the
value of shares borrowed (assuming a value of $1.00 per share) based on the
LIBOR rate plus 50 basis points, and must return the borrowed shares by November
30, 2004. In the event of default, the Company has agreed to file a Registration
Statement and to return any shares, within 72 hours, that had not previously
been returned by the due date. As of June 30, 2004 the Company had borrowed a
total of 1,550,000 shares pursuant to this agreement, and the Company had
accrued interest expense totaling $9,515.
NOTE 14 - SUBSEQUENT EVENTS
DEBENTURE AGREEMENT NON-COMPLIANCE
As of July 5, 2004 the Company had not repaid the $750,000 principal
balance of the secured debenture entered into in May 2004 as required in the
debenture agreement. Based on the Company's failure to repay the principal
balance by the scheduled maturity date the Company is currently in default under
this instrument.
As of July 24, 2004 the Company had not completed the filing of a
registration statement as required under the registration rights agreement
between the Company and the holders of $1,000,000 of convertible debentures
entered into in June 2004. Accordingly, the Company is in default of its
obligation to file the Registration Statement.
CONVERTIBLE DEBENTURE
In July 2004, the Company entered into convertible note agreements with
an institutional lender with an aggregate principal balance of $1,000,000, and
received net proceeds of $900,000 after subtracting related placement agent fees
and expenses totaling $100,000. The note bears interest, at an annual rate of
8%, which is due and payable quarterly beginning on October 31, 2004. In
addition, the debenture holders received warrants to purchase 750,000 shares of
the Company's common stock, exercisable through July 23, 2011, at an exercise
price of $1.00 per share.
84
SUBSEQUENT EVENTS (Continued)
The principal balance of the note, plus any accrued and unpaid
interest, is due and payable on July 23, 2014, provided however, that on or
after July 31, 2007 the Company, at the option of the note holder, may be
obligated to repurchase the note at a price equal to 100% of the outstanding
principal and interest. The outstanding principal of the debentures may be
converted into shares of the Company's common stock, at the option of the note
holder, based on an initial conversion price of $0.54 per share, subject to
adjustment as defined in the agreement.
85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The certificate of incorporation and the by-laws of the registrant provide
that the registrant shall indemnify its officers, directors and certain others
to the maximum extent permitted by the General Corporation Law of the State of
Delaware.
Section 145 of the General Corporation Law of the State of Delaware
provides in relevant part as follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative) other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interest of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
II-1
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
The General Corporation Law does not allow for the elimination or
limitation of liability of a director: (i) for any breach of a director's duty
of loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) arising under Section 174 thereof; or (iv) for any transaction from
which the director derived an improper personal benefit. The General Corporation
Law provides further that the indemnification permitted thereunder shall not be
deemed exclusive of any rights to which the directors and officers may be
entitled under the corporation's bylaws, any agreement, a vote of stockholders
or otherwise.
In addition, pursuant to our certificate of incorporation and by-laws, we
shall indemnify our directors and officers against expenses (including judgments
or amounts paid in settlement) incurred in any action, civil or criminal, to
which any such person is a party by reason of any alleged act or failure to act
in his capacity as such, except as to a matter as to which such director or
officer shall have been finally adjudged not to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration fee $ 1,344
Printing and duplication expenses $ 2,000
Legal fees and expenses $ 40,000
Accounting Fees $ 20,000
Miscellaneous $ 2,666
-----------
TOTAL $ 66,000
===========
Item 26. Recent Sales of Unregistered Securities.
The securities of the Company that were issued by it within the past three
years and were not registered with the SEC are described below.
In April 2002, the Company issued 300,000 shares of restricted Common stock
to an investor in consideration for the investor's cancellation of an
outstanding warrant to purchase 5,500,000 shares of the Company's Common Stock
for an exercise price of $100,000.
In May 2002, the Company issued 135,000 shares of restricted Common Stock,
and a five-year warrant to purchase an additional 135,000 shares of Common Stock
at an exercise price of $2.50 per share, to a single private investor. The
purchase price was $150,000.
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In August 2002, the Company issued an additional 100,000 shares of
restricted Common Stock, and a five year warrant to purchase an additional
100,000 shares of Common Stock, at an exercise price of $2.50 per share, to a
single private investor. The purchase price was $100,000.
In February 2003 the Company issued 12,128,481 shares of Common Stock to
217 persons upon the acquisition of its predecessor, VisiJet, Inc. through a
statutory merger. The Company believes the transaction was exempt from the
registration requirements of the Securities Act of 1933, as amended, by reason
of Section 3(a)(10) thereof.
During 2003 the Company received gross proceeds of $4,575,000 from the sale
of 5,749,987 shares and warrants to purchase 6,249,986 shares of Common Stock to
47 private investors.
During the first and second quarters of 2004 the Company received gross
proceeds of $585,000 from the sale of 585,000 shares and warrants to purchase
585,000 shares of Common Stock to 12 private investors.
In May 2004, the Company issued a $750,000 debenture to a group of five
private investors. The principal balance of the debenture is due and payable on
July 5, 2004, and the debenture bears interest at an annual rate of 15%. In
addition, the debenture holders received warrants to purchase 500,000 shares of
the Company's common stock, exercisable through May 6, 2009, at an exercise
price of $0.90 per share.
In May 2004, the Company issued $800,000 in convertible debentures to two
private lenders. The principal balance of the debentures is due and payable on
the earlier of (i) one hundred and five (105) days from the issue date, or (ii)
ten (10) business days from the date the Company's Registration Statement is
declared effective by the Securities and Exchange Commission. The debentures
bear interest at an annual rate of 10%, which is due and payable on the maturity
date. In addition, the debenture holders received an aggregate of 533,000
warrants to purchase shares of the Company's common stock, exercisable through
May 6, 2009 at an exercise price of $0.90 per share.
In June 2004, the Company issued $1,000,000 in convertible debentures to
two private lenders. The principal balance of the debentures is due and payable
on June 24, 2006 and the debentures bear interest at an annual rate of 8%. In
addition, the debenture holders received an aggregate of 150,000 shares of the
company's common stock, and an aggregate of 750,000 warrants to purchase shares
of the Company's common stock, exercisable through June 24, 2009, at an exercise
price of $1.50 per share, provided however that the exercise price with respect
to an aggregate of 500,000 of the warrants is reduced to $0.60 per share during
the period from the date of issuance through the date twelve (12) months after
the Securities and Exchange Commission declares effective a registration
statement registering the resale of shares underlying the warrants.
In July 2004, the Company entered into convertible debentures agreements
with a private lender with an aggregate principal balance of $1,000,000, and
received net proceeds of $900,000 after subtracting related placement agent fees
and expenses totaling $100,000. The note bears interest, at an annual rate of
8%, which is due and payable quarterly beginning on October 31, 2004. In
addition, the debenture holders received warrants to purchase 750,000 shares of
the Company's common stock, exercisable through July 23, 2011, at an exercise
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price of $1.00 per share. The principal balance of the note, plus any accrued
and unpaid interest, is due and payable on July 23, 2014, provided however, that
on or after July 31, 2007 the Company, at the option of the note holder, may be
obligated to repurchase the note at a price equal to 100% of the outstanding
principal and interest. The outstanding principal of the debentures may be
converted into shares of the Company's common stock, at the option of the note
holder, based on an initial conversion price of $0.54 per share, subject to
adjustment as defined in the agreement.
In October 2004, the Company entered into convertible debenture agreements
with four private lenders with an aggregate principal balance of $850,000, and
received net proceeds of $788,000 after subtracting related placement agent fees
and expenses totaling $62,000. The notes bear interest, at an annual rate of 8%,
which is due and payable quarterly beginning on December 31, 2004. The principal
balance of the note, plus any accrued and unpaid interest is due and payable on
October 6, 2014, provided however, that on or after October 6, 2007 the Company,
at the option of the note holder, may be obligated to repurchase the note at a
price equal to 100% of the outstanding principal and interest. In addition, the
note holders received warrants to purchase 850,000 shares of the Company's
common stock, exercisable through October 6, 2009 at an exercise price of $0.40
per share. In connection with these agreements, the Company agreed to issue a
total of 500,000 additional warrants to the holders of an aggregate of
$2,000,000 of convertible debenture agreements entered into in June and July
2004, and to reduce the initial conversion price of these debentures to $0.35
per share.
Except as noted above, the Company believes that each of the foregoing
transactions was exempt from the registration requirements of the Securities Act
of 1933, as amended, by reason of Section 4(2) thereof and Regulation D
thereunder.
On October 7, 2004 the Company issued 450,000 shares of Series A
Convertible Preferred Stock ("Series A Shares") to Langley Park Investments,
PLC, a United Kingdom corporation. The Company issued the Series A Shares in
exchange for 2,477,974 newly issued Ordinary Shares of Langley Park Investments,
PLC, with an agreed value of (pound)1.00 (pound) per share. While the share
certificates were issued, no Certificate of Designation establishing the rights,
privileges and preferences of the Series A Preferred Stock has been filed with
the Delaware Secretary of State as of the date of this Registration Statement.
The Company believes that the foregoing securities issuance was exempt from
the registration requirements of the Securities Act of 1933, as amended, by
reason of Section 4(2) thereof and Regulation S thereunder.
II-4
Item 27. Exhibits.
Exhibit No. Exhibit Description
----------- -------------------
2.1 Second Amended and Restated Agreement and Plan of Merger, dated
December 20, 2002 among Ponte Nossa Acquisition Corp., VisiJet,
Inc., and VisiJet Acquisition Corporation (1)
2.2 Amendment No. 1, dated January 15, 2003, to Second Amended and
Restated Agreement and Plan of Merger (2)
3.1 Restated Certificate of Incorporation of the Company (3)
3.2 Amended and Restated Bylaws (4)
5.1 Form of Opinion of Haddan & Zepfel LLP
10.1 Patent License Agreement between SurgiJet, Inc. and VisiJet, Inc.,
dated October 23, 1998 (4)
10.2 Amendment No. 1 to Patent License Agreement, dated November 6, 2002
(3)
10.3 Technology License Agreement between SurgiJet, Inc. and VisiJet,
Inc., dated October 23, 1998 (4)
10.4 Amendment No. 1 to Technology License Agreement, dated November 6,
2002 (3)
10.5 Trademark License Agreement between SurgiJet, Inc. and VisiJet,
Inc., dated October 23, 1998 (4)
10.6 Amendment No. 1 to Trademark License Agreement, dated November 6,
2002 (3)
10.7 Warrant, dated February 11, 2003, issued to PCL Associates (4)
10.8 Warrant, dated February 11, 2003, issued to David E. Eisenberg Trust
(4)
10.9 Warrant, dated February 11, 2003, issued to Laurence Schreiber (4)
10.10 Warrant, dated February 11, 2003, issued to Financial Entrepreneurs
Incorporated (4)
10.11 Form of Stock Purchase Warrant Used in February 2004 Private
Placement(5)
10.12 Form of 24% Secured Subordinated Debenture Used in February 2004
Private Placement(5)
10.13 Securities Purchase Agreement, dated June 24, 2004, between the
Company, Bushido Capital Master Fund, L.P. and Bridges & Pipes, LLC
(6)
10.14 Form of Convertible Debenture Issued Pursuant to June 24, 2004 Stock
Purchase Agreement (6)
10.15 Form of Warrant (stepped price) issued pursuant to June 24, 2004
Stock Purchase Agreement (6)
10.16 Form of Warrant (fixed price) issued pursuant to June 24, 2004 Stock
Purchase Agreement (6)
10.17 Registration Rights Agreement, dated June 24, 2004, between the
Company, Bushido Capital Master Fund, L.P. and Bridges & Pipes, LLC
(6)
II-5
10.18 Pledge and Escrow Agreement, dated June 24, 2004, between the
Company, Bushido Capital Master Fund, L.P., Bridges & Pipes, LLC,
and Tarter Krinsky & Drogin LLP, as Escrow Agent (6)
10.19 Term Credit Agreement, dated May 6, 2004, between the Company Inc.
and HIT Credit Union (7)
10.20 Form of $750,000 Term Note, dated May 6, 2004, issued by the Company
to HIT Credit Union(7)
10.21 Security Agreement, dated May 6, 2004, between the Company and HIT
Credit Union(7)
10.22 Stock Purchase Agreement, dated May 6, 2004 between the Company,
Platinum Long Term Growth LLC and Rock II, LLC (7)
10.23 10% Convertible Debenture for $550,000,dated May 6, 2004, issued by
the Company to Platinum Long Term Growth LLC (7)
10.24 10% Convertible Debenture for $250,000,dated May 6, 2004, issued by
VisiJet, Inc., to Rock II, LLC (7)
10.25 Warrant To Purchase 366,666 Shares of Common Stock of the Company,
issued to Platinum Long Term Growth LLC (7)
10.26 Warrant To Purchase 166,667 Shares of Common Stock of the Company,
issued to Rock II, LLC (7)
10.27 Form of Registration Rights Agreement, dated May 6, 2004 between the
Company, Platinum Long Term Growth LLC and Rock II, LLC (7)
10.28 Manufacturing, Supply and Distribution Agreement, dated May 7, 2004
between the Company and Gebauer Medizintechnik GmbH (7)
10.29 Securities Purchase Agreement, dated July 23, 2004 between the
Company and Libertyview Special Opportunities Fund, LP (7)
10.30 8% Convertible Note for $1,000,000, dated July 23, 2004, issued by
the Company to Libertyview Special Opportunities Fund, LP (7)
10.31 Warrant To Purchase 750,000 Shares of Common Stock of the Company,
issued to Libertyview Special Opportunities Fund, LP (7)
10.32 Registration Rights Agreement, dated July 23, 2004, between the
Company and Libertyview Special Opportunities Fund, LP (7)
10.33 Convertible Preferred Stock Purchase Agreement, dated August 24,
2004 between the Company and Langley Park Investments PLC (8)
10.34 Securities Purchase Agreement, dated October 6, 2004, between the
Company and certain investors relating to $885,000 in convertible
debentures
10.35 Form of Convertible Debenture issued under October 6, 2004
Securities Purchase Agreement
10.36 Form of Stock Purchase Warrant issued under October 6, 2004
Securities Purchase Agreement
10.37 Registration Rights Agreement, dated October 6, 2004 between the
Company, Bushido Capital Master Fund L.P., Bridges & Pipes LLC,
Libertyview Special Opportunities Fund, LP, Gamma Opportunity
Capital Partners LP, Blue Fin Partners, Inc. and Little Gem Life
Sciences Fund, LLC
10.38 Amendment TO Securities Purchase Agreement dated October 6, 2004
between the Company, Gamma Opportunity Capital Partners L.P.,
Bridges & PIPES LLC, LibertyView Special Opportunities Fund, LP,
Blue Fin Partners, Inc. and Little Gem Life Sciences Fund, LLC
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10.39 Securities Purchase Amendment Agreement dated October 7, 2004,
between the Company, Bushido Capital Master Fund L.P., Bridges &
Pipes LLC, and Libertyview Special Opportunities Fund, LP
10.40 Amended Convertible Debenture, dated October 7, 2004, issued to
Bridges & Pipes LLC
10.41 Amended Convertible Debenture, dated October 7, 2004, issued to
Bushido Capital Master Fund LP
10.42 $1,000,000 Convertible Note, dated July 23, 2004, as amended October
6, 2004, issued to Libertyview Special Opportunities Fund, LP
10.43 Warrant to Purchase 750,000 shares, dated October 6, 2004, issued to
Libertyview Special Opportunities Fund, LP
10.44 Warrant to Purchase 250,000 shares, dated October 6, 2004, issued to
Libertyview Special Opportunities Fund, LP
14 Code of Ethics(5)
23.1 Consent of Peterson & Co. LLP, Certified Public Accountants
23.2 Consent of Haddan & Zepfel LLP (included in Exhibit 5.1)
----------------
(1) Incorporated by reference from Report on Form 8-K of the Company,
filed January 7, 2003
(2) Incorporated by reference from Report on Form 8-K of the Company,
filed February 14, 2003
(3) Incorporated by reference from Quarterly Report on Form 10-QSB of
the Company for the quarter ended June 30, 2003, filed August 15,
2003
(4) Incorporated by reference from Annual Report on Form 10K-SB of the
Company for the year ended December 31, 2002, filed on April 14,
2003.
(5) Incorporated by reference from Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2003, filed April 14, 2004.
(6) Incorporated by reference from Report on Form 8-K of the Company,
dated June 24, 2004, filed on August 18, 2004
(7) Incorporated by reference from Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2004, filed on August 18, 2004.
(8) To be filed by amendment
II-7
Item 28. Undertakings.
The undersigned registrant hereby undertakes that:
(1) It will 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 of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the Registration
Statement; notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) For the purpose of determining any liability under the Securities
Act of 1933, treat each such post-effective amendment as a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time to be the initial
bona fide offering thereof; and
(3) It will remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC 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 registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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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 for filing on Form SB-2 and has authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on November 12, 2004.
VISIJET, INC.
By: /s/ Randal A. Bailey
----------------------------------------
Randal A. Bailey,
President
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Randal A. Bailey his true and lawful
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities to sign any and all
amendments (including post- effective amendments) to this registration statement
and to sign a registration statement pursuant to Section 462(b) of the
Securities Act of 1933, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Randal A. Bailey President and a Director November 12, 2004
------------------------- (Principal Executive Officer)
Randal A. Bailey
/s/ Laurence M. Schreiber Vice President, CFO and a Director November 12, 2004
------------------------- (Principal Financial and
Laurence M. Schreiber Accounting Officer)
Directors:
/s/ Richard H. Keates Chairman of the Board of Directors November 12, 2004
-------------------------
Richard H. Keates
/s/ Adam Krupp Director November 12, 2004
-------------------------
Adam Krupp
/s/ Norman Schwartz Director November 12, 2004
-------------------------
Norman Schwartz
II-10