U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2003
Commission file Number 0-25611
VisiJet, Inc.
(Name of small business issuer in its charter)
Delaware 33-0838660
(State of incorporation) (I.R.S. Employer I.D. No.)
192 Technology, Suite Q, Irvine, California 92618
(Address of principal executive offices)
Issuer's telephone number (949) 450-1660
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ].
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The registrant's revenues for fiscal year 2003 were $0.
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $14.4 million (based on 13,830,834 shares
held by non-affiliates and a closing share price of 1.04 per share on March 31,
2004). Shares of common stock held by each officer and director and by each
person who owns more than 10% of the outstanding common stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 31, 2004, the number of shares outstanding of the registrant's
Common Stock was 22,689,663.
TABLE OF CONTENTS
PART I
Item 1. Description of Business 2
Item 2. Description of Property 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 17
Item 6. Management's Discussion and Analysis or Plan of Operation 17
Item 7. Financial Statements 23
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure 23
Item 8A. Controls and Procedures 24
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 25
Item 10. Executive Compensation 27
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 29
Item 12. Certain Relationships and Related Transactions 31
Item 13. Exhibit and Reports on Form 8-K 32
Item 14. Principal Accountant Fees and Services 34
1
PART I
FORWARD LOOKING STATEMENTS
This Form 10-KSB, 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-KSB 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 publicly update
or revise the forward looking statements made in this Form 10-KSB to reflect
events or circumstances after the date of this Form 10-KSB or to reflect the
occurrence of unanticipated events.
ITEM 1. DESCRIPTION OF BUSINESS
VisiJet, Inc., (the "Company" or "VisiJet") formerly known as Ponte
Nossa Acquisition Corp ("PNAC"), is a Delaware corporation engaged in the
research and development of surgical equipment for use in the field of
ophthalmology based on proprietary waterjet technology.
The Company was originally 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 was 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). Immediately
thereafter, PNAC changed its name to VisiJet, Inc.
2
Under the terms of the Merger Agreement, 8,600,000 shares of the
Company's Common Stock were issued to the shareholders of VisiJet, Inc. Also,
3,528,481 shares of Common Stock, and warrants to purchase an additional
4,528,481 shares of Common Stock, were issued to certain investors for cash
concurrently with the consummation of the merger. As a result of the merger, the
Company is continuing the business of VisiJet.
VisiJet is engaged in the development and marketing of ophthalmic
surgery products based on applications of waterjet technology, designed to
result in faster, safer and more efficacious laser eye and cataract surgery.
The Company has focused its efforts toward 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. We believe our proprietary waterjet surgical devices will
result in a highly effective method for surgical procedures, with a potentially
significant impact on the ophthalmic market. Microsurgery and minimally invasive
surgery were pioneered in ophthalmology, and cataracts are now removed in
minutes utilizing microscopes, with minimally invasive products and techniques
that are constantly being refined and upgraded. More recently, the refractive
surgery market has experienced a growth phase with the advent of vision
correction through the LASIK procedure, which involves cutting a corneal flap
with a microkeratome prior to ablation of stromal tissue with an excimer laser.
WATERJET TECHNOLOGY
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.
3
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
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.
4
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.
THE CATARACT SURGERY MARKET
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. We believe that access
to affordable technology, such as our Pulsatome product, should help to address
this need.
THE COMPANY'S PRODUCTS
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
efforts and receipt of required regulatory approvals, the Company hopes to
introduce the Hydrokeratome to the market, and begin generating product sales
revenue in the fourth quarter of 2004.
5
PULSATOME(R) CATARACT EMULSIFIER. The Pulsatome(R) Cataract Emulsifier
is an emulsification device for 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 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.
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 introduce the Pulsatome to the market, and begin generating product
sales revenue in the fourth quarter of 2004.
HYDROREFRACTOR(R) CORNEAL SHAPER. Based on a patented waterjet-based
technology, we plan to develop the HydroRefractor with the goal of completing
the entire LASIK procedure without the need for an excimer laser. This device is
being designed to not only create the lamellar flap required to access the
cornea's stromal bed, but to also create a "power cut" (or series of cuts) which
will remove tissue in minute quantities so as to change the refractive power of
the patient's eyes to the desired level. Development of this device is in the
very early stages, and significant design and testing work will be required to
determine its viability and possible use in ophthalmic surgical procedures.
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.
Furthermore, with respect to any other products we may, in the future, be
permitted to commercially sell, we will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which we have no
experience.
6
We expect to encounter direct competition from other companies
developing water-jet type devices applicable to ophthalmic surgery.
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, that offers "bladeless" LASIK surgery. This laser product creates a
lamellar flap for LASIK using tiny laser "explosions" within the cornea to
separate the tissue. Intralase is accurate and avoids many of the serious
problems associated with microkeratomes. Based on testing performed to date, and
anticipated product pricing, we believe that HydroKeratome is faster, more
effective and will be less expensive than Intralase.
COMPETITION IN THE CATARACT EMULSIFICATION MARKET. The dominant
instrument in modern cataract surgery is the ultrasonic phacoemulsifier. 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.
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.
COMPETITION IN THE CORNEAL SHAPING MARKET. There are several competing
technologies in the area of reshaping the cornea to change refractive power. The
most prevalent products are the excimer lasers used in the LASIK procedure,
which has been very well accepted by the public. The major player in this area
is VISX, which has placed more lasers than any other company. Alcon, Bausch and
Lomb, Nidek follow VISX. In addition, there are competing companies using
intraocular technologies to change the refractive index of the eye. Staar
Surgical is developing the ICL for placement between the iris and lens capsule.
Other companies are developing intraocular lenses, which would require a clear
lensectomy followed by a lens implant. Other than the excimer laser, none of the
other technologies have reached significant market acceptance.
MANUFACTURING
VisiJet plans to outsource manufacturing of its 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 its bonded warehouse.
7
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. VisiJet has received successful 510(k) notification with respect to
its initial filing for the HydroKeratome, and has filed a 510K submission with
the FDA for upgrades to the product. Before commencement of marketing the
HydroKeratome, we will obtain 510K approval from the FDA for the product
enhancements. We are currently addressing issues raised by the FDA in our
product enhancement submission, and plan to file our response during the second
quarter or third quarter of 2004. Based on a successful review of this
information, we anticipate receiving approval by the FDA of our 510(K) for the
HydroKeratome product enhancements in the third or fourth quarter of 2004.
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. Export sales of investigational
devices that have not received FDA marketing clearance generally are subject to
FDA export permit requirements.
VisiJet plans to distribute its products internationally. 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. We will endeavor to obtain the necessary government approvals in
those foreign countries where we decide to manufacture, market and sell our
products.
8
PATENTS AND TRADEMARKS
The technology utilized by VisiJet in its products is covered by
patents owned by SurgiJet. Under the license agreements with SurgiJet we have
been granted an exclusive worldwide license for ophthalmic applications to
twelve issued United States patents and three issued international patent, for
ophthalmological applications of the technology for the life of the patents. In
addition, we have been granted 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). The company 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.
In September 2003, the Company entered into a license agreement with
the inventor of a patented technology that provides for the sterile flow of
fluid through a surgical water jet apparatus. Through this agreement, the
Company obtained exclusive worldwide rights for all medical applications of the
technology. The Company believes this technology has application in several of
its products under development, and may have additional applications for future
ophthalmic and non-ophthalmic microsurgical products.
EMPLOYEES
As of March 31, 2004 we currently employee 14 persons full time and one
part time. Of these employees, eight are in corporate management and management,
five are in product development and regulatory affairs and one is in sales and
marketing. None of our employees are covered by collective bargaining agreements
and we believe that our relationship with our employees is good. Any future
increase in the number of employees will depend upon the growth of our business,
the successful commercialization of our products and on our obtaining sufficient
funding.
RISK FACTORS
WE ARE A NEW BUSINESS WITH A LIMITED OPERATING HISTORY AND NO REVENUES TO DATE,
AND AS A RESULT, MAKING AN EVALUATION OF OUR BUSINESS PROSPECTS MAY BE
DIFFICULT.
We are a development-stage company with limited prior business
operations and no revenues. We are presently engaged in the development of
certain ophthalmic surgical products. To date, our efforts have been allocated
primarily to the following:
* organizational activities;
* developing a business plan;
* obtaining interim funding;
* conducting research and working toward the development and
regulatory approval of our products.
In order to establish ourselves in the ophthalmic surgery device
market, we are dependent upon continued funding and the successful development
and marketing of our products. You should be aware of the increased risks,
uncertainties, difficulties and expenses we face as a research and development
company 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.
9
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 NO REVENUES AND IF WE ARE UNABLE TO GENERATE SUFFICIENT
REVENUES IN THE FUTURE, WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS.
We are still in the development stage, and have not yet generated
revenues. As an investor, you should be aware of the difficulties, delays and
expenses normally encountered by an enterprise in its development stage, many of
which are beyond our control, including unanticipated research and developmental
expenses, employment costs, and administrative expenses. We cannot assure our
stockholders that our proposed business plans, as described in this prospectus,
will materialize or prove successful, or that we will ever be able to finalize
development of our products or operate profitably. If we cannot operate
profitably, you could lose your entire investment.
WE ARE DEPENDENT ON RAISING ADDITIONAL CAPITAL IN ORDER TO COMPLETE OUR PRODUCT
DEVELOPMENT EFFORTS AND 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.
Because we are a development stage company and have no revenues, we
need to secure adequate funding in order to complete our product development
efforts, and to fund operating losses until such time as we are generate enough
revenue to sustain our business. If we are unable to obtain adequate funding, we
may not be able to successfully develop and market our products 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.
10
WE HAVE A HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT AND WE EXPECT FUTURE
LOSSES THAT MAY CAUSE OUR STOCK PRICE TO DECLINE.
For the fiscal years ended December 31, 2003 and 2002, we incurred net
losses of $4,959,152 and $1,226,676, respectively. We expect to continue to
incur losses as we spend additional capital to develop and market our
technologies and establish our infrastructure and organization to support
anticipated operations. We cannot be certain whether we will ever earn a
significant amount of revenues or profit, or, if we do, that we will be able to
continue earning such revenues or profit. Any of these factors 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 would most likely
cause our stock price to decline and 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 OF OUR STOCK PRICE AND A LOSS OF YOUR
INVESTMENT.
Our 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 Form 10-KSB 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 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 our technologies will be severely limited.
This would 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.
11
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 are a research and development company
engaged exclusively in the development of our waterjet-based ophthalmic surgical
devices. We have not yet brought our first product to market, and have no
revenue from operations. As a result, we may have difficulty competing with
larger, established surgical device companies. Most of our potential competitors
are established, well-known 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.
WE MAY NOT BE ABLE TO OBTAIN NECESSARY GOVERNMENT APPROVAL TO MARKET OUR
TECHNOLOGY, WHICH WOULD MOST LIKELY CAUSE OUR STOCK PRICE TO DECLINE AND OUR
BUSINESS TO FAIL.
We must obtain the approval of the U.S. Food and Drug Administration in
order to market our products in the United States and certain other countries.
To date, we have filed a 510(K) submission with the U.S FDA only for our
HydroKeratome product under development, and we currently expect to file our
response to questions raised by the FDA during the second quarter of 2004. We
expect to file our initial 510(K) submission to the FDA with respect to our
Pulsatome product during the third quarter of 2004. Actual timing of these
filings with the FDA will be dependent on the availability of funding and
results of on-going and planned future testing. If these approvals are not
obtained, or are significantly delayed, our ability to generate revenues from
sales in the United States and these other countries may be adversely affected
and our development and marketing efforts inhibited. This would most likely
cause our stock price to decline and result in the loss of all or part of your
investment.
OUR BUSINESS IS 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.
12
Proprietary rights are critically important to us. We currently have
exclusive licenses to 13 U.S. patents and 3 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.
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.
WE ARE INVOLVED IN LITIGATION WITH SURGIJET, INC., OUR FORMER PARENT COMPANY AND
THE OWNER OF THE PATENTS WE LICENSE, AND WITH CERTAIN PRINCIPALS OF SURGIJET.
FAILURE TO PREVAIL OR REACH AN ACCEPTIBLE SETTLEMENT COULD RESULT IN SIGNIFICANT
MONETARY DAMAGES AND RECISSION OF THE MERGER AGREEMENT.
We license the technology underlying our principal products from
SurgiJet, Inc. ("SurgiJet"), our former parent company. We are engaged in
litigation with SurgiJet arising out of amounts alleged to be owed to SurgiJet
and its affiliates. These amounts include a $400,000 Promissory Note issued by
us to SurgiJet, as well as certain expenses incurred by our former officers and
directors, some of whom continue in management positions with SurgiJet. SurgiJet
has filed a cross-complaint against us, alleging breach of the merger agreement
between VisiJet and its predecessor, as well as breach of the SurgiJet note and
other payment obligations. The cross-complainants in the action seek damages and
rescission of the merger agreement.
The litigation could have several serious repercussions on us. First,
if SurgiJet and its affiliates were able to obtain judgments for the amounts
allegedly owed, we might be unable to satisfy the judgments out of our liquid
assets. Second, if the plaintiffs in the cross complaint were able to succeed in
rescinding the merger, we would no longer have an operating company and would be
left with a public shell. Furthermore, if the merger agreement is rescinded, it
is likely that we would be precluded from completing final product development
efforts and marketing any of the Company's products currently under development
since the waterjet-based technology utilized was obtained by the Company
pursuant to a technology license agreement with SurgiJet.
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:
13
o make a special suitability determination for purchasers of our
shares;
o receive the purchaser's written consent to the transaction prior
to the purchase; and
o 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.
THE FORTHCOMING REGISTRATION STATEMENT RELATING TO SHARES TO BE ISSUED PURSUANT
TO STOCK PURCHASE AGREEMENTS ENTERED INTO IN APRIL 2004, AND PREVIOUSLY
RESTRICTED SHARES HELD BY OTHER STOCKHOLDERS MAY CAUSE SIGNIFICANT DILUTION TO
OUR STOCKHOLDERS AND MAY HAVE AN ADVERSE IMPACT ON THE MARKET PRICE OF OUR
COMMON STOCK.
We plan to file a Registration Statement with the Securities and
Exchange Commission on Form SB-2 to cover the resale, by two private investment
equity investment funds, of shares of common stock and shares underlying
warrants to be acquired pursuant to Stock Purchase Agreements entered into in
April 2004, as well as other shares of common stock and shares underlying
warrants held by other stockholders. The issuance of shares to the two private
equity investment funds will dilute the percentage of our shares held by
existing stockholders and could have an adverse effect on the market price of
our common stock. Moreover, resale by the two private equity investment funds of
some or all of the common stock that they purchase from us, or by the other
stockholders of their shares, including any shares issuable upon exercise of the
warrants, will increase the number of our publicly traded shares, which could
depress the market price of our common stock.
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 $0.85 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 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:
14
o variations in our quarterly operating results;
o our ability to complete the research and development of our
technologies;
o the development of a market for our products;
o changes in market valuations of similar companies;
o announcement by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o loss of a major customer or failure to complete significant
transactions;
o additions or departures of key personnel; and
o 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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases an office/research facility of
approximately 5,100 square feet in Irvine, California for a monthly rent of
$7,600. The lease expires in April 2004. The Company is negotiating a lease of
additional and/or new space.
ITEM 3. LEGAL PROCEEDINGS
VisiJet is the plaintiff and a cross-defendant in VisiJet, Inc. v.
SurgiJet, Inc., a case pending in Orange County Superior Court, filed on August
6, 2003 (Case No. 03CC02968). The Company filed the action to declare a
purported $400,000 promissory note to its former parent company unenforceable.
The defendant filed a cross claim on behalf of itself and certain of its
officers, directors and controlling shareholders seeking to rescind the Merger
Agreement between the Company and PNAC, and seeking monetary damages in the
amount of $802,038 as well as exemplary damages. The case is currently in the
discovery phase.
VisiJet is the defendant in Williams v. VisiJet, Inc. et al, a case
pending in Orange County Superior Court, filed on May 3, 2003 (Case
No.C03-01173). The Plaintiff alleges he is owed $43,500 for professional
services rendered to the Company prior to the merger with PNAC. The Company has
filed a cross claim alleging, among other things, that at least some of the
services were for the benefit of others, professional negligence and aiding and
abetting a fraud committed on the Company. The case is currently in the
discovery phase.
15
VisiJet is a defendant in Allante Art Group, Inc. et al v. VisiJet,
Inc. et al, a case pending in Orange County Superior Court, filed on July 30,
2003 (Case No. 03CC09678). The Plaintiff, an executive search firm, is seeking
damages of $114,500 from the Company and a former employee of the plaintiff. The
complaint alleges that the former employee misappropriated customer lists and
names in connection with the placement of employees with the Company. The case
is in a preliminary stage.
VisiJet is the defendant in Comstock v. VisiJet, Inc. et al, a case
pending in Orange County Superior Court, filed on January 5, 2004 (Case No.
04CC00252). The Plaintiff alleges that she was an employee of the Company prior
to the merger. She sought and obtained an award of $40,397 from the California
Labor Commission. The Company has filed an appeal of the ruling with the
Superior Court. The case is still in a preliminary stage.
To the best of the Company's knowledge and belief, there are no other
material legal proceedings pending or threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The primary market for the Company's common stock is the Nasdaq OTC
Bulletin Board, where it trades under the symbol "VJET". The following table
sets forth 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.
High Low
-------- -------
FY 2003
-------
Fourth Quarter 1.65 1.10
Third Quarter 1.60 1.05
Second Quarter 1.75 0.85
First Quarter 2.41 1.22
FY 2002
-------
Fourth Quarter 1.45 1.12
Third Quarter 1.45 0.77
Second Quarter 1.78 0.86
First Quarter 2.00 0.56
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions. On March 31, 2004, the
closing price as reported by the OTC Bulletin Board was $1.04. As of March 31,
2004, there were 22,689,663 shares of common stock outstanding, held by 200
record holders and approximately 830 beneficial holders.
RECENT SALES OF UNREGISTERED SECURITIES
During the fourth quarter of 2003 the Company received gross proceeds
of $1,506,000 from the sale of 1,506,000 shares and warrants to purchase
1,506,000 shares of Common Stock to 13 private investors. The Company believes
that the transaction 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATIONS
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.
17
CORPORATE HISTORY
VisiJet (the "Company" or "VisiJet"), formerly known as Ponte Nossa
Acquisition Corp ("PNAC")), is a Delaware corporation engaged in the research
and development of surgical equipment for use in the field of ophthalmology
based on proprietary waterjet technology.
The Company was originally 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 expense recognition. The Company has consistently applied these
policies in all material respects.
OVERVIEW
The Company is in the development stage, and to date, its efforts have
been principally devoted to organizational activities, raising capital and
research and development efforts related to its proprietary waterjet-based
ophthalmic surgery products.
The Company does not have any products currently on the market and to
date, has not received any revenues from product sales. Furthermore, although we
have received commitments for additional funding, as discussed in more detail
under "Liquidity and Capital Resources", the Company does not currently have
sufficient cash or working capital available to continue to fund operations, and
to complete its product development efforts. As such, our ability to complete
the currently proposed financing, or acceptable alternative financing, on a
timely basis, is critical to our ability to stay in business.
RESULTS OF OPERATIONS
FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002
The Company had no sales revenues to report for the years ending
December 31, 2003 and 2002. The net loss for fiscal year 2003 was $4,959,152,
compared to $1,226,676 for fiscal year 2002. This represents a loss per common
share of $(.27) for the year ended December 31, 2003 on basic and diluted shares
outstanding of 18,606,352, as compared to a loss per common share of $(.16) on
basic and diluted shares outstanding of 7,811,809 for the year ended December
31, 2002.
18
The significantly larger loss in 2003 resulted from increased operating
expenses, as shown below:
2003 2002
Operating Expenses
General and Administrative $3,736,604 $ 751,717
Research and Development 1,256,259 294,736
----------- -----------
$4,992,863 $1,046,453
General and administrative expenses increased to $3,736,604 in 2003
from $751,717 in 2002. Included in the 2003 general and administrative expenses
are non-recurring expenses of approximately $788,500 that were incurred in
connection with the finalization of the Merger Agreement in February 2003. Also
contributing to the increased general and administrative expenses in 2003 were
increases in salaries and wages due to staff additions, increased legal and
accounting fees associated with becoming a public company, increased rent
expense incurred in connection with additional space requirements, increased
royalty expenses related to licensed technology, and increased corporate travel.
Research and development expenses increased to $1,256,259 in 2003 from
$294,736 in 2002. The increase is primarily due to the resumption of activities
related to the development of the Company's ophthalmic surgery products in 2003,
based on the completion of the Merger Agreement and associated financing, that
had been deferred during 2002 due to the lack of funding.
Also included in results of operations in 2003 was a non-recurring gain
of $90,303 recorded based on the restructuring of debt owed to SurgiJet that
occurred in connection with the Merger Agreement, and which resulted in a
decrease in the total amount owed of $90,303.
Interest expense decreased to $56,247 in 2003 from $131,319 in 2002.
The decrease is primarily due to the reduction in notes payable that occurred in
2003 as a result of the completion of the Merger Agreement.
Subject to the availability of cash and working capital, we expect
operating expenses to increase during 2004 as we move toward completion of
initial product development and regulatory compliance. Such increases will occur
primarily in the research and development and sales and marketing areas.
If product development and regulatory efforts are successful, we hope to begin
marketing products and generating revenue from product sales during 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2003, VisiJet had cash and cash equivalents of
$35,879, and current liabilities exceeded current assets by $1.99 million. Based
on our history of losses and negative working capital balance, our financial
statements for the year ended December 31, 2003 include a going concern opinion
from our outside auditors, which states there "is substantial doubt" about our
ability to continue operating as a going concern.
The Company is in the development stage, and to date, has not had any
products for sale or generated any revenue from sales or other operating
activities. As such, our principal source of liquidity has been the private
placement of securities and the issuance of notes payable. During 2003 we raised
an aggregate of $4,275,000, less offering expenses of $228,700, resulting in net
private placements proceeds of $4,046,300.
During 2003, the Company utilized approximately $4.0 million to fund
operating activities and approximately $178,000 for the purchase of fixed assets
and patents.
The following summarizes our contractual obligations, commercial
commitments and off-balance sheet arrangements at December 31, 2003 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) $ 695,442 $ 87,144 $ -- $ -- $ 782,586
Compensation Settlement Agreements 86,708 17,458 -- -- 104,166
Minimum Royalty Obligations (2) 84,000 168,000 168,000 564,000 984,000
Lease Commitments 31,037 6,336 4,356 -- 41,729
----------- ----------- ----------- ----------- -----------
Total $ 897,187 $ 278,938 $ 172,356 $ 564,000 $1,912,481
=========== =========== =========== =========== ===========
20
(1) Includes an aggregate of $518,461 that is being contested by the
Company pursuant to on-going litigation with SurgiJet. Amounts
noted do not include payment obligations related to the $500,000
of bridge debt financing that was completed in February 2004.
(2) 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. The following is a summary of equity and debt
financing raised subsequent to December 31, 2003 and a description of additional
financing pending:
Between January 1, 2004 and March 31, 2004 the Company raised
additional net proceeds of $423,000 after deducting offering expenses of
$47,000, from private placements of securities.
In February 2004, the Company entered into 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 to be filed on Form SB-2 ("Registration Statement")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 debenture agreement.
In April 2004, the Company entered into stock purchase agreements with
two private equity investment funds pursuant to which the funds agreed to
purchase an 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 an average price of $2.00 per share. Completion of
this financing and related funding is contingent on the effectiveness of the
Registration Statement covering the resale of the shares of common stock and the
shares of common stock underlying the warrants.
Subject to availability of funding, we expect operating expenses, and
related cash requirements, to increase during 2004 in connection with
anticipated increased product development and sales and marketing activities.
The Company believes that actions presently being taken to raise
additional financing and to complete the development of, and bring to market its
ophthalmic surgical products, will ultimately generate sufficient revenue to
support its operations. However, there can be no assurances that any pending
financing will be completed, that sufficient capital will be available when
required, that product development efforts will be successful, or that if
successful, revenue generated will provide positive cash flows from operations
to permit the Company to realize its plans.
21
PLAN OF OPERATIONS
FINANCING ACTIVITY
The Company does not currently have sufficient cash or working capital
available to continue to fund operations, and 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", the Company has
recently entered into stock purchase agreements with two private equity
investment funds that, if successfully completed, will result in initial gross
proceeds to the Company of $9.5 million. Completion of this proposed funding, or
alternative financing on a timely basis, is critical to the future of the
Company, and will be the primary focus of the activities of Company management.
RESEARCH AND DEVELOPMENT
The Company plans to continue in the research and development and eventual
marketing of ophthalmic surgery products, principally based on applications of
the waterjet technology. These products are designed to result in faster, safer
and more efficacious surgery in the laser eye surgery and cataract surgery
markets.
Over the next twelve months, the Company plans to conduct research and
development activities related to the following products:
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). HydroRefractor
- a potential replacement for the excimer laser, to produce
lamellar flaps and "power cuts" for vision correction using
waterjet technology.
4). New Products/Product Extensions
- the Company plans to continue research and development
efforts on other medical applications of its waterjet
technology, and to identify and license/acquire other
technology and/or products that offer complements and
extensions to its ophthalmic surgery product line.
The primary focus of our research and development activities during
this period will be on completing testing required to obtain final marketing
approval from the FDA with respect to our 510(K) application, and the subsequent
initiation of product sales, for HydroKeratome. In addition, our research and
development efforts will be focused on completing testing required for our
initial 510(K) application submission to the FDA with respect to our Pulsatome
product, any subsequent testing to obtain final marketing approval from the FDA,
and the subsequent initiation of product sales for Pulsatome. Planned research
and development expenditures during this period are estimated to be
approximately $1.8 million.
22
In addition, during this period, the Company plans to increase sales
and marketing activities in connection with anticipated product launches,
resulting in expenditures during this period of approximately $1.7 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 during the next twelve months.
The following is a schedule of anticipated purchases of plant and
significant equipment, along with estimated expenditures:
1). Production, lab, test equipment $ 275,000
2). Computers and software 270,000
3). Facilities, furniture & fixtures 100,000
----------
Total anticipated capital expenditures: $ 645,000
EMPLOYEE ADDITIONS
The Company anticipates hiring approximately 30 additional employees
during the next twelve months, resulting in additional annual salaries and wages
of approximately $1.1 million, to support anticipated company growth and the
increased emphasis on sales, marketing, distribution and customer
training/support. This estimate includes approximately $220,000 for research and
development and $870,000 for sales and marketing that are included in the
respective research and development and sales and marketing totals above.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE PLANS AND RESULTS
Research and development activities discussed above in our Plan of Operations
are contingent on our obtaining sufficient funding to meet on-going operational
expenses and planned research and development expenses. Activities discussed
above with respect to planned 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.
In addition, see Risk Factors starting at page 10.
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements following Item 14 of this Annual Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable
23
ITEM 8A. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive
Officer and our Treasurer, the Company conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Rule 13a-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on this
evaluation, our Chief Executive Officer and the Principal Accounting Officer
concluded that the Company's disclosure controls and procedures are effective.
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports under the Exchange Act are
processed and reported within the time periods specified by law. The design of
any such system of controls is based in part on assumptions about the likelihood
of future events, and there can be no assurance that any such system of controls
will succeed in all circumstances.
Since the date of the evaluation described above, there have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls.
24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of VisiJet are as follows:
Director
Name Age Position Since
---- --- -------- -----
Richard H. Keates, M.D.(1)(2) 71 Chairman of the Board 2003
of Directors
Randal A. Bailey 59 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) 43 Director 2003
Norman Schwartz(1)(2) 60 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
& 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.,
25
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.
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,
26
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.
DIRECTORS' COMPENSATION
The members of the Board of Directors do not receive any monetary
compensation for their service as directors, but are eligible for reimbursement
of their expenses incurred in connection with attendance at Board meetings in
accordance with Company policy.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and 10% Stockholders of the Company are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms so filed.
Based solely upon a review of filings made and other information
available to it, the Company believes that each of the Company's present Section
16 reporting persons filed all forms required of them by Section 16(a) during
the year 2003.
AUDIT COMMITTEE
Currently, the Company's Audit Committee of the Board of Directors is
comprised of three Directors as noted above. The Board of Directors believes
that it has one "financial expert" (as defined in Regulation 228.401 (e) (1) (i)
(A) of Regulation S-B) serving on the Audit Committee. That individual is Mr.
Adam Krupp, who would be considered as an "independent" director under
Item7(d)(3) (iv) of Schedule 14A of the Securities Exchange Act of 1934.
CODE OF ETHICS
The Company has adopted the Code of Ethics attached as Exhibit 14 to
this Form 10-KSB for its officers and directors.
Item 10. EXECUTIVE COMPENSATION
The following table summarizes the annual compensation paid to our
named executive officers during the three years ended December 31, 2003:
27
Long Term Compensation
-----------------------------------
Annual Compensation Awards
---------------------------------- ----------------------------------- -----------------
Other Annual
Compensation Restricted Securities All Other
Name and Principal Position Year Salary ($) Bonus ($) ($) Stock Awards Underlying 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 (1)(2) 2001 - - - - - -
(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 $700,000 of unpaid compensation
accrued between 1999 and 2002. Amounts noted as All Other
Compensation represent respective payments made by the Company
pursuant to these promissory notes.
(2) Messrs. Bailey, Schreiber, and Hood became President and CEO,
Chief Operating Officer, Dir. of Research & Development
respectively, on March 1, 2003 and earned consulting income from
January to February 2003. Amounts noted as Other Annual
Compensation represent respective consulting fees paid in 2003
prior to March 1, 2003. Messrs. Bailey, Schreiber, and Hood did
not receive any compensation from VisiJet in 2001 and 2002.
Stock Options
On November 10, 2003, the Board of Directors adopted the VisiJet, Inc.
2003 Stock Option Plan. The Option Plan provides for the grant of incentive and
non-qualified stock options to selected employees, the grant of non-qualified
options to selected consultants and to directors and advisory board members. The
Option Plan is administered by the Compensation Committee of the Board of
Directors and authorizes the grant of options for 3,000,000 shares. The
Compensation Committee determines the individual employees and consultants who
participate under the Plan, the terms and conditions of options, the option
price, the vesting schedule of options and other terms and conditions of the
options granted pursuant thereto.
As of December 31, 2003, we had granted options to purchase 1,165,000
shares of Common Stock under the Option Plan, none of which have been exercised.
28
The following table summarizes information concerning stock options
granted to the named executive officers:
Percent of
Total
Number of options/SARs
Securities granted
underlying to Exercise
options/SARs employees or base
granted in fiscal price Expiration
Name (#) year ($/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
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below lists the beneficial ownership of our common stock, as of
March 31, 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
-------------------------------------------------------------------------------
Financial Entrepreneurs, Inc. (4) 3,383,001(3) 14.72%
300 South 4th Street
Las Vegas, Nevada 89101
Richard H. Keates, M.D.** 400,000(3) 1.74%
20 Sutton Place South
New York, NY 10022
Randal A. Bailey ** 416,879(3) 1.83%
192 Technology, Suite Q
Irvine, CA 92618
29
Laurence Schreiber** 150,000(3) *
192 Technology, Suite Q
Irvine, CA 92618
Adam Krupp** 25,000(3) *
535 Eighth Avenue, 14th Floor
New York, NY 10018
Norman Schwartz** 81,100(3) *
192 Technology, Suite Q
Irvine, CA 92618
Lance Doherty 4,706,037(3) 20.04%
9342 Jeronimo Road
Irvine, CA 92618
David E. Eisenberg Trust (5) 2,975,000(3) 12.19%
520 Madison, 38th Floor
New York, NY 10022
Lewis Family Interest, LP (6) 1,975,000(3) 8.43%
520 Madison, 38th Floor
New York, NY 10022
All directors and executive
officers as a group (5 persons) 1,072,979(3) 4.63%
-------------------------------------------------------------------------------
* Denotes less than one percent.
(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 shares outstanding as of
March 31, 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.
(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 Peter C. Lewis
** Denotes Member of the Board of Directors.
30
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Financial Entrepreneurs Incorporated ("FEI"), which beneficially owns
in excess of 5% of the outstanding shares of common stock of the Company, has
funded certain expenditures of the Company. In April 2002, the Company issued a
Promissory Note to FEI for amounts loaned to the Company, bearing an interest
rate of 7.5% per annum. As of December 31, 2003, current amount due to related
parties in the Company's balance sheet amounts to $278,659, including accrued
interest of $28,534.
In February 2003, 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 in
February of 2003, pursuant to an agreement entered into in connection with the
merger, FEI cancelled 7,957,000 shares of Company Common Stock owned by it, and
the Company issued FEI a five year warrant to purchase 1,543,000 shares of
Common Stock at an initial exercise price of $5.00 per share.
During 2003, the Company paid finders' fees totaling $52,500 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, and reimbursed
it for travel expenses related to business of the Company totaling $19,279.
In February of 2003, the Company 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. The Company also issued Mr. 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. As of December 31,2003, the current amount due to Mr. Bailey was
$91,219, including $3,719 of accrued interest.
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, each
to Laurence Schreiber, a director and officer of the Company, and to Thomas F.
DiMele, a former officer of the Company, pursuant to an agreement entered into
in connection with the merger.
During 2003, the Company began making consulting payments of $2,500 per
month to a corporation controlled by Norman Schwartz, 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.
Subsequent to the issuance of these shares, beneficial ownership with respect to
100,000 of the shares was transferred to Laurence Schreiber, a director and
officer of the Company.
In February 2003, the Company entered into a consulting agreement with
Richard Keates, M.D., a director of the Company. Pursuant to this agreement, Dr.
Keates receives a monthly retainer of $5,000, 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 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
31
which it is entitled to receive a monthly fee of $15,000; however, payment of
accrued fees is not due 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
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.
In July 2003, Richard H. Keates, M.D., a director of the Company,
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.
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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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)
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)
32
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 Stock Purchase Agreement, dated April 14, 2004, between the Company and
SBI Brightline II, LLC
10.12 Stock Purchase Agreement, dated April 14, 2004, between the Company and
Trilogy Investment Fund I LLC
10.13 Form of Stock Purchase Warrant Used in February 2004 Private Placement
10.14 Form of 24% Secured Subordinated Debenture Used in February 2004
Private Placement
14 Code of Ethics
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certificate of Treasurer (principal financial officer) pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certificate of Treasurer (principal financial officer) pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference from Report on Form 8-K of the Company, Dated
December 20, 2002, filed on January 7, 2003
(2) Incorporated by reference from Report on Form 8-K of the Company, dated
February 11, 2003, filed on February 14, 2003
(3) Incorporated by reference from Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2003
(4) Incorporated by reference from Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002.
33
(b) Reports on Form 8-K
Report on Form 8-K, dated September 23, 2003 filed on September 23, 2003
(Item 5)
Report on Form 8-K, dated February 11, 2003, filed on February 5, 2004
(Item 4)
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Summarized below is the aggregated amount of various professional fees
billed by our principal accountants, Peterson & Co., LLP with respect to the
last two fiscal years:
2003 2002
--------- ---------
Audit fees $ 94,348 $ 13,125
Audit - related fees 12,913 --
Tax fees 12,163 --
All other fees, including tax
consultation and preparation -- --
--------- ---------
$119,424 $ 13,125
All audit fees were approved by our audit committee and board of directors.
Peterson & Co. did not provide any non-audit services other than tax services to
the Company.
During 2002, prior to completion of the Merger Agreement, the Company employed
Mendoza Berger & Company LLP as its principal accounts. The summary below
presents amounts billed with respect to the last two fiscal years:
2003 2002
--------- ---------
Audit fees $ -- $ 69,984
Audit - related fees 1,362 --
Tax fees -- --
All other fees, including tax
consultation and preparation -- --
--------- ---------
$ 1,362 $ 69,984
34
VisiJet, Inc.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF PETERSON & Co. LLP, INDEPENDENT AUDITORS....................... F-1
FINANCIAL STATEMENTS
BALANCE SHEETS.................................................. F-2
STATEMENTS OF OPERATIONS........................................ F-3
STATEMENTS OF SHAREHOLDERS' EQUITY.............................. F-4
STATEMENTS OF CASH FLOWS........................................ F-5
NOTES TO FINANCIAL STATEMENTS................................... F-6
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)
F-1
Visijet, Inc.
(A development stage company)
Balance Sheet
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
F-2
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
F-3
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
F-4
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
F-5
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
depend
F-6
NOTE 1 - NATURE OF OPERATIONS (CONTINUED)
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.
F-7
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%.
F-8
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.
F-9
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
F-10
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.
F-11
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.
F-12
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.
F-13
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
F-14
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
F-15
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:
F-16
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 $ -- $ --
============ ============
F-17
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
============= ============= ============== ============== ==============
F-18
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.
F-19
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:
F-20
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.
F-21
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 an 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.
F-22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this Amendment to report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VisiJet, Inc.
Dated: April 14, 2004 /s/ Randal A. Bailey
------------------------------
Randal A. Bailey, President
/s/ Laurence Schreiber
------------------------------
Laurence Schreiber, Secretary
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Randal A. Bailey
-----------------------
Randal A. Bailey President (Principal Executive Officer) April 14, 2004
and a Director
/s/ Laurence Schreiber
-----------------------
Laurence Schreiber Treasurer (Principal Financial Officer)
and a Director April 14, 2004
/s/ Richard H. Keates
-----------------------
Richard H. Keates, M.D. Director April 14, 2004
-----------------------
Adam Krupp Director April 14, 2004
/s/ Norman Schwartz
-----------------------
Norman Schwartz Director April 14, 2004
F-23