Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1 Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: S-1 Form S-1 Registration Statement Under the HTML 1.09M Securities Act of 1933
2: EX-3.1 Certificate of Incorporation HTML 11K
3: EX-3.2 Amendment of Second Amended Certificate of HTML 12K
Designations
4: EX-3.3 Bylaws HTML 51K
5: EX-4.1 Stock Purchase Warrant HTML 41K
6: EX-5.1 Legal Opinion and Consent of Harrison Law, P.A. HTML 19K
7: EX-10.1 Form of Warrant Purchase Agreement Dated April HTML 49K
2009
8: EX-10.2 Employment Agreement Dated January 15, 2009 HTML 77K
Entered Into by and Between the
Registrant and Julian T. Ross.
9: EX-10.3 Form of Stock Subscription Agreement for Private HTML 97K
Placements
10: EX-10.4 Intellectual Property Assignment Agreement HTML 69K
11: EX-10.5 Agreement for Investors Relations Services HTML 61K
12: EX-10.6 Stock Option Plan HTML 70K
13: EX-10.7 Subcontractor Agreement and Assignment of HTML 56K
Intellectual Property
14: EX-10.8 Form of Employment Agreement and Assignment of HTML 66K
Intellectual Property
15: EX-10.9 Form of Lock-Up Agreement HTML 16K
16: EX-14.1 Code of Ethics HTML 22K
17: EX-23.1 Consent of the Blackwing Group, LLC, Certified HTML 10K
Public Accountants
18: EX-99.1 Form of Subscription Agreement HTML 15K
S-1 — Form S-1 Registration Statement Under the Securities Act of 1933
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this registration Statement is declared effective.
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. £
If this
Form is a post effective amendment filed under Rule 462(c) of the Securities
Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
£
If this
Form is a post effective amendment filed under Rule 462(d) of the Securities
Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
£
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,”“accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
Accelerated
filer
Non-accelerated
filer
Smaller
reporting company
[x]
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. [x]
CALCULATION OF REGISTRATION
FEE
Proposed
Proposed
Maximum
Maximum
Amount of
Title of Each Class of
Amount To Be
Offering Price
Aggregate
Registration
Securities To Be Registered
Registered(1)
Per Share(5)
Offering Price(5)
Fee(6)
Selling
Shareholders
Issued
Common Stock, $0.0004 par value per share
15,624,816(2)
$
0.05
$
781,241
$
45.31
Common
Stock, $0.0004 par value per share
5,000,000(3)
$
0.05
$
250,000
$
14.50
Underlying
Shares for Warrants, Options and Convertible
Preferred
Common
Stock, $0.0004 par value per share
19,273,954(4)
$
0.05
$
963,698
$
55.89
Total
Registration Fee
39,898,770
$
0.05
$
1,994,939
$
115.70
2
(1)
In
accordance with Rule 416(a), the Registrant is also registering hereunder
an indeterminate number of additional shares of common stock that shall be
issuable pursuant to Rule 416 to prevent dilution resulting from stock
splits, stock dividends or similar
transactions.
(2)
Represents
shares of the Registrant’s common stock being registered for resale that
have been issued to the selling security holders named in the prospectus
or a prospectus supplement.
(3)
Direct
Public Offering
(4)
Represents
shares of the Registrant’s common stock being registered for resale that
have been or may be acquired upon the exercise of warrants or options on
upon the conversion of convertible preferred stock that have been
previously or will be issued to the selling stockholders named in the
prospectus or a prospectus
supplement.
(5)
Estimated
pursuant to Rule 457(a) of the Securities Act of 1933, as amended, solely
for the purpose of computing the amount of the registration
fee. The selling price of our Common Stock was established
arbitrarily.
(6)
This
amount is being paid herewith.
The registrant
hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, or until the registration statement shall become effective on such
dates as the Commission, acting pursuant to said Section 8(a), may
determine.
3
The information in
this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and
Exchange Commission becomes effective. This prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
Subject
to Completion, Dated April , 2009
39,898,770
Shares
Common
Stock
PROSPECTUS
OxySure® Systems,
Inc.
This is our initial public offering.
Our securities are not listed on any national securities exchange or the Nasdaq
Stock market.
Our existing shareholders are offering
for sale, 15,624,816 shares of common stock. In addition, we are offering a
total of 5,000,000 shares of our common stock in a direct public offering,
without any involvement of underwriters or broker-dealers. The offering price is
$0.05 per share for both newly issued shares and those being sold by current
shareholders. In addition, 3,814,249 common shares are being
registered for issuance upon conversion of 3,126,434 preferred shares, at a 1.22
ratio; 5,000,000 common shares are being registered for issuance upon exercise
of up to 5,000,000 options; and 10,459,705 common shares are being registered
for issuance upon exercise of up to 10,459,705 warrants.
This
offering will terminate 180 days from the effective date of this prospectus, or
an additional 90 days if extended, although we may close the offering on any
date prior if the offering is fully subscribed. At our sole discretion, we may
extend the offering for an additional 90 days. The funds will be maintained in a
separate bank account at Silicon Valley Bank. All funds are
immediately available for use by the company. Upon funds clearance, we will
remove those funds and use the same as set forth in the Use of Proceeds section
of this prospectus. This account is not an escrow, trust or similar account.
Your subscription will only be deposited in a separate bank account under our
name.
Julian T.
Ross, officer and director, will market our shares and offer and sell them on
our behalf. This is a best efforts direct participation offering that will not
utilize broker-dealers.
The
selling stockholders may sell common stock from time to time in the principal
market on which the stock may be traded at the prevailing market price or in
negotiated transactions. We will not receive any proceeds from the sales by the
selling stockholders. The selling stockholders named herein may be
deemed underwriters of the shares of common stock which they are
offering.
The purchase of the securities
involves a high degree
of risk. See section entitled “Risk Factors” beginning on page 15.
Neither
the U.S. Securities and Exchange Commission nor any state securities commission
has approved or disapproved of anyone’s investment in these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The information in this preliminary
prospectus may be changed. Existing shareholders may not sell these securities
until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
4
SUMMARY
FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
28
SELLING
SECURITYHOLDERS
28
SHARES
ELIGIBLE FOR FUTURE SALE
34
PLAN
OF DISTRIBUTION
37
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
40
DESCRIPTION
OF BUSINESS
46
LEGAL
PROCEEDINGS
62
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
63
BENEFICIAL
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
63
DESCRIPTION
OF SECURITIES
72
INTEREST
OF NAMED EXPERTS AND COUNSEL
77
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
LIABILITIES
78
DISCRIPTION
OF PROPERTY
78
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
79
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
81
AVAILABLE
INFORMATION
83
CHANGES
IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
MATTERS
83
INDEX
TO FINANCIAL STATEMENTS
83
PART
II INFORMATION NOT REQUIRED IN THE PROSPECTUS
II-1
SIGNATURES
II-8
Please read this prospectus carefully.
It describes our business, our financial condition and results of operations. We
have prepared this prospectus so that you will have the information necessary to
make an informed investment decision.
You should rely only on information
contained in this prospectus. We have not authorized any other person
to provide you with different information. This prospectus is not an
offer to sell, nor is it seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in this
prospectus is complete and accurate as of the date on the front cover, but the
information may have changed since that date.
5
PROSPECTUS
SUMMARY
Because this
is only a summary, it does not contain all of the information that may be
important to you. You should carefully read the more detailed information
contained in this prospectus, including
our financial statements and related notes. Our business involves significant
risks. You should carefully consider the information under the heading "Risk
Factors" beginning on page
15.
OxySure Systems, Inc. (the
“Company”) was formed on January 15, 2004 as a Delaware “C” Corporation for the
purpose of developing products with the capability of generating medical grade
oxygen "on demand”, without the necessity of storing oxygen in compressed
tanks. OxySure developed a unique technology that generates medically
pure (USP) oxygen from two dry, inert powders. Other available
chemical oxygen generating technologies contain hazards that the Company
believes make them commercially unviable for broad-based emergency use by lay
persons. The Company’s launch product is the OxySure Model 615
portable emergency oxygen device. The Company believes that the
OxySure Model 615 is currently the only product on the
market that can be safely pre-positioned in public and private venues for
emergency administration of medical oxygen by lay persons, without the need for
training.
The Company was founded by our
President, Julian T. Ross, who conducted or managed all the related research and
development, a function Mr. Ross continues to oversee. In early 2004,
Mr. Ross moved his research and development efforts into the North Texas
Enterprise Center for Medical Technology (“NTEC”). NTEC is a
Frisco-based medical technology incubator, and the Company was accepted as an
NTEC program company in early 2004, and graduated from the incubator program in
November 2005. In December 2005 the Company received FDA clearance
for Model 615 (510(K), Class II). The approval number for our FDA clearance is
K052396, and Model 615 is cleared for over the counter sale, without the need
for a prescription.
Upon graduation from NTEC, the Company
proceeded with the development of its purpose-built manufacturing facility in
Frisco, Texas, which also serves as the Company’s headquarters. The
facility comprises 16,200 square feet of light industrial space, of which
approximately 10,000 square feet is dedicated to production and
warehousing. The Company received an economic incentive from the
Frisco Economic Development Corporation (“FEDC”) in the amount of $243,000 in
support of the development and build-out of the facility. In
addition, the Company received a further amount of $324,000 in the form of a
Tenant Improvement Allowance from the Company’s landlord. Upon
completion of the build-out, the Company moved into the facility in October
2007. The Company commenced commercial shipment of Model 615 during
the 2008 financial year.
6
Corporate
Information
The Company is authorized to issue
100,000,000 shares of common stock, $0.001 par value per share, of which
15,624,816 shares are issued and outstanding as of the date of this registration
statement of which this prospectus is a part. Each outstanding share
of common stock is entitled to one vote, either in person or by proxy, on all
matters that may be voted upon by their holders at meetings of the
stockholders.
Preferred
Stock
We are authorized to issue up to
25,000,000 shares of our preferred stock, par value $0.0001 per share, from time
to time in one or more series. On March 31, 2006, the Company completed the
issuance of 3,126,434 shares (net of subsequent conversions) of Series A
Convertible Preferred Stock, par value $0.0005. The number of shares of Common
Stock into which each share of Series A Convertible Preferred will convert will
be determined by dividing the original issue price by $0.82 resulting in each
share of the Series A Convertible Preferred becoming 1.22 shares of common
stock.
Our Board of Directors, without further
approval of our stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any series. Issuances
of shares of preferred stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of our common
stock and prior series of preferred stock then outstanding.
Warrants
Prior
to this registration statement, our warrant holders held an aggregate of
10,459,705 warrants to purchase shares of our common stock. The following table
sets out the warrants by groups, amounts and aggregate exercise
prices:
Group
Number
of
Warrants
Aggregate
Exercise
Price
Subcontractors
118,219
$0.08
Licensing
Agreements
281,200
$0.01
Business
Development
479,167
$0.41
Consultants
125,000(1)
$0.01
Landlord
57,500
$1.87
Investors
895,200
$0.01
Community
Grants
25,000
$1.00
Financing
7,500,000
75%(2)
Professional
Services
968,419
$0.01
Employee
10,000
$1.00
Totals
10,459,705
(1)
Includes a warrant to GreenThumb Capital Corporation as partial compensation for
advisory services in connection with this direct public offering. The warrant is
revocable subject to performance criteria, and provides the right to purchase
25,000 shares of common stock at $.01 per share.
7
(2)
Pursuant to an agreement which provides that, upon the company’s shares being
listed on a nationally recognized market, the purchaser or its assignee may
purchase warrants in blocks of 50,000 warrants per block. Each
warrant entitles the bearer to purchase common shares at a 25% discount from the
average bid price for the five days preceding the exercise date.
Options
Prior to this registration statement,
certain of our shareholders were granted options to acquire an aggregate of
2,050,642 shares (net of forfeitures and conversions) of our common
stock. In exchange for these option grants, the Company will receive
$1,658,969 in proceeds if all of the options granted are exercised. As of the
date of this prospectus, the shareholders held an aggregate of 596,485 options
(net of forfeitures and conversions) with an aggregate exercise price of $0.73
per share. All other options are held by present and former Employees, Board
members, Advisory Board members, and other eligible persons.
Our shares of common stock are not
traded on any exchange or other trading platform.
Our principal executive office is
located at 10880 John W. Elliot, Suite 600, Frisco, Texas75034 and our
telephone number is (972) 294-6450. OxySure Systems, Inc. was incorporated in
the state of Delaware on January 15, 2004.
Recent
Events
July
2004 Private Share Transactions
On January15, 2004, the Company executed an Asset Purchase and Stock Transfer Agreement
with entities controlled by the founder of the Company. In connection with this
agreement, the Company acquired certain assets, including certain rights, title
and interest to intellectual property, relating to the oxygen method and
apparatus, developed by the founder of the Company. As consideration for the
purchase, the Company issued 14,000,000 shares of common stock and a promissory
note for $150,000 to these entities. The common stock was valued at $7,000 using
the then par value of the common stock on the date. In addition, up to and
including July 15, 2004, the company sold 310,000 shares of common stock for
proceeds of $126,500 to shareholders not related to the Company’s
founder.
March
2006 Private Placement
On March 31,2006the Company closed a private placement of its Series A Convertible
Preferred Stock pursuant to which we sold an aggregate of 3,143,237 shares of
preferred stock at $1.00 per share, for gross proceeds of approximately
$3,143,237, including $62,500 exchanged for services valued at $62,500 and
$30,737 exchanged in lieu of cash payments for premiums on our capital leases.
Of the total issued preferred shares, 16,803 shares were subsequently converted
into common stock, and the total number of Series A Convertible Preferred shares
issued and outstanding as at December 31, 2008 was 3,126,434 shares. The
following represents a summary of the designations and preferences of the Series
A Convertible Preferred Stock:
8
§
Ranking
– The Series A Preferred ranks senior to common
stock.
§
Dividends
– Series A Preferred may be entitled to receive a quarterly non-cumulative
dividend in the amount of $.01 per share upon approval from the Board of
Directors.(1)
§
Liquidation
Preference – In the event of any liquidation, dissolution, or winding up
of the Company, the holders of Series A Preferred are entitled to receive
100% of the original issue price of $1.00 per
share.
§
Conversion
Rights – Each share Series A Preferred is convertible at any time, at the
option of the holder into 1.22 shares of common stock, subject to
adjustment. Series A Preferred are subject to automatic conversion upon
consummation of an underwritten offering by the Company of shares of
common stock to the public, in which the aggregate cash proceeds are at
least $3 million and the price paid per share is at least
$5.00.
§
Redemption
Rights – All of the Series A Preferred may be called at any time by the
Company within 10 years, but not prior to 2 years after issuance. The
redemption value is $1.00 per share, plus an amount equal to all unpaid
dividends thereon.
§
Voting
Rights – The holder of each share of Series A Preferred has the right to
one vote for each share of common stock into which such share of Series A
Preferred could be converted.
(1) The
Board of Directors has never declared any dividends on the Series A Convertible
Preferred Stock, and it is not anticipated that any dividends will be declared
prior to conversion into common stock.
February
2008 Private Placement
On February28, 2008the Company closed a private placement of common stock pursuant to
which we sold an aggregate of 635,000 shares of common stock at an aggregate
$2.50 per share, for gross proceeds of approximately $1,587,500.
March
2009 Private Placement
On March 31,2009, we conducted an initial closing of a private placement transaction
pursuant to which we sold an aggregate of 310,500 shares of common stock at an
aggregate $1.00 per share, for gross proceeds of approximately
$310,500.
Related
Party Transactions
During March
2008, the Company completed a $1 million bridge financing package consisting of
a promissory note for $750,000 (“First Note”) and a promissory note with a draw
down provision for $250,000 (“Second Note”) (collectively, the “Notes”). The
Notes are subordinated notes and are due and payable on the earlier of (i)
completion of the next financing round completed by the Company or (ii) one year
after the Notes are issued. The holder of the First Note was also issued penny
warrants to purchase 350,000 shares of common stock. The holder of
the First Note is Agave Resources, LLC (“Agave”), an existing stockholder of the
Company, and the President of Agave is Donald T. Reed, who also serves as a
Director of the Company. The warrants are immediately exercisable and expire on
April 15, 2013. To date $250,000 has been drawn against the Second Note, which
was extended by JTR Investments, Limited (“JTR”), a company controlled by the
founder and Chairman of the Company. The Company is to issue .47 penny warrants
for every dollar drawn under this facility. There is no interest payable on
either note. During February 2009 the First Note and the Second Note were
modified by extending the maturity date in each case by twelve (12)
months.
9
On November1, 2008 the Board agreed to a further loan from JTR with a draw down provision
for up to $750,000. This is a Senior Note (the “Senior Note”). The Company is to
issue .47 penny warrants for every dollar drawn under this facility. As of
September 30, 2008, there was $219,000 outstanding under this facility, and
174,200 Warrants issuable pursuant to the terms. As of April 30, 2009, there was
$432,040 outstanding under the Senior Note, and 390,285 Warrants issuable
pursuant to the terms.
December
2008 Investor Relations Agreement
In December 2008, we entered into a
consulting agreement with IR Services, Inc. (“IRSVS”). According to the
agreement, as amended, IRS will provide us with business consulting and investor
relations services, including services related to the following:
§
Preparation
and submission of this filing with the
SEC;
§
Preparation
and submission of all responses to SEC comment letters, if
any;
§
Preparation
and submission of a 15c211 filing to a Brokerage firm for a filing to
FINRA;
§
Preparation
and submission of responses to FINRA comment letters, if
any;
§
Retention
of the services of an acceptable Market Maker, Broker Dealer, and Escrow
Agent; and
§
Provision
of such other services and activities as necessary to obtain a ticker
symbol and become traded on the Over-the-Counter Bulletin Board
(OTCBB).
§
Investor
Relations Services, which shall include, without limitation, press
releases, investor awareness campaigns (online and mail), and blog and
message board monitoring, for at least a 9 month period commencing on the
date that the Company first becomes publicly
traded.
In
connection with the IRSVS agreement we paid IRSVS $50,000 in cash and we are to
provide IRSVS up to 968,418 penny warrants over a 9 month period, subject to
various deliverables and milestones being met by IRSVS, including the services
listed above. IRSVS is a third-party investor relations firm
that does not have any other relationship or common ownership with us or any of
our affiliates.
April
2009 Warrant Purchase Agreement
In April 2009
we entered into agreement with RKH Capital Group, LLC (“RKH”) to purchase up to
7,500,000 warrants in tranches of 50,000 warrants per tranche (“RKH Warrants”).
The prices of the RKH Warrants are set at a twenty five (25%) percent discount
from the average bid price for the five days preceding the exercise date. Upon
issuance, each RKH Warrant expires 3 years subsequent to its issue date.
For accounting purposes, the warrants will be treated as a derivative and
there will be a significant expense to the Company pursuant to FAS133R. In
connection with the RKH warrants we will recognize a stock-based compensation
charge during the three months ending June 30, 2009 in the amount of $375,000
which is derived from valuing each share at $0.05, the price at which shares of
our common stock are to be registered for sale in this registration statement of
which this prospectus is a part.
Casey
Jensen, President of RKH is also the General Partner in the WJVEST Holding
General Partnership, a shareholder in our Company.
See “Cautionary
Statement Regarding Forward-Looking Statements” for a discussion cautioning
against reliance on forward-looking information.
10
The
Offering
Common
stock offered by existing holders of common stock
15,624,816
Direct
Public Offer
5,000,000
Common
stock upon conversion of Series A convertible Preferred
Stock
3,814,249
Common
Stock Underlying Warrants
10,459,705
Common
Stock underlying options
5,000,000
Total
Common stock offered by selling stockholders
39,898,770
Use
of proceeds
We
will not receive any proceeds from the sale of the common stock by the
selling stockholders.
Risk
factors
Investing
in these securities involves a high degree of risk. As an investor you
should be able to bear a complete loss of your investment. You should
carefully consider the information set forth in the “Risk Factors” section
beginning on page 15.
11
SUMMARY
FINANCIAL DATA
The following summary financial
information contains the audited statement of operations data for the fiscal
years ended December 31, 2008 and 2007 and the audited balance sheet data as of
December 31, 2008. Such financial data should be read in conjunction
with the audited financial statements and the notes to the financial statements
starting on page F-1 and with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Net
Income (Loss) per share - 15,493,316 and 15,050,316 shares
issued
(0.13
)
(0.17
)
(0.41
)
Weighted
Average Number of Shares - 15,493,316 and 14,514,629
15,493,316
14,514,629
15,493,316
13
Balance Sheet
Summary
December
31
2008
2007
2006
Total
Current Assets
$
375,101
$
468,432
$
1,075,304
Total
Assets
2,042,881
2,485,381
2,047,468
Total
Current Liabilities
398,809
470,019
215,386
Total
Liabilities
2,528,231
1,251,817
503,500
Accumulated
deficit during development stage
(6,413,905
)
(4,375,791
)
(1,964,100
)
Total
Stockholders' Equity
2,042,881
2,485,381
1,540,968
14
The terms
"we,""us" and "our" as used in this prospectus refer to OxySure Systems,
Inc.
RISK
FACTORS
An
investment in our common stock is highly speculative, involves a high degree of
risk, and should be made only by investors who can afford a complete loss. You
should carefully consider the following risk factors, together with the other
information in this prospectus, including our financial statements and the
related notes, before you decide to buy our common stock. Our most significant
risks and uncertainties are described below; however, they are not the only
risks we face. If any of the following risks actually occur, our business,
financial condition, or results of operations could be materially adversely
affected, the trading of our common stock could decline, and you may lose all or
part of your investment therein.
1.
Risks Relating to the Early Stage of our Company
We
are at a very early operational stage and our success is subject to the
substantial risks inherent in the establishment of a new business
venture.
The
implementation of our business strategy is in a very early stage. We only have
one primary product, a portable emergency oxygen device, and the
commercialization of this product is in its infancy. Our intended markets may
not adopt this product, and it may not be commercially successful. We intend to
develop additional product candidates but none have proven to be commercially
viable or successful. Our business and operations should be considered to be in
a very early stage and subject to all of the risks inherent in the establishment
of a new business venture. Accordingly, our intended business and operations may
not prove to be successful in the near future, if at all. Any future success
that we might enjoy will depend upon many factors, several of which may be
beyond our control, or which cannot be predicted at this time, and which could
have a material adverse effect upon our financial condition, business prospects
and operations and the value of an investment in our company.
2.
We have a very limited operating history and our business plan is unproven and
may not be successful.
Our
predecessor company was formed in January 2004, but we only began commercial
product shipment of our first product in earnest in early 2008 after we moved
into our new, purpose built manufacturing facility. Since January 2004, our
primary activities have been research and development, the obtainment of our FDA
approval, the identification of collaborative partners, intellectual property
protection such as patent applications and capital raising
activities. We have not licensed or sold any substantial amount of
products commercially and do not have any definitive agreements to do
so. We have not proven that our business model will allow us to
identify and develop commercially feasible products.
3.
We have suffered operating losses since inception and we may not be able to
achieve profitability.
We had an
accumulated deficit of $6,413,905 and have an overall deficit in stockholders’
equity as of December 31, 2008. We expect to continue to incur
research and development expenses as well as significant expenses related to
investment in sales and marketing and organizational growth in the foreseeable
future related to the ongoing product development, completion of new development
and commercialization of our products.
15
As a
result, we are sustaining substantial operating and net losses, and it is
possible that we will never be able to sustain or develop the revenue levels
necessary to attain profitability.
4.
We have limited organizational and management resources.
Our
management and organizational resources are limited, and this may adversely
impact our ability to execute our business plan, successfully commercialize our
portable emergency oxygen device, maintain regulatory compliance, or capitalize
on market opportunities, if any. We have significant intellectual capital
invested in our current employees and management, and any loss in organizational
resources may have an adverse impact on our business. In particular, we have
been, and we expect to continue to be reliant on, the experience and talents of
our founder and President.
5.
We may have difficulty raising additional capital, which could deprive us of
necessary resources.
We expect
to continue to devote significant capital resources to provide working capital,
and to fund sales and marketing as well as research and development. In order to
support the initiatives envisioned in our business plan, we will need to raise
additional funds through the sale of assets, public or private debt or equity
financing, collaborative relationships or other arrangements. Our ability to
raise additional financing depends on many factors beyond our control, including
the state of capital markets, the market price of our common stock and the
development or prospects for development of competitive technology by others.
Because our common stock is not listed on a major stock market, many investors
may not be willing or allowed to purchase it or may demand steep discounts.
Sufficient additional financing may not be available to us or may be available
only on terms that would result in further dilution to the current owners of our
common stock.
We expect
to raise additional capital during 2009 but we do not have any firm commitments
for additional funding. If we are unsuccessful in raising additional
capital, or the terms of raising such capital are unacceptable, we may suffer
liquidity issues that may have a material adverse impact on our ability to
continue operations or we may have to modify our business plan and/or
significantly curtail our planned activities and other operations.
6.
Failure to effectively manage our growth could place strains on our managerial,
operational and financial resources and could adversely affect our business and
operating results.
Our
growth has placed, and is expected to continue to place, a strain on our
managerial, operational and financial resources. Further, we will be required to
manage those multiple relationships. Any further growth by us or an increase in
the number of our distributors, strategic relationships or alliances will
increase this strain on our managerial, operational and financial resources.
This strain may inhibit our ability to achieve the rapid execution necessary to
implement our business plan, and could have a material adverse effect upon our
financial condition, business prospects and operations and the value of an
investment in our company.
16
Risks
Relating to Our Research and Development Business
7.
There are substantial inherent risks in attempting to commercialize new
technological applications, and, as a result, we may not be able to successfully
develop products or technology for commercial use.
Our
company conducts ongoing development on our portable emergency oxygen device,
and we conduct research and development of products in various vertical markets
and industries. Our product development team is working on developing technology
and products in various stages. However, commercial feasibility and acceptance
of such product candidates are unknown. Scientific research and development
requires significant amounts of capital and takes an extremely long time to
reach commercial viability, if at all. Other than portable emergency oxygen
device, to date, our research and development projects have not produced
commercially viable applications, and may never do so. Even our portable
emergency oxygen device may not prove to be commercially viable in the long
term. During the research and development process, we may experience
technological barriers that we may be unable to overcome. Because of these
uncertainties, it is possible that none of our product candidates will be
successfully developed. If our portable emergency oxygen device fails to achieve
commercial success, or we are unable to successfully develop new products or
technology for commercial use, we will be unable to generate revenue or build a
sustainable or profitable business.
8.
We will need to achieve commercial acceptance of our applications to generate
revenues and achieve profitability.
While we
began shipping our portable emergency oxygen device in earnest during 2008.
There can be no assurance that this product will receive market acceptance or
provide a path to profitability. There can be no assurance that there will be
market acceptance our portable emergency oxygen device, its need or its use, and
there can be no assurance of its commercial acceptance or profitability. While
we intend to develop additional products, even if our research and development
yields technologically feasible applications, we may not successfully develop
commercial products, and even if we do, we may not do so on a timely basis. If
our research efforts are successful on the technology side, it could take at
least several years before this technology will be commercially viable. During
this period, superior competitive technologies may be introduced or customer
needs may change, which will diminish or extinguish the commercial uses for our
applications. We cannot predict when significant commercial market acceptance
for our portable emergency oxygen device or any of our potential new products
will develop, if at all, and we cannot reliably estimate the projected size of
any such potential market. If markets fail to accept our portable emergency
oxygen device or any new products we may develop, we may not be able to generate
revenues from the commercial application of our products and technologies. Our
revenue growth and achievement of profitability will depend substantially on our
ability to have our portable emergency oxygen device and any new products we may
introduce be accepted by customers. If we are unable to cost-effectively achieve
acceptance of our products and technology by customers, or if the associated
products do not achieve wide market acceptance, our business will be materially
and adversely affected.
17
9.
We will need to establish additional relationships with collaborative and
development partners to fully develop and market our existing and new
products.
We do not
possess all of the resources necessary to develop and commercialize existing and
new products on a mass scale resulting from or that may result from our
technologies. Unless we expand our product development capacity and enhance our
internal marketing, we will need to make appropriate arrangements with
collaborative partners to develop and commercialize current and future
products.
Collaborations
may allow us to:
●
generate
cash flow and revenue;
●
offset
some of the costs associated with our sales, marketing and logistics
activities, internal research and development, testing, regulatory
approvals, and manufacturing;
●
seek
and obtain regulatory approvals faster than we could on our own;
and
●
successfully
commercialize existing and new product
candidates.
If we do
not find appropriate partners, our ability to develop and commercialize products
could be adversely affected. Even if we are able to find collaborative partners,
the overall success of the development and commercialization of product
candidates in those programs will depend largely on the efforts of other parties
and is beyond our control. In addition, in the event we pursue our
commercialization strategy through collaboration, there are a variety of
attendant technical, business and legal risks, including:
●
a
development partner would likely gain access to our proprietary
information, potentially enabling the partner to develop products without
us or design around our intellectual
property;
●
we
may not be able to control the amount and timing of resources that our
collaborators may be willing or able to devote to the development or
commercialization of our product candidates or to their marketing and
distribution; and
●
disputes
may arise between us and our collaborators that result in the delay or
termination of the research, development or commercialization of our
products and product candidates or that result in costly litigation or
arbitration that diverts our management’s
resources.
The
occurrence of any of the above risks could impair our ability to generate
revenues and harm our business and financial condition.
18
10.
We expect to rely on third parties to manufacture our product parts and
subassemblies and new product candidates and our business will suffer if they do
not perform.
Our
production activity is primarily focused on the final assembly our portable
emergency oxygen device, and we outsource the manufacturing of most of the
parts, components or subassemblies. We expect to continue to utilize this
manufacturing model for this product as well as for new product
candidates. As a result, we do not expect to manufacture many of our
products and product inputs and will engage third party contractors, molders and
packagers to provide manufacturing or production services. If our
contractors do not operate in accordance with regulatory requirements and
quality standards, our business will suffer. We expect to use or rely on
components and services that are provided by sole source suppliers. The
qualification of additional or replacement vendors is time consuming and costly.
If a sole source supplier has significant problems supplying our products, our
sales and revenues will be hurt until we find a new source of
supply.
11.
Our Production process is very labor intensive.
While we
intend to increase the level of automation of our processes, there can be no
assurance that we will be successful in automating our processes, and if we do,
that we will be able to realize any production efficiencies through such
automation.
12.
Moving to higher production volumes could be accompanied by quality
problems.
To date,
we have manufactured and shipped limited quantities of our first product, the
portable emergency oxygen device. In the event that demand for this
product increases, we will have to accommodate such increases in demand by
increasing our production throughput. There can be no assurance that
we would be successful in increasing our production throughput in response to
any increases in demand, or that we would not suffer losses in product
quality. Any upward pressure on production capacity may have an
adverse impact in quality, production cost and delivery times.
13.
We expect to rely on third parties for the worldwide marketing and distribution
of our product candidates, who may not be successful in selling our
products.
We
currently do not have adequate resources to market and distribute any products
worldwide and expect to engage third party marketing and distribution companies
to perform these tasks. While we believe that distribution partners will be
available, we cannot assure you that the distribution partners, if any, will
succeed in marketing our products on a global basis. We may not be able to
maintain satisfactory arrangements with our marketing and distribution partners,
who may not devote adequate resources to selling our products. If this happens,
we may not be able to successfully market our products, which would decrease or
eliminate our ability to generate revenues.
14.
We may not be successful at marketing and selling our technology or
products.
We began
commercializing our first product, our portable emergency oxygen device, in
earnest in early 2008. We also intend to develop additional products and
technologies for various vertical market applications.
19
We may
not be able to market and sell our technology or products and any financial or
research efforts we exert to develop, commercialize or promote such products may
not result in revenue or earnings.
15.
We may lose out to larger and better-established competitors.
While our
portable emergency oxygen device is a medical device, it is targeted at
commercial, education and government markets, as consumer markets. In addition,
our intended future products are targeted at various commercial, education,
government and consumer markets. The industries in which we operate, which
include, but are not limited to, the medical device and biotechnology
industries, are intensely competitive. Most of our competitors have
significantly greater financial, technical, manufacturing, marketing and
distribution resources as well as greater industry experience than we have. The
particular medical conditions, illnesses or diseases our portable emergency
oxygen device and future product lines are intended to address can also be
addressed by other medical devices, products, procedures or drugs. Many of these
alternatives are widely accepted by physicians and our target customers and have
a long history of use. Physicians and target customers may use our competitors’
products and/or our products may not be competitive with other technologies. If
these things happen, our sales and revenues will decline. In addition, our
current and potential competitors may establish cooperative relationships with
large medical equipment companies or companies with competitive technologies to
gain access to greater research and development or marketing resources.
Competition may result in price reductions, reduced gross margins and loss of
market share.
16.
Our products may be displaced by newer technology.
The
medical device and biotechnology industries are undergoing rapid and significant
technological change. Third parties may succeed in developing or marketing
technologies and products that are more effective than those developed or
marketed by us, or that would make our technology and products obsolete or
non-competitive. Additionally, researchers and engineers could develop new
technologies and products that replace or reduce the importance of our
technologies and products. Accordingly, our success will depend, in part, on our
ability to respond quickly to medical and technological changes through the
development and introduction of new products. We may not have the resources to
do this. If our product candidates become obsolete and our efforts to develop
new products do not result in any commercially successful products, our sales
and revenues will decline.
17.
We may not have sufficient legal protection against infringement or loss of our
intellectual property, and we may lose rights to our licensed intellectual
property if diligence requirements are not met.
Our
success depends, in part, on our ability to secure and maintain patent
protection, to preserve our trade secrets, and to operate without infringing on
the patents of third parties. While we intend to protect our proprietary
positions by filing United States and foreign patent applications for our
important inventions and improvements, domestic and foreign patent office’s may
not issue these patents.
20
To date
we have filed various patents with respect to our technology and product
candidates. Some of these applications include applications for
provisional patents which are not reviewed by the USPTO and will not result in
the issuance of a patent, unless a regular patent application is filed within
one year after the filing of the provisional patent
application. Generally, our provisional patent applications do not
contain all of the detailed design and other information required by a regular
patent application. As a result, it may be uncertain whether the
description of the invention in a provisional patent meets the “best mode and
enablement” requirements for issuance of a patent. Failure to adequately
describe the invention may result in the loss of certain
claims. Although we intend to file regular patent applications with
respect to any of our provisional patent applications, such filings require
substantial expenditures of management time and legal fees. If we do
not have the funds or resources to prepare, file and maintain patent
applications, we could lose proprietary rights to our technology.
Even if
we file patent applications and patents are issued, third parties may challenge,
invalidate, or circumvent our patents or patent applications in the future.
Competitors, many of which have significantly more resources than we have and
have made substantial investments in competing technologies, may apply for and
obtain patents that will prevent, limit, or interfere with our ability to make,
use, or sell our products either in the United States or abroad.
In the
United States, patent applications are secret until patents are issued, and in
foreign countries, patent applications are secret for a time after filing.
Publications of discoveries tend to significantly lag the actual discoveries and
the filing of related patent applications. Third parties may have already filed
applications for patents for products or processes that will make our products
obsolete or will limit our patents or invalidate our patent
applications.
We
require our employees, consultants, advisers and suppliers to execute
confidentiality and assignment of invention agreements in connection with their
employment, consulting, advisory, or supply relationships with us. They may
breach these agreements and we may not obtain an adequate remedy for breach.
Further, third parties may gain access to our trade secrets or independently
develop or acquire the same or equivalent information.
18. We could be damaged by product
liability claims.
Our
portable emergency oxygen device is intended for use my laypersons, without any
training requirements. If one of our products malfunctions or a
person misuses it and injury results to a user or operator, the injured party
could assert a product liability claim against our company. While we currently
carry a limited amount of product liability insurance, it may not sufficiently
shield us from any potential product liability claims, and we might not have
sufficient funds available to pay any claims over the limits of our
insurance. Furthermore, any potential product liability claim may
lead to our product liability insurance being cancelled, or we may not be able
to obtain such insurance at a rate that is acceptable to us or at
all. Because personal injury claims based on product liability may be
very large, an underinsured or an uninsured claim could financially damage our
company.
21
Risks
Relating to Related to the Regulatory Environment
19.
Our primary product, the portable emergency oxygen generator is controlled by
the Food & Drug Administration.
Our primary product, the portable
emergency oxygen generator is considered a Class II medical device by the US
Food & Drug Administration. One of the FDA requirements of us is
that we comply with Good Manufacturing or GMP. GMP requires us to maintain
certain manufacturing and quality control processes and protocols that are labor
intensive and resource intensive. Any lapse, breach or omission of
our GMP requirements may result in FDA sanction, including, but not limited to,
warning letters, recalls, or production stoppage.
20. The
shipment of our primary product, the portable emergency oxygen generator is
under the jurisdiction of the Department of Transportation.
The US Department of Transportation has
issued an interpretation letter on October 3, 2008 determining that OxySure’s
primary product; the portable emergency oxygen generator should be classified as
“Oxygen Generator, Chemical, UN3356”. This requires us to maintain
certified personnel to conduct shipping from our warehouse, and it requires
certain hazardous materials labeling upon shipment.
21.
The Federal Aviation Administration maintains control over any oxygen devices
that are shipped by commercial aircraft, either as commercial cargo, passenger
luggage or as passenger on-board items.
The Federal Aviation Administration
maintains control over any oxygen devices that are shipped by commercial
aircraft, either as commercial cargo, passenger luggage or as passenger on-board
items. Currently,
we do not have approval from the FAA for passengers to carry our portable
emergency oxygen generator on board commercial aircraft, and it has to be
checked with luggage. We have to obtain approval by the FAA in order
for passengers to be allowed to carry our portable emergency oxygen generator on
board commercial aircraft. There can be no assurance that we will be
able to obtain such approval.
22.
We anticipate that most of the international markets we expect to operate in
will require some sort of regulatory approval.
As a medical device our product is
highly regulated. We anticipate that most of the international
markets we expect to operate in will require some sort of regulatory
approval. There can be no assurance that we will be able to obtain
the regulatory approvals we will need to operate in our intended
markets.
Risks
Relating to our Stock
23.
The sale of the shares of common stock acquired in private placements could
cause the price of our common stock to decline.
Since
January 2004, we completed financings in which we issued common stock to certain
private investors. The terms of these transactions require that we file
registration statements with the Securities and Exchange Commission under which
the investors may resell to the public common stock acquired in these
transactions.
22
The
selling stockholders under these registration statements may sell none, some or
all of the shares of common stock acquired from us. We have no way of knowing
whether or when the selling stockholders will sell the shares covered by these
registration statements. Depending upon market liquidity at the time, a sale of
shares covered by these registration statements at any given time could cause
the trading price of our common stock to decline. The sale of a substantial
number of shares of our common stock under these registration statements, or
anticipation of such sales, could make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we
might otherwise wish to effect sales.
24.
Our common stock is not listed or trading on any exchange and shareholders may
not be able to resell their shares.
Currently
our shares of common stock are not listed on any exchange or automated quotation
system. A public market for our shares may never
develop. There can be no assurance that purchaser of our shares will
be able to resell their shares at their original purchase price, if at
all.
25.
Our common stock is expected to be traded over the counter, which may deprive
stockholders of the full value of their shares.
We
anticipate that our common stock will be quoted via the OTC Electronic Bulletin
Board. If successfully listed on the OTC Electronic Bulletin, our common stock
is expected to have fewer market makers, lower trading volumes and larger
spreads between bid and asked prices than securities listed on an exchange such
as the New York Stock Exchange or the NASDAQ Stock Market. These factors may
result in higher price volatility and less market liquidity for the common
stock.
26.
If our stock price drops significantly, we may become subject to securities
litigation that could result in a harmful diversion of our
resources.
In the past,
following periods of volatility in the market price of a particular company’s
stock, securities class action litigation has been brought against such
companies. Any litigation arising from the volatility in the price of our common
stock could have an adverse effect upon our business financial condition and
results of operations.
27.
State Blue Sky regulations may make it difficult for you to resell your
stock.
To ensure
that state laws are not violated through the resale of our securities, we intend
to become a fully reporting company which satisfies the Blue Sky laws in all the
uniform code states. We will not register the transfer of any of our securities
unless we are satisfied that the transfer doesn’t violate any state laws. We
intend to file under the Blue Sky exemptions in all states that require the
filing.
23
28.
The determination of the existing shareholder selling price does not bear any
relationship to our book value.
The offering
prices of the Shares not bear any direct relationship to the value of our
physical assets , our book value, or any other general accepted criteria of
valuation. The offering price is not necessarily an indication of the actual
value of such securities at the time of this offering.
Additionally,
the market price for our securities following this offering may be highly
volatile as has been the case with the securities of other companies in emerging
businesses. Factors such as our financial results, the introduction of new
products or services, the strength of our competitors, and various factors
affecting our industry generally, may have a significant impact on the market
price of our securities. In recent years, the stock market has experienced a
high level of price and volume volatility. Market prices for the securities of
many companies, particularly of small and emerging growth companies like ours
whose common stock is traded in the over-the-counter market have experienced
wide price fluctuations which have not necessarily been related to the operating
performance of these companies.
29.
We may encounter unforeseen costs in the supplying products.
Our estimates
of the costs and time to be consumed in the supplying of various products
customarily provided by companies may not be accurate. There can be no assurance
that analysis of the customer’s various needs, recommendations for and/or
implementation of improvements, modifications, cost reductions, and consulting
and specific problem-solving, will not cost significantly more than expected or
even prove to be prohibitive. Further, we are unable to predict the amount of
time or expenses that will be used in our efforts to obtain any additional debt
and/or equity financing required. There can be no assurance that cost overruns
will not occur or that such cost overruns will not adversely affect
us.
30.
Our success is dependent on key personnel.
Our ability
to succeed is substantially dependent on the performance of our officers and
Directors. Our success also depends on our ability to attract, hire, retain and
motivate future officers and key employees. The loss of the services of any of
these executive officers or other key employees could have a material adverse
effect on our business, prospects, financial condition and results of
operations. We have not entered into
employment agreements with any of our Officers and Directors, and currently have
no “Key Man” life insurance policies. Our future success may also depend on our
ability to identify, attract, hire, train, retain and motivate other highly
skilled technical managerial, marketing and customer service
personnel.
Competition
for such personnel is intense, and there can be no assurance that we will be
able to successfully attract, assimilate or retain sufficiently qualified
personnel. The failure to attract and retain the necessary technical,
managerial, marketing and customer service personnel could have a material
adverse effect on the business, prospects, financial condition
31.
A low market price would severely limit the potential market for our common
stock.
Our
common stock is expected to trade at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price share of less than $5.00 per share,
subject to certain exceptions (a “penny stock”).
24
Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and institutional
or wealthy investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser’s written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer,
current bid and offer quotations for the penny stock and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer’s presumed control over the market. Such information must be
provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in our common stock.
32.
FINRA sales practice requirements may also limit a stockholders ability to buy
and sell our stock.
In
addition to the penny stock rules promulgated by the SEC, which are discussed in
the immediately preceding risk factor, FINRA rules require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. FINRA requirements make it more difficult
for broker-dealers to recommend that their customers buy our common stock, which
may limit the ability to buy and sell our stock and have an adverse effect on
the market value for our shares.
33.
An investor’s ability to trade our common stock may be limited by trading
volume.
A consistently active trading market
for our common stock may not occur on the OTCBB. A limited trading volume may
prevent our shareholders from selling shares at such times or in such amounts as
they may otherwise desire.
34.
Our company has a concentration of stock ownership and control, which may have
the effect of delaying, preventing, or deterring a change of
control.
Our
common stock ownership is highly concentrated. Through its ownership of shares
of our common stock, two shareholders, JTR Investments, Limited, which is
controlled by our President, Julian T. Ross, and Agave Resources, LLC., whose
President is Don Reed, a member of our Board of Directors
beneficially own 86.53% of our total outstanding shares of common stock before
this offering. As a result of the concentrated ownership of the stock, these two
stockholders, acting together, will be able to control all matters requiring
stockholder approval, including the election of directors and approval of
mergers and other significant corporate transactions. This concentration of
ownership may have the effect of delaying, preventing or deterring a change in
control of our company. It could also deprive our stockholders of an opportunity
to receive a premium for their shares as part of a sale of our company and it
may affect the market price of our common stock.
25
35. We have not voluntarily
implemented various corporate governance measures, in the absence of which,
shareholders may have more limited protections against interested director
transactions, conflicts of interest and similar matters.
Recent
federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or The NASDAQ Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges and NASDAQ are those that
address board of directors’ independence, audit committee oversight and the
adoption of a code of ethics. While our Board of Directors has adopted a Code of
Ethics and Business Conduct, we have not yet adopted any of these corporate
governance measures and, since our securities are not listed on a national
securities exchange or NASDAQ, we are not required to do so. It is possible that
if we were to adopt some or all of these corporate governance measures,
shareholders would benefit from somewhat greater assurances that internal
corporate decisions were being made by disinterested directors and that policies
had been implemented to define responsible conduct. For example, in the absence
of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
36.
Our board of directors has the authority to issue shares of “blank check”
preferred stock, which may make an acquisition of our company by another company
more difficult.
We may in
the future adopt certain measures that may have the effect of delaying,
deferring or preventing a takeover or other change in control of our company
that a holder of our common stock might consider in its best
interest. Specifically, our board of directors, without further
action by our stockholders, currently has the authority to issue shares of
preferred stock and to fix the rights (including voting rights), preferences and
privileges of these shares (“blank check” preferred). Such preferred stock may
have rights, including economic rights, senior to our common stock. As a result,
the issuance of the preferred stock could have a material adverse effect on the
price of our common stock and could make it more difficult for a third party to
acquire a majority of our outstanding common stock.
37.
Because we will not pay dividends in the foreseeable future, stockholders will
only benefit from owning common stock if it appreciates.
We have
never paid dividends on our common stock and we do not intend to do so in the
foreseeable future. We intend to retain any future earnings to finance our
growth. Accordingly, any potential investor who anticipates the need for current
dividends from his investment should not purchase our common stock.
26
38. There are
doubts about our ability to continue as a going concern and if we are unable to
continue our business, our shares may have little or no
value.
As
discussed in Note 3 to the accompanying financial statements as of December 31,2007 and 2008 and the periods then ended, the company’s ability to become a
profitable operating company is dependent upon obtaining financing adequate to
fulfill its research and market introduction activities, and achieving a level
of revenues adequate to support our cost structure has raised doubts about our
ability to continue as a going concern. We plan to attempt to raise
additional equity capital by selling shares in this offering and, through one or
more private placement or public offerings. However, the doubts
raised relating to our ability to continue as a going concern may make our
shares an unattractive investment for potential investors. These
factors, among others, may make it difficult to raise the necessary amount of
capital.
This
prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including, among other things:
Factors
that might cause these differences include the following:
·
The
integration of multiple technologies and
programs;
·
the
ability to successfully complete development and commercialization of
products and our company’s expectations regarding market
growth;
·
the
cost, timing, scope and results of ongoing research and development
efforts;
·
the
ability to successfully complete product research and further
development;
·
the
volume and profitability of product sales of future
products;
·
changes
in existing and potential relationships with collaborative
partners;
·
the
availability, cost, delivery and quality of materials supplied by contract
manufacturers;
·
the
timing, cost and uncertainty of obtaining regulatory approvals of our
products;
·
the
ability to obtain substantial additional
funding;
·
the
ability to develop and commercialize products before competitors that are
superior to the alternatives developed by
competitors;
·
the
ability to retain certain members of
management;
·
our
expectations regarding research and development expenses and general and
administrative expenses;
·
our
expectations regarding cash balances, capital requirements, anticipated
revenue and expenses, including infrastructure
expenses;
·
our
belief regarding the validity of our patents and potential litigation;
and
·
other
factors detailed from time to time in filings with the
SEC
27
USE
OF PROCEEDS
We will not receive any proceeds from
the sales by the selling shareholders.
All proceeds from the sale of the
15,624,816 shares from the existing shareholders will be paid directly to those
shareholders. We will receive $250,000 in net proceeds from the sale of the
newly issued shares.
DIVIDEND
POLICY
We do not expect to declare or pay any
cash dividends on our common stock in the foreseeable future, and we currently
intend to retain future earnings, if any, to finance the expansion of our
business. The decision whether to pay cash dividends on our common stock will be
made by our board of directors, in their discretion, and will depend on our
financial condition, operating results, capital requirements and other factors
that the board of directors considers significant. We did not pay cash dividends
during the years ended December 31, 2008 and 2007, respectively.
DETERMINATION
OF OFFERING PRICE AND ADDITIONAL INFORMATION
The selling shareholders offering price
of their common stock will be determined by market factors. At present there is
no public market for the common stock being registered. The selling shareholders
arbitrarily selected an offering price of $0.05 cents per share. However, upon
clearance to trade the selling price will be determined by market factors not
necessarily related to asset value net worth, or criteria of value, which could
be considerably less. Announcements of services by our competitors or us may
have a significant impact on the market price.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There has never been a public trading
market for our common stock. Immediately upon the Securities and
Exchange Commission deeming this Registration Statement, of which this
Prospectus is a part, effective, the Company intends to seek out the assistance
of a Financial Industry Regulatory Authority (FINRA) member to sponsor us and
file a 15 (c) 211 for the purpose of attaining trading status on the OTC
BB. As of April 30, 2009, we had 58 stockholders of record. In
addition, the number of holders of convertible preferred stock totaled 52
stockholders.
SELLING
SECURITY HOLDERS
The persons listed in the following
table plan to offer the shares shown opposite their respective names by means of
this prospectus. The owners of the shares to be sold by means of this prospectus
are referred to as the “selling” shareholders”. The selling shareholders
acquired their shares from OxySure in private negotiated transactions, under
section 4 (1) of the Securities Act of 1933, or pursuant to offerings exempted
from registration with the Securities and Exchange Commission under either
Regulation D Rule 505 or Regulation D Rule 506 of the Securities Act of 1933.
All of the purchasers had business or personal prior relationships with
OxySure’s officers and directors. These shares may be sold by one or
more of the following methods, without limitations.
28
·
A
block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the
transaction;
·
Purchase
by a broker or dealer as principal and resale by such broker or dealer for
its account pursuant to this
prospectus;
·
Ordinary
brokerage transactions and transactions in which the broker solicits
purchasers
·
Face
to face transactions between sellers and purchasers without a
broker/dealer.
In completing sales, brokers or dealers
engaged by the selling shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive commissions or discounts from
selling shareholders in amounts to be negotiated. As to any particular
broker-dealer, this compensation might be in excess of customary commissions.
Neither OxySure nor the selling stockholders can presently estimate the amount
of such compensation.
The selling shareholders and any
broker/dealers who act in connection with the sale of the shares may be deemed
to be “underwriters” within the meaning of the Securities Acts of 1933, and any
commissions received by them and any profit on any resale of the shares as a
principal might be deemed to be underwriting discounts and commissions under the
Securities Act.
If any selling shareholders enters into
an agreement to sell his or her shares to a broker/dealer as principal and the
broker/dealer is acting as an underwriter, we will file a post-effective
amendment to the registration statement, of which this prospectus is a part,
identifying the broker/dealer, providing required information concerning the
plan of distribution, and otherwise revising the disclosures in this prospectus
as needed. We will also file the agreement between the selling shareholder and
the broker/dealer as an exhibit to the post-effective amendment to the
registration statement.
We have advised the selling
shareholders that they and any securities broker/dealers or others who may be
deemed to be statutory underwriters will be subject to the prospectus delivery
requirements under the Securities Act of 1933. We have also advised each selling
shareholder that in the event of a “distribution” of the shares owned by the
selling shareholder, such selling shareholder, any “affiliated purchasers”, and
any broker/dealer or other person who participates in the distribution may be
subject to Rule 102 of Regulation M under the Securities Exchange Act of 1934
(“1934 Act”) until their participation in that distribution is complete. Rule
102 makes it unlawful for any person who is participating in a distribution to
bid for or purchase stock of the same class, as is the subject of the
distribution. A “distribution” is defined in Rule 102 as an offering of
securities “that is distinguished from ordinary trading transaction by the
magnitude of the offering and the presence of special selling efforts and
selling methods”. We have also advised the selling shareholders that
Rule 101 of Regulation M under the 1934 Act prohibits any “stabilizing bid” or
“stabilizing purchase” for purpose of pegging, fixing or stabilizing the price
of the common stock in connection with this offering.
No selling shareholder has, or had, any
material relationship with us or our officers or directors. To our knowledge, no
selling shareholder is affiliated with a broker/dealer.
29
Manner
of Sale
The shares of common stock owned by the
selling shareholders may be offered and sold by means of this prospectus from
time to time as market conditions permit. Since as of the date of this
prospectus no market exists for our common stock, sales by the selling
shareholders are not possible until our common stock becomes quoted on the OTC
Bulletin Board or listed on a securities exchange. The estimated selling price
is price of $0.05 per share. If and when our common stock becomes quoted on the
OTC Bulletin Board or listed on the securities exchange, the shares owned by the
selling shareholders may be sold in the public market or in private transactions
for cash at prices to be determined at that time. We will not receive any
proceeds from the sale of the shares by the selling shareholders. The
selling shareholders will pay all sales commissions and other costs of the sale
of the shares offered by them.
The following table sets forth (i) the
number of outstanding shares, beneficially owned by the selling stockholders
prior to the offering; (ii) the aggregate number of shares offered by each such
stockholder pursuant to this prospectus; and (iii) the amount and the percentage
of the class to be owned by such security holder after the offering is
complete:
Name
of the Owner of the Common Stock
Number
of Shares Owned before the Offering
Number
of Shares Offered by Selling Shareholders
Number
of Shares Owned after the Offering
Percentage
of Shares Owned after the Offering
AGAVE
Resources, LLC(1)
720,000
720,000
0
0.00%
ANTWI,
Kwadwo
70,000
70,000
0
0.00%
AULDS
Family L.P. #1(2)
80,000
80,000
0
0.00%
CARR,
Gregory W.
20,000
20,000
0
0.00%
CURLETT,
Jesse D.
1,000
1,000
0
0.00%
CURLETT,
Samuel R.
2,000
2,000
0
0.00%
DICKERSON,
Carl
5,000
5,000
0
0.00%
DORREL,
Ronald Kenton
40,000
40,000
0
0.00%
DUFFY,
Joshua
2,000
2,000
0
0.00%
EVERSON
Jr., Robert H.
10,000
10,000
0
0.00%
FELDMAN,
David B.
10,000
10,000
0
0.00%
FOSTER,
T. Scott
1,066
1,066
0
0.00%
30
FROST,
Dr. David E.
20,000
20,000
0
0.00%
HARRIS,
Dennis O.
12,500
12,500
0
0.00%
HOYT,
Matthew & Susan
5,000
5,000
0
0.00%
HUPP,
Dr. James R.
15,000
15,000
0
0.00%
HUTTON,
Tim
17,000
17,000
0
0.00%
JEFFREY,
Lisa
10,000
10,000
0
0.00%
JENNINGS,
Robert
25,000
25,000
0
0.00%
JENNINGS,
Robert IFO Zack Jennings
5,000
5,000
0
0.00%
JERNIGAN,
Steve
70,000
70,000
0
0.00%
JJ
Johnson Investments, Ltd.(3)
70,000
70,000
0
0.00%
JONES,
Chris
12,500
12,500
0
0.00%
JONES,
G. Christopher
30,000
30,000
0
0.00%
JONES,
Guy Breese
12,500
12,500
0
0.00%
JTR
Investments, Ltd.(4)
12,800,000
12,800,000
0
0.00%
KARPER,
Dr. Robert E.
20,000
20,000
0
0.00%
LANZI,
Dr. Guy L.
45,000
45,000
0
0.00%
LARSON,
Mr. & Mrs.
10,000
10,000
0
0.00%
LAVERDURE,
Kristianne
20,000
20,000
0
0.00%
LAVERDURE,
Maurice
10,000
10,000
0
0.00%
LAVERDURE,
Maurice Jr.
10,000
10,000
0
0.00%
LE,
Phong
300,000
300,000
0
0.00%
LINDSAY,
David
6,000
6,000
0
0.00%
31
LINDSAY,
Jamie B.
4,000
4,000
0
0.00%
LINDSAY,
Jerry
50,000
50,000
0
0.00%
LUCAS,
Jonathan E.
1,000
1,000
0
0.00%
MCDONALD,
Henry
10,000
10,000
0
0.00%
NELMS,
James W., Jr.
62,600
62,600
0
0.00%
NELMS,
Jim & Shelley
50,000
50,000
0
0.00%
NEW
DAWN Acquisitions, LLC(5)
35,000
35,000
0
0.00%
PACIFIC
Cattle Corporation(6)
115,000
115,000
0
0.00%
PARK,
Jin
20,000
20,000
0
0.00%
PHOENIX
Capital Ventures, Inc.(7)
18,650
18,650
0
0.00%
POUYAT,
Scott
5,000
5,000
0
0.00%
RBC
Dain Rauscher FBO: James W. Nelms, Jr.,SEP
57,500
57,500
0
0.00%
REED,
Nancy
120,000
120,000
0
0.00%
ROSS,
Pearl
8,000
8,000
0
0.00%
SCHWARTZ,
Daniel C.
70,000
70,000
0
0.00%
SHEFTEL,
Scott
5,000
5,000
0
0.00%
SPRADLEY
Holdings(8)
20,000
20,000
0
0.00%
STEINHARDT,
James
10,000
10,000
0
0.00%
TABER,
Steven M.
20,000
20,000
0
0.00%
TIMBREZA,
Charles K.
1,500
1,500
0
0.00%
The
Ross Family Trust(9)
400,000
400,000
0
0.00%
WHITE,
R. Dean
20,000
20,000
0
0.00%
WJVEST
Holding General Partnership(10)
25,000
25,000
0
0.00%
WOOD,
David
10,000
10,000
0
0.00%
Totals
(58 Shareholders)
15,624,816
15,624,816
0
0.00%
32
Notes:
1.
Agave
Resources, LLC is controlled by our Director, Don
Reed.
2.
AULDS
Family L.P. #1 is controlled by Chris
Aulds.
3.
Joe
Johnson is the controlling shareholder of JJ Johnson Investments,
Ltd.
4.
JTR
Investments, Ltd. is a family partnership controlled by our President and
CEO, Julian Ross.
5.
NEW
DAWN Acquisitions, LLC is controlled by Julie
Nichols.
6.
Stan
Bert is the President of Pacific Cattle
Corporation.
7.
Phoenix
Capital Ventures, Inc. is controlled by Josh B.
Curlett.
8.
Spradley
Holdings is controlled by Dr. Larry
Spradley.
9.
The
Ross Family Trust is controlled by trustees, one of whom is our President
and CEO, Julian Ross.
10.
Casey
Jensen is the General Partner in the WJVEST Holding General
Partnership.
On or about July 2004, February 2008,
and March 2009, OxySure Systems, Inc. closed the following private placement
offerings and transactions in which it sold a total of 15,624,816 shares of its
common stock to the aforementioned shareholders, except for Gregory W. Carr and
Scott T. Foster who received their shares for services rendered, and JTR
Investments, Limited which received its shares pursuant to the Asset Purchase
and Stock Transfer Agreement transaction described below. The shares
were issued at the prices described below. The shares bear a restrictive
transfer legend. These transactions (a) involved no general solicitation,
(b) involved less than thirty-five non accredited purchasers, and (c) relied on
a detailed disclosure document to communicate to the investors all material
facts about OxySure Systems, Inc., including an audited balance sheet and
reviewed statements of income, if applicable, changes in stockholders’ equity
and cash flows.
July
2004 Private Share Transactions
On January15, 2004, the Company executed an Asset Purchase and Stock Transfer Agreement
with entities controlled by the founder of the Company. In connection with this
agreement, the Company acquired certain assets, including certain rights, title
and interest to intellectual property, relating to the oxygen method and
apparatus, developed by the founder of the Company. As consideration for the
purchase, the Company issued 14,000,000 shares of common stock and a promissory
note for $150,000 to these entities. The common stock was valued at $7,000 using
the then par value of the common stock on the date. In addition, up to and
including July 15, 2004, the company sold 310,000 shares of common stock for
proceeds of $126,500 to shareholders not related to the Company’s
founder.
February
2008 Private Placement
On February28, 2008the Company closed a private placement of common stock pursuant to
which we sold an aggregate of 635,000 shares of common stock at an aggregate
$2.50 per share, for gross proceeds of approximately $1,587,500.
March
2009 Private Placement
On March 31,2009, we conducted an initial closing of a private placement transaction
pursuant to which we sold an aggregate of 310,500 shares of common stock at an
aggregate $1.00 per share, for gross proceeds of approximately
$310,500.
33
*Pursuant
to Section 4(2) of the Securities Act of 1933, the stock was issued in a
transaction not involving a public offering. These shareholders are friends and
acquaintances.
To
our knowledge, no selling shareholder is affiliated with a
broker/dealer.
SHARES
ELIGIBLE FOR FUTURE SALE
Currently, there is no public market
for our common stock. Future sales of substantial amounts of our common stock in
the public market could adversely affect market prices. We have outstanding an
aggregate of 15,624,816 shares of common stock as of the date of this
prospectus. If the shares that are being registered under this
registration statement, of which this prospectus is a part, there will be a
total of 39,898,770 outstanding. If and when this registration is deemed
effective by the Securities and Exchange Commission, all of these shares will be
freely tradable without restriction or further registration under the Securities
Act, except as may be restricted by lock up agreements and except that any
shares purchased by our "affiliates," as that term is defined in Rule 144 of the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 promulgated under the Securities Act, which rules
are summarized below. Subject to the lock-up agreements described below and the
provisions of Rules 144, additional shares will be available for sale in the
public market as follows:
Approximate
Number of
Shares
Eligible for
Future
Sale
Date
15,624,816
These
shares will become freely tradable shares when and if the Securities and
Exchange Commission deems this registration statement
effective. Of these shares, control persons own approximately
13,520,000 shares. The control block of shares are subject to the
provisions of Rule 144 volume requirements. The remaining 2,104,816 shares
consists of shares that are owned by non-controlling individuals and
entities and will be eligible for resale, but subject to certain lock-up
provisions contained herein. Of the 2,104,816 shares, selling
stockholders holding an aggregate of 2,104,816 shares of common stock (the
“Shares”) have agreed that they will not sell any of such securities
during the “Lock-Up Period”, defined as follows: The Lock-Up Period shall
mean: (i) with respect to the first quarter of the Shares, the period
beginning the first day that the shares of OxySure becomes traded in a
nationally recognized market, and ending on the 90th day subsequent to the
first day that the shares of OxySure becomes traded in a nationally
recognized market; (ii) with respect to the second quarter of the Shares,
the period beginning on the 91st day and ending on the 180th day
subsequent to the first day that the shares of OxySure becomes traded in a
nationally recognized market;
34
(iii)
with respect to the third quarter of the Shares, the period beginning on
the 181st day and ending on the 270th day subsequent to the first day that
the shares of OxySure becomes traded in a nationally recognized market;
and (iv) with respect to the fourth quarter of the Shares, the period
beginning on the 271st day and ending on the 360th day subsequent to the
first day that the shares of OxySure becomes traded in a nationally
recognized market;
Notwithstanding
the foregoing restrictions on transfer, the undersigned may, at any time
and from time to time during the Lock-Up Period, transfer the Shares (i)
as bona fide gifts or transfers by will or intestacy, (ii) to any trust
for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that any such transfer shall not
involve a disposition for value, (iii) to a partnership which is the
general partner of a partnership of which the undersigned is a general
partner, provided, that, in the case of any gift or transfer described in
clauses (i), (ii) or (iii), each donee or transferee agrees in writing to
be bound by the terms and conditions contained herein in the same manner
as such terms and conditions apply to the undersigned. For purposes
hereof, "immediate family" means any relationship by blood, marriage or
adoption, not more remote than first cousin.
5,000,000
Direct
Public Offer. These shares will be freely tradable after the Securities
and Exchange Commission declares effective the registration statement of
which this prospectus is a part.
19,273,954
These
shares will be freely tradable after the Securities and Exchange
Commission declares effective the registration statement of which this
prospectus is a part. Includes 10,459,705 shares of common
stock that may or have been acquired upon the exercise of outstanding
warrants and warrants to be issued in the future. It includes 5,000,000
shares that may or have been acquired upon the exercise of outstanding
options. It includes 3,814,249 shares into which our Series A Convertible
may convert.
35
Rule
144
In general, under Rule 144 a person, or
persons whose shares are aggregated, who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned shares of our common stock for at least six months, including
the holding period of any prior owner, except if the prior owner was one of our
affiliates, would be entitled to sell all of their shares, provided the
availability of current public information about our company.
Sales under Rule 144 may also subject
to manner of sale provisions and notice requirements and to the availability of
current public information about our company. Any substantial sale of common
stock pursuant to any resale registration statement or Rule 144 may have an
adverse effect on the market price of our common stock by creating an excessive
supply.
Lock-Up
Agreements and Registration
Common Stock,
Preferred Stock and Warrants: Holders of our common stock, preferred
stock and warrants have entered into lock-up agreements pursuant to which they
agreed not to sell their shares during a lock-up period (the “Lock-up Period”).
For the purposes thereof, the Lock-Up Period means: (i) with respect to the
first quarter of the Shares, the period beginning the first day that the shares
of OxySure becomes traded in a nationally recognized market, and ending on the
90th day subsequent to the first day that the shares of OxySure becomes traded
in a nationally recognized market; (ii) with respect to the second quarter of
the Shares, the period beginning on the 91st day and ending on the 180th day
subsequent to the first day that the shares of OxySure becomes traded in a
nationally recognized market; (iii) with respect to the third quarter of the
Shares, the period beginning on the 181st day and ending on the 270th day
subsequent to the first day that the shares of OxySure becomes traded in a
nationally recognized market; and (iv) with respect to the fourth quarter of the
Shares, the period beginning on the 271st day and ending on the 360th day
subsequent to the first day that the shares of OxySure becomes traded in a
nationally recognized market;
Notwithstanding
the foregoing restrictions on transfer, the undersigned may, at any time and
from time to time during the Lock-Up Period, transfer the Shares (i) as bona
fide gifts or transfers by will or intestacy, (ii) to any trust for the direct
or indirect benefit of the undersigned or the immediate family of the
undersigned, provided that any such transfer shall not involve a disposition for
value, (iii) to a partnership which is the general partner of a partnership of
which the undersigned is a general partner, provided, that, in the case of any
gift or transfer described in clauses (i), (ii) or (iii), each donee or
transferee agrees in writing to be bound by the terms and conditions contained
herein in the same manner as such terms and conditions apply to the undersigned.
For purposes hereof, "immediate family" means any relationship by blood,
marriage or adoption, not more remote than first cousin.
It is our
intention to list our shares of common stock on OTCBB. There can no
assurance, however, that the company will successfully list its shares of common
stock on the OTCBB.
Stock
Options: Our employees are required to enter into a Voting Stock
Agreement which sets out the terms of participation in the Company’s stock
option plan. Generally, Voting Stock Agreements, provide for, inter alia, that
in the event that the Company completes an initial public offering of its shares
resulting in the trading of its shares in a recognized market, the shares
(underlying the stock options) shall not be sold for a period of 12 months
thereafter.
36
There is no
present intention and there are no agreements or understandings, explicit or
tacit, relating to the early release of any locked-up shares. The
Company may, however, consent to an early release from the lock-up period if, in
its opinion, the market for the common stock would not be adversely impacted by
sales. The release of any lock-up would be considered on a case-by-case
basis. Factors that OxySure may consider in deciding whether to
release shares from the lock-up restriction include the length of time before
the lock-up expires, the number of shares involved, the reason for the requested
release, market conditions, the trading price of our securities, historical
trading volumes of our securities and whether the person seeking the release is
an officer, director or affiliate of us.
PLAN
OF DISTRUBUTION
The securities being offered may be
sold by the Selling Shareholders or by those to whom such shares are
transferred. We are not aware of any underwriting arrangements that have been
entered into by Selling Shareholders. The distribution of the securities by the
Selling Shareholders may be effected on one or more transactions that may take
place in the over-the-counter market, including broker’s transactions, privately
negotiated transactions or through sales to one or more dealers acting as
principals in the resale of these securities.
Any of the Selling Shareholders, acting
alone or in concert with one another, may be considered statutory underwriters
under the securities Act of 1933, as amended, if they are directly or indirectly
conducting an illegal distribution of the securities on behalf of our
corporation. For instance, an illegal distribution may occur if any of the
Selling Shareholders provide us with cash proceeds from their sales of the
securities. If any of the Selling Shareholders are determined to be
underwriters, they may be liable for securities violations in connection with
any material misrepresentations or omissions made in this
prospectus.
If our company or our management
receives proceeds from the sales of the securities by the Selling Shareholders,
those persons may have conducted an illegal distribution of our securities and
may be deemed underwriters. Accordingly, they will have liability for any
material misrepresentations or omissions in this document and otherwise in the
offer and sales of securities.
In addition, the Selling Shareholders
and any brokers and dealers through whom sales of the securities are made may be
deemed to be “underwriters within the meaning of the Securities Act of 1933, as
amended, and the commissions or discounts and other compensations paid to such
persons may be regarded as underwriters’ compensation.
In
addition to, and without limiting each of the Selling Shareholders and any other
person participating in a distribution will be affected by the applicable
provisions of the 1934 Act, including, without limitation, Regulation M, which
may limit the timing of purchases and sales of any of the securities by the
Selling Shareholders or any such other person.
Under the 1934 Act, and the regulations
there under, any person engaged in a distribution of the shares of our common
stock offered by this prospectus may not simultaneously engage in market making
activities with respect to our common stock during the applicable “cooling off”
periods prior to the commencement of such distribution.
Also the Selling Shareholders are
subject to applicable provisions which limit the timing of purchases and sales
of our common stock by the Selling Shareholders.
37
We have informed Selling Shareholders
that, during such time as they may be engaged in distribution of any of shares
we are registering by this registration statement, they are required to comply
with Regulation M. In general, Regulation M precludes any Selling Shareholder,
any affiliated purchasers and any broker-dealer or any other person who
participates in a distribution from bidding for or purchasing, or attempting to
induce any person to bid for or purchase any security which is the subject of
the distribution until the entire distribution is complete. Regulation M defines
a “distribution” as an offering of securities that is distinguished from
ordinary trading efforts and selling methods. Regulation M also defines a
“distribution participant” as an underwriter, prospective underwriter, broker,
dealer, or other person who has agreed to participate or who is participating in
a distribution.
Regulation M prohibits any bids or
purchases made in order to stabilize the price of a security in connection with
the distribution of the security, except as specifically permitted by Rule 104
of Regulation M. These stabilizing transactions may cause the price of our
common stock to be more than it would otherwise be in the absence of these
transactions. We have informed the Selling Shareholders that stabilizing
transactions permitted by Regulation M allow bids to purchase our common stock
if the stabilizing bids do not exceed a specific maximum. Regulation
M specifically prohibits stabilizing that is the result of
fraudulent, manipulative, or deceptive practices. Selling Shareholder and
distribution participants are required to consult with their own legal counsel
to ensure compliance with Regulation M.
There can be no assurance that the
Selling Shareholders will sell any or all of the securities. In order to comply
with state securities laws, if applicable, the securities will be sold in
jurisdiction only through registered or licensed brokers or dealers. In various
states, the securities may not be sold unless these securities have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. Under applicable rules and
regulations of the 1934 Act, any person engaged in distribution of the
securities may not simultaneously engage in market-making activities in these
securities for a period of one or five business days prior to the commencement
of such distribution.
Timing
of Sales.
The Selling Shareholders may offer and
sell the shares covered by this prospectus at various times. The Selling
Shareholders will act independently of each other in making decisions with
respect to the timing, manner and size of each sale.
Offering
Price.
The Selling Shareholders intend to sell
their shares at an offering price of $0.05 per share until quoted on the OTC
Bulletin Board, or listed for trading or quoted on any other public market.
Thereafter, the sales price offered by the Selling Shareholders to the public
may be:
(1) The
market price prevailing at the time of sale;
(2) A price
related to such prevailing market price; or
(3) Such
other price as the Selling Shareholders determine from time to
time.
38
Our common stock is not currently
listed on any national exchange or electronic quotation system. If our common
stock becomes publicly traded, then the sale price to the public will vary
according to the selling decisions of each selling shareholder and the market
for our stock at the time of resale.
Manner
of Sale.
The
shares may be sold by means of one or more of the following
methods:
(1)
a
block trade in which the broker-dealer so engaged will attempt to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the
transaction;
(2)
purchase
by a broker-dealer as principal and resale by that broker-dealer for its
account pursuant to this
prospectus;
(3)
ordinary
brokerage transactions in which the broker solicits
purchasers;
(4)
through
options, swaps or derivative;
(5)
privately
negotiated transactions; or
(6)
in
a combination of any of the above
methods.
The Selling Shareholders may sell their
shares directly to purchasers or may use brokers, dealers, underwriters or
agents to sell their shares. Brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions, discounts or concessions from the Selling
Shareholders, or, if any such broker-dealer acts as agent for the purchaser of
shares, from the purchaser in amounts to be negotiated immediately prior to the
sale. The compensation received by the brokers or dealers may, but is not
expected to, exceed that which is customary for the types of transaction
involved. Broker-dealers may agree with a Selling Shareholder to sell a specific
number of shares at a stipulated price per share, and to the extent the
broker-dealer is unable to do so acting as agent for a Selling Shareholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the Selling Shareholder. Broker-dealers who acquire
shares as principal may thereafter resell the shares from time to time in
transactions, which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above, in
the over-the-counter market or otherwise at prices and on terms then prevailing
at the time of sale, at prices then related to the then current market price or
in negotiated transactions. In connection with resale of the shares,
broker-dealers may pay to or receive from the purchasers of shares commissions
as described above.
We will request a broker-dealer to make
application to the NASD to have the Company’s securities quoted on the OTC
Bulletin Board System or published, in print and electronic media, or either, in
the Pink Sheets LLC “Pink Sheets.” There is no guarantee that any active market
will ever exist for the shares sufficient for the selling shareholders to sell
their shares.
If our Selling Shareholders enter into
arrangements with brokers or dealers, as described above, we are obligated to
file a post-effective amendment to this registration statement disclosing such
arrangements, including the names of any broker dealers acting as
underwriters.
39
The Selling Shareholders and any
broker-dealers or agents that participate with the Selling Shareholders in the
sale of the shares may be deemed to be “underwriters” within the meaning of the
Securities Act. In that event, any commissions received by broker-dealers or
agents and any profit on the resale of the shares purchased by tem may be deemed
to be underwriting commissions or discounts under the Securities
Act.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results
of Operation
As shown in the accompanying financial
statements, we had net losses of ($2,041,437) from operations for the twelve
month period ending December 31, 2008 and net losses of ($2,313,893) from
operations in the twelve month period ending December 31, 2007. Our
future is dependent upon our ability to obtain financing and upon future
profitable operations from the development of our services. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts of and classification of
liabilities that might be necessary in the event we cannot continue in
existence.
We have limited financial resources
available which has had an adverse impact on our liquidity, activities and
operations. These limitations have adversely affected our ability to obtain
certain projects and pursue additional business. There is no assurance that we
will be able to raise sufficient funding to enhance our financial resources
sufficiently to generate volume or to engage in any significant research and
development, or purchase plant or significant equipment.
We have earned no significant revenue
or profits to date, and even though operations began on January 15, 2004 we
anticipate that we will continue to incur net losses for the foreseeable future.
We expect to incur a net loss of
approximately ($2,000,000) for
the year ending December 31, 2009, as compared to net loss of ($2,041,437) for
the year ending December 31, 2008. From the date of inception January 15, 2004,
we have lost a total of ($6,321,935).
Plan
of Operation
We believe we can sustain our plan of
operation for the next twelve months of cash flow from our current clients. We
intend to actively seek for a suitable, existing business for an acquisition. We
anticipate the terms of the acquisition will require a combination of cash and
stock.
Being a public company will position us
with the ability to raise capital and issue shares for acquisitions and growth
opportunities.
Our keys
to success and critical factors for the next year are in order of
importance;
1.
Implement
our expansion-marketing plan by intensifying solicitation of new clients
to increase our customer base.
2.
Use
financial control and cash flow
planning.
3.
Use
the advantage of the economies of
scale.
40
There
are:
·
No
summary of any product research and development to be
performed.
·
No
expected purchase or sale of plant and significant
equipment.
·
No
expected significant changes in the number of
employees.
·
No
known trends, events or uncertainties that have or are reasonably likely
to have material impact on the small business issuer’s short term or
long-term liquidity.
·
No
material commitments for capital expenditures and the expected sources of
funds for such expenditures
·
No
known trends events or uncertainties that have had or that are reasonably
expected to have material impact on the net sales or revenues or income
from continuing operations.
·
No
significant elements of income or loss that do not arise from the small
business issuers continuing
operations
·
No
causes for any material changes from period to period in one or more line
items of the small business issuer’s financial
statements
·
Seasonal
aspects that favorably affect our operations are new automobile
introduction months and major holidays. Special retail promotions require
additional printing and
advertising.
We feel our
current cash flow is insufficient to accomplish our goals for the next twelve
months and we will be require to raise additional funds during this time There
is no assurance that we will be successful in raising capital .
Critical
Accounting Policies, Estimates and Assumptions
The SEC defines critical accounting
policies as those that are, in management's view, most important to the
portrayal of our financial condition and results of operations and those that
require significant judgments and estimates.
The discussion and analysis of our
financial condition and results of operations is based upon our financial
statements which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities. On an on-going basis, we evaluate our
estimates including the allowance for doubtful accounts, the salability and
recoverability of inventory, income taxes and contingencies. We base our
estimates on historical experience and on other assumptions that we believe to
be reasonable under the circumstances, the results of which form our basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We cannot predict what future laws and
regulations might be passed that could have a material effect on our results of
operations. We assess the impact of significant changes in laws and regulations
on a regular basis and update the assumptions and estimates used to prepare our
financial statements when we deem it necessary.
Revenue
recognition. We recognize revenue from the sales of products. Sales
are recognized when the following four revenue criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred, the selling price is
fixed or determinable, and collectivity is reasonably assured. Sales revenue is
presented net of value added tax (VAT), sales rebates and returns. No return
allowance is made as product returns are insignificant based on historical
experience.
41
Allowance for
doubtful accounts. In estimating the collectability of accounts
receivable we analyze historical write-offs, changes in our internal credit
policies and customer concentrations when evaluating the adequacy of our
allowance for doubtful accounts. Differences may result in the amount and timing
of expenses for any period if we make different judgments or use different
estimates. Our accounts receivable represent a significant portion of our
current assets and total assets. Our realization on accounts receivable,
expressed in terms of United States dollars may be affected by fluctuations in
currency rates since the customer’s currency is frequently a currency other than
United States dollars.
Inventories.
The Company’s inventory consists of raw material components for its
portable oxygen systems as well as completed products and accessories. Inventory
is stated at the lower of cost or market.
Cash and Cash
Equivalents. The Company considers
all highly liquid investments purchased with maturity of three months or less to
be cash equivalents. Cash and cash equivalents may at times exceed Federally
insured limits. To minimize this risk, the Company places its cash and cash
equivalents with high credit quality institutions.
Property and
Equipment. Property and equipment are recorded at cost with depreciation
and amortization provided over the shorter of the remaining lease term or the
estimated useful life of the improvement. Renewals and betterments that
materially extend the life of an asset are capitalized. Expenditures for
maintenance and repairs are charged to expense when incurred.
Impairment of
Long-Lived Assets. The Company review long-lived assets, including
amortizable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized forthe difference between the fair
value and carrying value of the asset. During 2008 and 2007, the Company
recognized impairments charges of $0 and $84,318, respectively.
Research and
Development Costs. Costs associated with the development of the Company’s
products are charged to expense as incurred.
Income
Taxes. The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 “Accounting for Income Taxes”. Therefore, the
Company records deferred taxes for the tax effect of differences between the
financial reporting basis and the income tax basis of the Company’s assets and
liabilities. A valuation reserve is provided for a portion or all of the
deferred tax assets when it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Stock-Based
Compensation. In December 2004, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123R (FAS-123R), Share-Based Payment, which is
a revision of Statement of Financial Accounting Standards No. 123 (FAS-123),
Accounting for Stock-Based
Compensation. FAS-123R eliminates accounting for share-based compensation
transactions using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB-25), Accounting for Stock Issued to
Employees, and requires instead that such transactions be accounted for
using a fair-value-based-method. The Company adopted the provisions of FAS-123R
effective January 1, 2006 using the prospective method.
42
Under the
prospective method compensation cost is recognized beginning with the effective
date for all share-based payments granted, modified, repurchased or
cancelled
after the
effective date. The application of SFAS No. 123, involves significant amounts of
judgment in the determination of inputs into the Black- Scholes option-pricing
model, which the Company uses to determine the value of the stock options it
grants. Inherent in this model are assumptions related to expected fair value of
the common stock, stock-price volatility, option life, risk-free interest rate,
and dividend yield. While the risk free interest rate and dividend yield are
less subjective assumptions, typically based on factual data, the expected
stock-price volatility and option life assumptions require a greater level of
judgment, which makes them critical accounting estimates. The Company has not
and does not anticipate distributing dividends to stockholders and accordingly
uses a 0% dividend yield assumption for all Black Scholes option pricing
calculations.
The Company
uses an expected stock-price volatility assumption that is primarily based on
comparable stock of public companies. With regard to the weighted-average option
life assumption, the Company evaluates the exercise behavior of past grants as a
basis to predict future activity. The amount of stock based compensation
expenses is net of an estimated
forfeiture
rate, which is also based on historical data. The fair value of options issued
during the years ended December 31, 2008 and 2007 was approximately $0 and
$135,000, respectively.
The
Company accounted for all share-based payments granted prior to January 1, 2006
in accordance with APB-25 and Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation, and Interpretation for
APB Opinion No. 25. Under APB-25, the Company recognized no compensation
expense related to employee or director stock options when options were granted
with exercise prices at or above the estimated fair value of the stock on the
date of grant, as determined by the Board of Directors.
The Company
has adopted the disclosure-only provisions of FAS-123 and Statement of Financial
Accounts Standards No. 148(“FAS-148”), Accounting for Stock-Based
Compensation –Transition and Disclosure – An Amendment of FASB Statement No. 123. Under the
provisions of FAS-123, compensation expense is recognized based on the fair
value of options on the grant date. FAS-123 requires disclosure of pro format
net income (loss) information computed as if the Company had accounted for its
employee stock options granted under the fair value method set forth in FAS-123.
The fair value for these options was estimated at the date of grant using the
minimum value option pricing model with no volatility and the following
weighted-average assumptions: no dividend payouts expected, expected option life
of five years and a risk-free interest rate ranging from 4.3% to 5.1%. For the
purpose of pro forma disclosers, the estimated fair value of the options if
amortized to expense over the respective options’ vesting period. Had the
Company determined compensation expense for employee stock options granted prior
to January 1, 2006 based on their fair value at the grant date under FAS-123,
the pro forma net loss would have been as follows:
The Company
follows the provisions of FAS-123R and Emerging issues Task Force No. 96-18,
Accounting for Equity
Instruments That are Issued to Other than Employees for Acquiring or in
Connection with Selling Goods or Services, for equity instruments
granted to nonemployees.
43
Accounting
Estimates. The preparation of
financial statements in conformity with generally accepted accounting principles
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the reported
period. Actual results could differ
from
those estimated.
Advertising Costs -
Advertising costs are charged to operations when incurred. The Company
incurred $48,230 and $5,137 in advertising costs in the years ending December31, 2008 and 2007.
Financial Instruments - Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2008 and 2007.
The respective carrying value of certain on balance- sheet financial instruments
approximate their fair values. These financial instruments include cash,
accounts payable, accrued expenses and notes payable. Fair values were assumed
to approximate carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair
values.
Recently Enacted
Accounting Standards. In September 2006, the
FASB issued Statement No. 157, “Fair Value Measurements” (FAS 157), which
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. The provisions of FAS 157
became effective as of the beginning of our 2008 fiscal year. The adoption of
FAS 157 did not have a significant impact on our financial
statements.
In September
2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements” (SAB 108), which addresses
how to quantify the effect of financial statement errors. The provisions of SAB
108 became effective as of the end of our 2007 fiscal year. The adoption of SAB
108 did not have a significant impact on our financial statements.
In February
2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115” (FAS 159). FAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparison between companies that
choose different measurement attributes for similar types of assets and
liabilities. The provisions of FAS 159 become effective as of the beginning of
our 2009 fiscal year. We are currently evaluating the impact that FAS 159 will
have on our financial statements.
In December
2007, the FASB issued SFAS 160, “Non-controlling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51” which applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
non-controlling interest in one or more subsidiaries or that deconsolidate a
subsidiary. The statement is effective for annual periods beginning after
December 15, 2008.
44
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”)
as amended and interpreted, which requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting. Disclosing the fair values of derivative instruments and
their gains and losses in a tabular format provides a more complete picture of
the location in an entity’s financial statements of both the derivative
positions existing at period end and the effect of using derivatives during the
reporting period. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. Early adoption is
permitted. We are currently evaluating the impact that FAS 161 will have on our
financial statements.
In May 2008,
the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance
Contracts – an interpretation of FASB Statement No. 60.” SFAS 163 requires that
an insurance enterprise recognize a claim liability prior to an event of default
(insured event) when there is evidence that credit deterioration has occurred in
an insured financial obligation. This Statement also clarifies how Statement 60
applies to financial guarantee insurance contracts, including the recognition
and measurement to be used to account for premium revenue and claim
liabilities.
Those
clarifications will increase comparability in financial reporting of financial
guarantee insurance contracts by insurance enterprises. This Statement requires
expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements. SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company does not expect the adoption of SFAS 163 will
have a material impact on its financial condition or results of
operation.
Employee
Note Receivable
During 2006
the Company loaned $15,845 to an employee. The promissory note bears interest at
5.25% per annum and requires bi-weekly principal and interest payments of $238,
which were deducted from the employee’s pay. The outstanding principal balance
at December 31, 2008 and 2007 was $0 and $7,354, respectively.
We had an
unrestricted cash balance of approximately $2,239 as of December 31, 2008, as
compared to $319,381as of December 31, 2007. Our funds are kept in financial
institutions located in the United States of America
We had
negative working capital of approximately $23,708 and $1,587 as of December 31,2008 and 2007, respectively. The increase of negative working capital was
largely caused by the substantial increase in prepaid expenses.
45
Seasonality
Our business
is not seasonal in nature. The seasonal effect does not have a
material impact on our sales.
Off-Balance
Sheet Arrangements
We have no
material off-balance sheet transactions.
Quantitative
and Qualitative Disclosure Regarding Market Risk
Interest Rate
Risk.
We may
face some risk from potential fluctuations in interest rates, although our debt
obligations are primarily short-term in nature.
Foreign Currency
Risk.
Substantially
all of our operations are conducted in the United States and our primary
operational currency in US Dollar (“USD”). As a result, currently the
effect of the fluctuations of USD exchange rates has no appreciable impact on
our business operations, but will be increasingly material as we introduce our
products widely into new international markets. Substantially all of our
revenues and expenses are denominated in USD, and we use the United States
dollar for financial reporting purposes. As we introduce our products widely
into new international markets, there can be no assurance that any applicable
exchange rates will not be volatile or that any particular currencies will not
devalue significantly against the U.S. dollar. Exchange rate fluctuations may
adversely affect the value, in U.S. dollar terms, of our net assets and income
derived from our operations, if any, outside of the United States.
DESCRIPTION
OF BUSINESS
Background
OXYSURE SYSTEMS, INC. (the
“Company”) was formed on January 15, 2004 as a Delaware “C” Corporation for the
purpose of developing products with the capability of generating medical grade
oxygen "on demand”, without the necessity of storing oxygen in compressed
tanks. OxySure developed a unique technology that generates medically
pure (USP) oxygen from two dry, inert powders. Other available
chemical oxygen generating technologies contain hazards that the Company
believes make them commercially unviable for broad-based emergency use by lay
persons. The Company’s launch product is the OxySure Model 615
portable emergency oxygen device. The Company believes that the
OxySure Model 615 is currently the only product on the market that can be safely
pre-positioned in public and private venues for emergency administration of
medical oxygen by lay persons, without the need for training.
The Company was founded by our
President, Julian T. Ross, who conducted or managed all the related research and
development, a function Mr. Ross continues to oversee. In early 2004
Mr. Ross moved his research and development efforts into the North Texas
Enterprise Center for Medical Technology (“NTEC”). NTEC is a
Frisco-based medical technology incubator, and the Company was accepted as an
NTEC program company in early 2004, and graduated from the incubator program in
November 2005.
46
In December
2005 the Company received FDA clearance for Model 615 (510(K), Class II). The
approval number for our FDA clearance is K052396, and Model 615 is cleared for
over the counter sale, without the need for a prescription.
Upon graduation from NTEC, the Company
proceeded with the development of its purpose-built manufacturing facility in
Frisco, Texas, which also serves as the Company’s headquarters. The
facility comprises 16,200 square feet of light industrial space, of which
approximately 9,000 square feet is dedicated to production and
warehousing. The Company received an economic incentive from the
Frisco Economic Development Corporation (“FEDC”) in the amount of $243,000 in
support of the development of the facility. In addition, the Company
received a further amount of $324,000 in the form of a Tenant Improvement
Allowance from the Company’s landlord. Upon completion of the
build-out, the Company moved into the facility in October 2007. The
Company commenced commercial shipment of Model 615 during the 2008 financial
year.
Our
Product and Market Applications
The Company believes that its process
and methodology for oxygen generation and delivery may have a significant impact
on the emergency/short duration oxygen supply marketplace. Management
believes that OxySure makes the delivery devices safer, more affordable, more
accessible, easier to use or more consumer friendly. The Company
believes that OxySure improves access to emergency oxygen that affects the
survival, recovery and safety of individuals in two multi-billion dollar markets
involving both established and expansion customer opportunities:
(1)
Individuals
at risk for cardiac, respiratory or general medical distress needing
immediate help prior to emergency medical care
arrival;
(2)
Those
requiring immediate protection and escape from exposure situations or
oxygen-deficient situations inindustrial, mining, military, or other
public settings.
The first product being commercialized
using our platform technology is the OxySure Model 615. This product
is simple to use, and allows a bystander or layperson to administer medical
oxygen to a victim or patient during those first, critical minutes of a medical
emergency while waiting for first responders to arrive. Just like an
Automated External Defibrillator (“AED”), Model 615 is designed to “bridge the
gap” between the onset of a medical emergency and the time that the first
responders arrive on the scene of the emergency.
Model 615 utilizes a simple, one-step
activation and has a reusable component and a disposable
component. The reusable component comprises an outer housing and an
actuation mechanism, and the disposable component is a self-contained cartridge,
within which the chemical reaction takes place. Each disposable
cartridge supplies in excess of 15 continuous minutes of medically pure (USP)
oxygen at the FDA-standard 6 liters per minute. If the need for oxygen lasts
longer than 15 minutes, the cartridge is quickly replaced and the process
repeated. Model 615 is primarily made of lightweight, thermoplastic
materials and weighs approximately 11 pounds, inclusive of the
cartridge. The Company believes that Model 615 is significantly
differentiated over traditional oxygen modalities (compressed gas, cryogenic,
thermal decomposition), as it relates to emergency use by lay
persons. During the oxygen generation process in Model 615, there is
less pressure, and no tanks, gauges, flame, electrical charge or other hazards
typically associated with existing oxygen dispensing devices.
47
In addition,
Model 615’s advantages include: (i) it does not represent an explosion hazard –
the powders are inert, until oxygen is needed and is generated on demand when
the unit is actuated with one simple step; (ii) the process does not present a
toxicity hazard; (iii) the product is safe for transportation; (iv) it does not
constitute an environmental hazard; (v) the product does not generate the
extreme heat associated with older, chemical technologies; and most importantly
(vi) it does not require any training to operate, and is designed for use by any
lay person.
In addition to Model 615, the Company
plans to commercialize several additional products over the next 3 to 5 years,
providing needed solutions for various vertical markets, including potential
solutions for mining markets, aviation markets, sports & recreation markets,
and emergency use markets where longer duration (than 15 minutes) are
desired.
Market
Analysis
Management believes that Model 615 may
create a new market category of emergency oxygen availability for the early
administration or treatment of cardiovascular, respiratory and other medical
emergencies. By empowering a lay person to augment the services of
first responders, we believe that Model 615 may follow a similar model to that
of an Automated External Defibrillator (“AED”) or a fire
extinguisher. The Company believes that Model 615 can be safely
pre-positioned in homes, buildings and other public and private settings to
provide immediate medical grade oxygen in an emergency, but without the risk
associated with compressed gas containers, and without the training required to
operate such equipment. The Company believes that the OxySure Model
615 enables a loved one, bystander or even the victim themselves to administer
medical oxygen in a convenient, safe and inexpensive manner while awaiting the
arrival of emergency medical responders. The Company believes Model
615 may also be helpful as a standby solution by providing temporary oxygen to
aid escape in hazardous exposure situations, or when necessary long-term oxygen
supplies are interrupted.
The Company believes that there is
significant clinical support for the critical need for early oxygen
administration during cardiovascular or respiratory
emergencies. During a cardiovascular or respiratory distress
emergency, the availability of oxygen to the heart, brain, other vital organs or
injured area is either stopped or impaired. In less than 3 minutes
without oxygen, brain cells begin to die. In less than 8 minutes, the
heart muscle cells begin to die. Both of these conditions typically
lead to permanent disability, since neither the brain nor the heart is
considered regenerative. In less than 10 minutes the ability to
sustain life is at risk. Even if a victim survives, their future
quality of life can be directly related to the number of minutes that they were
deprived of oxygen. Given that the response time of first responders
can be between 6 and 15 minutes from the time 911 is called, the clinical
significance and appeal of the Model 615 becomes apparent.
The Company plans to introduce Model
615 into Commercial, Government, Education and Consumer markets. As a
general rule, these markets may comprise one or more of the following customer
categories: (i) At Risk markets; (ii) Emergency Placement markets; and/or (iii)
Preventative buyers. There is a certain measure of overlap between or
among these customer categories, but the Company believes the following market
definitions to be generally accurate.
48
(i) At Risk
markets: At Risk markets comprise individuals at risk of specific medical
emergencies as a result of either being diagnosed with or having at least one
risk factor associated with cardiovascular disease or respiratory diseases or
ailments. Respiratory diseases or ailments can include chronic
obstructive pulmonary disease (“COPD”) and asthma. Management
believes that buyers in this At Risk segment will include persons, or relatives
of persons, with known existing medical conditions such as cardiovascular
disease or asthma in which the presence of on-demand emergency oxygen is highly
appealing.
The American Heart Association
estimates that there are over 80 million Americans who are afflicted with
cardiovascular disease in one form or another. Of the 80 million
potential victims: (a) 40 million, or 50% are diagnosed with cardiovascular
disease; (b) 40 million, or 50% exhibit at least one risk factor associated with
cardiovascular disease; and (c) more than 2/3 are 50 years of age or
older. Management projects that, given the rapid onset of the aging
baby boomer population, this ratio will increase substantially over the next
decade and will likely increase the number of Americans suffering from such
diseases.
Chronic Obstructive Pulmonary Disease
(COPD) is refers to a group of lung diseases that can interfere with normal
breathing. It is estimated that at least 11% percent of the US
population has COPD, and with the aging of the population, the incidence is
increasing. There is a strong correlation with exposure to tobacco,
which means that former and current tobacco users have greater risk of acquiring
COPD. Other factors that have the potential to play a role in the
development of COPD include air pollution, occupational exposure to dust and
chemicals, repeated lower respiratory tract infections, maternal smoking, poor
nutrition, and prolonged and untreated asthma.
COPD is the second leading cause of
death in America, up from the fifth leading cause only 16 years ago. In 2002,
120,000 Americans died of COPD related illnesses. It is estimated
that 30 million Americans have COPD. Of those 30 million Americans,
the most severe 8% to 10% are actively treated with long-term oxygen therapy
(LTOT). The other 90% are not treated with LTOT, but do experience
what is known as acute exacerbations. These exacerbations are defined
as a recent deterioration of the patient's clinical and functional state due to
worsening of their COPD. It is normally accompanied by dypsnea
(shortness of breath) and almost always requires hospitalization.
Oxygen supplementation is one of the
few known effective treatments for an exacerbation. Similar to a
severe asthma attack, these individuals never know when or where they will be
when an exacerbation may occur. Model 615 provides a portable,
non-battery driven source of oxygen that will allow those with COPD to bridge
the gap between the onset of an exacerbation and the availability of emergency
care.
(ii) Emergency
Placement markets: Management believes that organizations,
corporations, educational customers, governmental entities will purchase Model
615 as an emergency response measure. By pre-positioning it in an
easily accessible way, either by itself or right next to an AED, Model 615 can
serve as a first line of defense in the event of any medical or civil
emergency.
49
The Company believes that there is a
significant number of organizations, corporations and educational entities that
may acquire Model 615 for placement in strategic locations in the event of an
on-site emergency. In addition, the Company believes that there may
be significant applicability and appeal in various government markets for
placement in strategic locations for medical emergencies and for civil
emergencies.
In addition to the 40 million
injury-related emergency room visits that were noted above, there are multitudes
of potential emergencies that would benefit from the immediate application of
oxygen. For example, each year over 1 million Americans suffer a
potentially fatal cardiac emergency—one person every 34
seconds. About 460,000 of those cardiac emergencies are fatal, with
death occurring before the victim can get professional medical
attention. There are nearly 4.5 million on-the-job injuries and
illness each year, many of which would be administered oxygen if
available. Approximately 5,000 to 7,000 school-aged children die from
sudden cardiac arrest each year without exhibiting prior
symptoms. Many of these deaths occur at school and related sporting
events.
Additionally, with the events of 9/11
and Hurricane Katrina, national awareness of emergency preparedness has
dynamically evolved. The threat of a terrorist act or airborne
illness such as Avian Flu has prompted government agencies, emergency medical
personnel, and private corporations to pre-position emergency supplies in the
event of a natural or man-made disaster or a civil emergency.
The initial target locations for
Emergency Placement are summarized below. It is apparent that many of
these targets would have multiple buildings and/or be of a facility size that
would justify multiple units of Model 615 on-site. Management
believes that the availability of a non-pressurized tank, on-demand oxygen
supply at Model 615’s selected price point may have the potential for
governments, regulatory agencies and regulatory boards to require locating one
or more such devices pre-positioned on-site.
Educational
Facilities
There are approximately 102,265 educational campuses
in the United States. Of these, there are:
·
87.125
US schools representing grades Kindergarten through 12th
grade.1
·
11,000
accredited programs for infants to children of 8 years. This
includes day care and after school programs.2
According to the U.S. Department of
Commerce, Economics and Statistics Administration, there are 350,735 manufacturing
facilities in the United States.
The
number of residential backyard swimming pools in the United States is estimated
to be 6.5
million. Drowning is the second-leading cause of
injury-related death for children 1-14 years old.
Recreational
Vehicles
According to a study completed by the
University of Michigan, approximately 8 million US households own a
least one RV. This represents a 15% increase in RV ownership over the
prior four years and is largely attributed to the enormous baby boomer
generation.
Recreational
Marine Vehicles
The National Marine Manufacturers
Association estimates that there were approximately 18 million recreational boats
in use in the United States in 2006. Of these, 8.53 million were outboard boats,
1.12 million were inboard boats, 1.72 million were stern drive boats, 1.56 were
sailboats and 3.58 million were classified as other.
Restaurants
The National Restaurant Association’s
37th
Annual Industry Forecast (2004) reported 925,000 restaurants in the
United States.
Churches
There are approximately 325,000 churches in the United
States.
Occupational
Safety & Health Act (OSHA) Compliant Buildings
There are nearly 20 million locations for first
aid alone called for in the OSHA Compliance Locations Publication.
Preventive
Buyers
Management believes that many
individuals and homeowners will purchase Model 615 as a preventive/first aid
measure in the event of an unforeseen emergency, including cardiovascular
emergencies, respiratory emergencies and general medical emergencies. Preventive
buyers are defined as buyers with no known history or diagnosis of chronic
disease, but are likely to buy Model 615 in preparation for a possible
emergency.
Management believes that for the same
reasons smoke alarms, first aid kits, AEDs and fire extinguishers are purchased
for home use, the same consumers may be predisposed to purchase the Model 615 as
part of their standard arsenal in the event of an emergency.
Sales
and Marketing Plan
The Company has adopted a dual direct
and indirect sales strategy for developing push sales of its
products. The Company has targeted the Education market as an early
adopter market and has achieved some initial success in penetrating that
market.
51
As a result
of the Company’s sales efforts during the 2008 launch year, Model 615 was sold
into K-12 schools and school districts in more than 15 states. The
Company plans to continue to build on this early success in the Education
market. In addition, we have had very limited initial success in
selling Model 615 into churches and other commercial placement markets, and the
Company plans to continue its effort to validate those early markets in the
foreseeable future. The Company plans to increase its sales
capability by adding independent distributors and by expanding its direct sales
force. In addition, the Company plans to implement a marketing
strategy designed to create market demand and sales through market awareness and
education.
Strategic
Marketing Efforts
Utilizing both online and above the
line marketing activities, the Company plans to implement a marketing strategy
that is designed to maximize market penetration within the three defined target
segments: At-Risk, Preventive Buyers, and Emergency
Placement. Through a combination of strategic marketing efforts,
distribution partners, direct sales, direct-to-consumer advertising and
education, Management believes the Company can achieve the desired market
penetration into these defined segments. Management believes that
achieving certain strategic objectives will assist in maximizing the Model 615’s
penetration across all segments and will achieve a sense of legitimacy that
drives sales via both direct and distributor channels.
Professional Organization
Endorsements
Professional organizations serve as
advocacy groups, central clearinghouses for information, and, oftentimes, as
regulatory agencies for groups of industry professionals that have a vested
interest in maximizing safety for patients and clients while they are
on-site. OxySure plans to pursue endorsements and “best practices”
recommendations from such groups. Management believes that in some
cases, either at the state or national level of the professional organization,
it may be possible to steer organizational bylaws to legislate on-demand,
on-site oxygen as mandatory equipment for members of that
organization.
Strategic
Branding
The Company plans to set aside a
portion of its marketing budget for overall strategic branding
efforts. Targeted industry publications that appeal to key decision
makers within the specialty medical community will be the primary focus of these
branding and product awareness efforts. Branded collateral with a
targeted message, focus, and call to action will also be part of these
expenditures.
Distributor
Network
The Company plans to build a network of
distributors that have an established presence within the medical emergency and
industrial safety markets. Automated External Defibrillator (AED)
manufacturers and distributors and specialty medical distributors that can tap
into the immediate and urgent need of the cardiovascular and COPD segments are
strong fits. The Company plans to pursue international markets
through distributors who are local to those markets and who have strong levels
of sales and marketing capabilities in those markets.
52
Retail
Channel
The Company plans to pursue
partnerships with retailers that can merchandise Model 615 for at risk and
preventative buyers.
e-Commerce Site
The Company plans to develop a
micro-site that allows customers to point, click, and purchase directly from
OxySure within a secure e-commerce environment. By targeting visitors
seeking information or products related to asthma, COPD, heart disease, oxygen,
oxygen therapy, supplemental oxygen use, and other key search terms Management
believes that the goal of increasing awareness and sales in a cost-effective
manner will be significantly enhanced.
Direct Response Television
(DRTV)
Management believes that a direct
response appeal to consumers may have the simultaneous benefits of higher margin
sales and a cost-effective method for rapidly building awareness of the
features, advantages and benefits of the Model 615. The company plans
to test a DRTV campaign to appeal directly to the consumer segment through a
targeted pilot. Utilizing space-available national media, sufficient
audience reach can be obtained cost-effectively. Based on the pilot
validation, Management plans to evaluate the potential of ongoing direct
response television marketing efforts, possibly on larger scales.
Competition
and Buying Patterns
We believe that our Model 615 portable
emergency oxygen device is highly differentiated from all other
emergency-duration medical oxygen supply products (compressed gas, cryogenic,
thermal decomposition). We believe that Model 615 makes on-demand,
emergency-duration medical oxygen safer and more readily accessible for various
classes of user markets. Its process and the resulting product allow lay person
use, as compared to all other competitive technologies where training is
typically required and usage can be hazardous. During oxygen generation in Model
615, there is less pressure, and no compressed tanks, regulator gauges, flames,
electrical charge or other hazards typically associated with existing oxygen
dispensing devices. We believe that Model 615 allows a lay person, without
training to administer medical oxygen in a medical emergency while waiting for
first responders to arrive on the scene.
Alternative modalities for providing
emergency oxygen include compressed tanks. There are very large, well-funded
companies who can provide emergency oxygen in compressed tanks, including
companies such as Linde, Airgas (NYQ: ARG), Air Products & Chemicals Inc.
(NYQ : APD), Air Liquide and Praxair. Any or all of these companies could engage
in a price war with OxySure or aggressively pursue the consumer market. If they
did, such competitive actions could have a significant adverse impact on our
business.
Research
Some nominal market research conducted
in the mid-nineties showed strong understanding and acceptance of the product
and why it's needed. Direct mail survey research conducted by a magazine
publisher serving specialty markets (Highways, Motor Home and Trailer Life) also
projected high demand.
53
Current research has included
approximately 200 qualitative one-on-one interviews with executives of potential
licensees, distribution partners and retail outlets. More than 90 percent of
these individuals easily acknowledged the validity of the market opportunity and
the OxySure® value proposition. Many other industry experts are
extremely optimistic about the market reception of the Model 615.
Additional primary research projects
will be conducted as we move closer to retail sales. We will employ
an independent market research firm to better understand attitudes, awareness,
and expectations about the product on both a qualitative and quantitative basis
across the primary consumer US market segments. Among issues to be addressed
are:
§
Awareness
of the role of oxygen in a medical
emergency
§
Attitudes
about availability of oxygen
§
Attitudes
about the perceived benefits/liabilities/appeal of a portable on-demand
oxygen product
§
Attitudes
about perceived value, price and channel
expectations
This updated direct market feedback on
product, pricing and distribution; messaging and other relevant market issues
will help guide final consumer-retail launch plans and ongoing marketing
strategy. Meanwhile, a continuing market research effort will be part
of the company's ongoing marketing program.
We
believe the following strengths contribute to our competitive advantages and
differentiate us from our competitors:
Market
Position
Since the
inception of OxySure Systems, Inc., we have focused on the research, development
and manufacture of the OxySure Model 615 portable oxygen system and other
related oxygen technologies. We have developed significant expertise
in the key technologies and the manufacturing requirements that will enable us
to improve the quality of our products, reduce costs, and keep pace with current
standards of the rapidly evolving consumer medical device
industry. We believe that we are able to bring to the market
well-differentiated products that perform well against competitive offerings
based on price, style, and brand recognition. Our specific oxygen
generation technology has broad application to consumer products and we believe
it has allowed us and will continue to allow us to distinguish our products from
those of our competitors.
Design
and Manufacturing Capabilities
We employ a
rigorous and systematic approach to product design and manufacturing. We have
developed Standard Operating Procedures (SOPs) specific to our design and
manufacturing processes, and we develop and track new concepts and ideas from a
variety of sources, including direct customer feedback, trade shows, and
industry conferences. We do not own any property at the present time
and have no agreements to acquire any property. Our executive offices are
located at 10880 John W. Elliot Drive, Suite 600, Frisco Texas, 75034. The space
is approximately 16,200 square feet, and comprises approximately office space
and manufacturing space. This space is new and was purpose built for our
manufacturing needs. We feel that this space is adequate for our needs at this
time, and we feel that we will be able to locate additional space in the future,
if needed, on commercially reasonable terms.
54
Experienced
Management Team
Our Board and
management team has significant business and industry experience, including an
understanding of changing market trends, consumer needs, technologies and our
ability to capitalize on the opportunities resulting from these market
changes. The founder, current CEO and Chairman of OxySure Systems,
Inc., Julian T. Ross, who also controls our principal beneficial stockholder,
has over 18 years of experience in business development, technology, operations,
corporate finance and mergers & acquisitions, which has been a key factor in
the development of the Company. Other members of our management team
also have significant experience with respect to key aspects of our operations,
including research and development, product design, manufacturing, and sales and
marketing.
Established
Distribution Channels
We plan to
sell our products through a network of distributors and resellers allowing us to
penetrate customer markets worldwide. We also plan to develop a
direct sales team in the United States to pursue large accounts in Commercial,
Education, Government, and Retail markets and to pursue special situations. We
plan to sell our products domestically in the United States and internationally
through numerous channels, including independent specialty retailers,
international and regional chains, mass merchants, and
distributors.
Customer
Service Expertise
We plan to
work closely with our major customers in order to ensure high levels of customer
satisfaction. We plan to constantly evaluate and identify our
strongest customers in each distribution channel and focus our sales efforts
towards the largest and fastest growing distributors and
resellers. We anticipate that in order to provide superior service
and foster customer trust and loyalty, we will offer flexible delivery methods
and product feedback opportunities to our customers. We also expect to be an
Original Equipment Manufacturer, or OEM, for certain customers in the future. If
we do acquire any OEM customers, we expect to provide a range of services, which
may include the development of products from initial design through production
to testing, distribution and after market support.
Brand
Awareness
We intend to
promote our self-branded products, marketed under the brand-name OxySure,
aggressively to become a recognized brand name in the United States, which we
expect will assist us in growing our business over the course of the next few
years. We plan to develop and commercialize additional products targeted at
various vertical markets under the OxySure brand name, and we believe that in
time our consumer oxygen products will develop a solid reputation and an
established a brand name in the US.
Intellectual
Property
We rely on a
combination of patent, trademark and trade secret protection and other
unpatented proprietary information to protect our intellectual property rights
and to maintain and enhance our competitiveness in the consumer medical
industry. As a matter of practice, we require assignment of
intellectual property rights provisions in all our employment, consultant and
subcontractor agreements.
55
The Company
has legal ownership of the five (5) U.S. and one (1) South African patents, in
addition to numerous patent applications, that we use in our business
operations. These patents include design, utility, and invention
patents that relate to our products. In January 2004, OxySure entered
into an assignment and transfer agreement with Mr. Ross, the Company’s Founder
for the transfer and assignment of certain patent applications to OxySure, in
addition to other initial intellectual property related to our business
operations.
We also rely
on unpatented technologies to protect the proprietary nature of our product and
manufacturing processes. We require that our management team and key employees
enter into confidentiality agreements that require the employees to assign the
rights to any inventions developed by them during the course of their employment
with us. All of the confidentiality agreements include non-competition and
non-solicitation provisions that remain effective during the course of
employment and for periods following termination of employment, which vary
depending on position and location of the employee.
We have 3
registered trademarks in the United States, and 4 registered trademark
applications.
Our success
will depend in part on our ability to obtain patents and preserve other
intellectual property rights covering the design and operation of our products.
We intend to continue to seek patents on our inventions when we deem it
commercially appropriate. The process of seeking patent protection can be
lengthy and expensive, and there can be no assurance that patents will be issued
for currently pending or future applications or that our existing patents or any
new patents issued will be of sufficient scope or strength or provide meaningful
protection or any commercial advantage to us. We may be subject to, or may
initiate, litigation or patent office interference proceedings, which may
require significant financial and management resources. The failure to obtain
necessary licenses or other rights or the advent of litigation arising out of
any such intellectual property claims could have a material adverse effect on
our operations.
We hold five U.S. patents comprising
three utility patents and two design patents as follows:
7,407,632
entitled “Apparatus and delivery of medically pure oxygen”
7,381,377
entitled “Method for controlled production of a gas”
7,465,428
entitled “Method and apparatus for controlled production of a gas”
D549,341
entitled “Breathing device utilizing a catalytic oxygen generation
method”
D549,342
entitled “Breathing device utilizing a catalytic oxygen generation
method”
In addition, we hold one South African
patent, number 2006/5051 entitled “Method and apparatus for generating
oxygen”.
In addition, we have numerous patents
pending in the U.S., Canada, Europe, and Australia pertaining to our technology,
including embodiments, engineering designs, actuation mechanisms, control
systems and product applications. Additionally, we have implemented processes
and protocols to maintain some of the synthesis and production process of the
catalytic elements of our product as trade secrets. Some of the methods we use
include internal codification of production inputs and limiting the availability
of proprietary information.
56
Market
Position
Since the inception of OxySure Systems,
Inc., we have focused on the research, development and manufacture of the
OxySure Model 615 portable oxygen system and other related oxygen
technologies. We have developed significant expertise in the key
technologies and the manufacturing requirements that will enable us to improve
the quality of our products, reduce costs, and keep pace with current standards
of the rapidly evolving consumer medical device industry. We believe
that we are able to bring to the market well-differentiated products that
perform well against competitive offerings based on price, style, and brand
recognition. Our specific oxygen generation technology has broad
application to consumer products and we believe it has allowed us and will
continue to allow us to distinguish our products from those of our
competitors.
Design
and Manufacturing Capabilities
We employ a rigorous and systematic
approach to product design and manufacturing. We have developed Standard
Operating Procedures (SOPs) specific to our design and manufacturing processes,
and we develop and track new concepts and ideas from a variety of sources,
including direct customer feedback, trade shows, and industry
conferences. We do not own any property at the present time and have
no agreements to acquire any property. Our executive offices are located at
10880 John W. Elliot Drive, Suite 600, Frisco Texas, 75034. The space is
approximately 16,200 square feet, and comprises approximately office space and
manufacturing space. This space is new and was purpose built for our
manufacturing needs. We feel that this space is adequate for our needs at this
time, and we feel that we will be able to locate additional space in the future,
if needed, on commercially reasonable terms.
Experienced
Management Team
Our Board and management team has
significant business and industry experience, including an understanding of
changing market trends, consumer needs, technologies and our ability to
capitalize on the opportunities resulting from these market
changes. The founder, current CEO and Chairman of OxySure Systems,
Inc., Julian T. Ross, who also controls our principal beneficial stockholder,
has over 18 years of experience in business development, technology, operations,
corporate finance and mergers & acquisitions, which has been a key factor in
the development of the Company. Other members of our management team
also have significant experience with respect to key aspects of our operations,
including research and development, product design, manufacturing, and sales and
marketing.
Established
Distribution Channels
We plan to sell our products through a
network of distributors and resellers allowing us to penetrate customer markets
worldwide. We also plan to develop a direct sales team in the United
States to pursue large accounts in Commercial, Education, Government, and Retail
markets and to pursue special situations. We plan to sell our products
domestically in the United States and internationally through numerous channels,
including independent specialty retailers, international and regional chains,
mass merchants, and distributors.
57
Customer
Service Expertise
We plan to work closely with our major
customers in order to ensure high levels of customer satisfaction. We
plan to constantly evaluate and identify our strongest customers in each
distribution channel and focus our sales efforts towards the largest and fastest
growing distributors and resellers. We anticipate that in order to
provide superior service and foster customer trust and loyalty, we will offer
flexible delivery methods and product feedback opportunities to our
customers.
Brand
Awareness
We intend to promote our self-branded
products, marketed under the brand-name OxySure, aggressively to become a
recognized brand name in the United States, which we expect will assist us in
growing our business over the course of the next few years. We plan to develop
and commercialize additional products targeted at various vertical markets under
the OxySure brand name, and we believe that in time our consumer oxygen products
will develop a solid reputation and an established a brand name in the
US.
Strategy
Our goal is to become a global leader
in the development and manufacture of consumer oxygen products. We intend to
achieve this goal by implementing the following strategies:
We plan to leverage our expertise in
product design and development, our intellectual property platform, and develop
our distribution network by continuing to develop and introduce new and enhanced
products. We plan to strengthen the performance of our technology to
provide users with an easy-to-use products. Our goal is to continue
to enhance the functionality of our core features and making our products
simpler to use. We intend to invest additional resources in our
research and development, applications and intellectual property to promote
innovation and maintain customer preference for our products.
Build
Partnerships with New and Existing Customers
We intend to strengthen relationships
with our existing customers and our strategy is to establish partnerships with
our current customers whereby we develop and manufacture new products based on
their needs.
We also seek to leverage our technology
to develop relationships and strategic alliances with third-party distributors,
vendors, and manufacturers. We believe OEMs of respiratory products and safety
products, distributors and value-added resellers (“VARs”) can simplify the use
and increase the safety of their products and services by integrating our
products, resulting in broader market opportunities and significant competitive
advantages.
Expand
Global Presence
Though we have concentrated in the
United States, a strong and growing market for our products exists in countries
outside of America, primarily to Europe, Asia, and South and North
America. We intend to further expand our international resources to
better serve global customers and business associates and to leverage
opportunities in markets such as Brazil, Canada, Europe, Australia, South Korea,
India, and China.
58
We hope to
add regional sales representatives and distributors in different geographic
regions to better address demand for our products.
Expand
Sales Network and Distribution Channels
We intend to expand our sales network
in America and develop relationships with a broader set of wholesalers,
distributors and resellers, all in order to expand the market availability of
our products in the United States. We believe there exists vast
opportunities to expand market presence. We hope that these
relationships will allow us to diversify our customer base and significantly
increase the availability and exposure of our products.
Augment
Marketing and Promotion Efforts to Increase Brand Awareness
We continue to devote our efforts
towards brand development and utilize marketing concepts in an attempt to
strengthen the marketability of our products. We plan to carry out a brand
development strategy based on product innovation, quality, and design
excellence. We have also participated and intend to continue to participate in
various exhibitions and similar promotional events to promote our products and
brand.
Supply
of Raw Materials
We intend to procure materials to meet
forecasted customer requirements. Special products and large orders are quoted
for delivery after receipt of orders at specific lead times. We will
maintain minimum levels of finished goods based on market demand in addition to
inventories of raw materials, work in process, and sub-assemblies and
components. We reserve for inventory items determined to be either
excess or obsolete.
Pricing and availability of raw
materials can be volatile, attributable to numerous factors beyond our control,
including general economic conditions, currency exchange rates, industry cycles,
production levels or a supplier’s limited supply. To the extent that we
experience cost increases we may seek to pass such cost increases on to our
customers, but cannot provide any assurance that we will be able to do so
successfully or that our business, results of operations and financial condition
would not be adversely affected by increased volatility of the cost and
availability of raw materials.
Presently, we believe our relationships
with our suppliers are good and we expect that our suppliers will be able to
meet the anticipated demand for our products in the future. However,
due to our dependence on a few suppliers for certain raw materials, we could
experience delays in development and/or the ability to meet our customer demand
for new products. In addition, we have a number of longstanding
business relationships with certain suppliers, and we believe that alternative
suppliers are available. Although we have not been subject to shortages for any
of our components, we may be subject to cutbacks and price increases which we
may not be able to pass on to our customers in the event that the demand for
components generally exceeds the capacity of our suppliers. We
believe our manufacturing facility provides us with flexibility in our supply
chain, to better manage inventories and to reduce delays and long-term costs for
our products.
59
Manufacturing
The manufacture of our products will
require coordinated use of machinery and raw materials at various stages of
manufacturing. Our manufacturing operations are conducted Frisco,
Texas, in our modern, 16,200 square-foot facility, which houses a 10,000
square-foot production area. We use automated machinery to process key aspects
of the manufacturing process to ensure high uniformity and precision, while
leaving the other aspects of the manufacturing process to manual labor. We
intend to further streamline our production process and continue investing in
our manufacturing infrastructure to further increase our manufacturing capacity,
helping us to control the per unit cost of our products.
Quality
Control
We consider quality control an
important element of our business practices. We have stringent quality control
systems that are implemented by company-trained staff members to ensure quality
control over each phase of the production process, from the purchase of raw
materials through each step in the manufacturing process. We utilize a
scientific management system and precision inspection measurement, capable of
ensuring our products are of high quality.
Our
quality control process consists of the following functions:
·
setting
internal controls and regulations for semi-finished and finished
products;
·
testing
samples of raw materials from
suppliers;
·
implementing
sampling systems and sample files;
·
maintaining
quality of equipment and instruments;
and
·
articulating
the responsibilities of quality control
staff.
Research
and Development
To enhance our product quality, reduce
cost, and keep pace with technological advances and evolving market trends, we
continue to engage in research and development. Our research and development
effort is focused on enhancing our technology by improving the
performance of our current products and developing new products, in addition to
developing related and alternative technologies. We have made investments of
capital and time to develop technology engines, intellectual property and
industry expertise in technologies that we believe provide us with a competitive
advantage in the markets where we compete. Our technologies are based on complex
formulas which require extensive amounts of data and expertise. We
continue to invest in technologies to maintain our market position and to
develop new applications and products.
We conduct
substantially all of our research and development with an in-house staff,
including research staff holding advanced degrees. The duties of our
core research function is to improve research and development management and
market analysis, in addition to establishing and regulating the production
projects. All departments work together to research new material and techniques,
test product performance, inspect products and to test performance of machines
used in the manufacturing process.
60
In addition
to the advancement of our current product, we believe that the future success of
our business depends upon our ability to enhance our existing product, to
develop compelling new products, to develop cost effective products, to qualify
these products with our customers, to effectively introduce these products to
existing and new markets on a timely basis, and to commence and sustain volume
production to meet customer demands. To avoid product obsolescence,
we will continue to monitor technological changes, as well as users' demands for
new technologies. Failure to keep pace with future changes could adversely
affect our revenues and operating results in the future. Although we
have attempted to determine the specific needs of the markets in which we
participate, there can be no assurance that the markets will, in fact,
materialize or that our existing and future products designed for these markets
will gain market acceptance.
Warranties
and Return Policy
We offer
limited warranties for our products, comparable to those offered to consumers by
our competitors. Such warranties typically consist of a 30-day period for our
oxygen product, under which we will pay for labor and parts, or offer a new or
similar unit in exchange for a damaged unit. Our customers may return products
to us for a variety of reasons, such as damage to goods in transit, cosmetic
imperfections and other issues, if within the warranty period.
Product
Liability and Insurance
We currently
carry $1 million in product liability insurance. Because of the
nature of the products sold by us, we may be periodically subject to product
liability claims resulting from personal injuries. We may become involved in
various lawsuits incidental to our business. To date, we have not
been subject to products liability litigation. Product liability
insurance is expensive, restrictive and difficult to obtain. Accordingly, there
can be no assurance that we will have sufficient product liability insurance
and/or capital sufficient to cover any successful product liability claims made
against us in the future, which could have a material adverse effect on our
financial condition and results of operations.
Competition
We face
competition from many other manufacturers, most of which have significantly
greater name recognition and financial, technical, manufacturing, personnel,
marketing, and other resources than we have. The market in which we
compete is subject to rapid technology changes, highly fragmented, and
cyclical.
We compete
primarily on the basis of quality, price, design, reliability, and quality
service and support to our customers. We believe that our standard products are
comparable in quality and performance with competitors in our market category.
Many of our competitors have a stronger competitive position than we do in that
they have greater brand recognition and longer-standing customer relationships.
Environmental
Regulations
We are
subject to various federal, state and local environmental laws and regulations,
including those governing the use, discharge and disposal of hazardous
substances in the ordinary course of our manufacturing
process.
61
We believe
that our current manufacturing operations comply in all material respects with
applicable environmental laws and regulations. Although we believe that our
current manufacturing operations comply in all material respects with applicable
environmental laws and regulations, it is possible that future environmental
legislation may be enacted or current environmental legislation may be
interpreted to create environmental liability with respect to our other
facilities, operations, or products.
OxySure
constructed its manufacturing facilities with the environmental laws and
requirements in mind. If we fail to comply with the provisions of the
environmental laws under which we are governed, we could be subject to fines,
criminal charges or other sanctions by regulators, including the suspension or
termination of our manufacturing operations.
Employees
As of December 31, 2008, we had 15
full-time employees, including 7 employees in production and 3 employees in
sales and marketing. All of our employees are based in the United States. Our
employees are not represented by any labor union and are not organized under a
collective bargaining agreement, and we have never experienced a work stoppage.
We believe that our relationships with our employees are generally
good.
LEGAL
PROCEEDINGS
We are a Delaware corporation in good
standing with the necessary authority to offer the Shares which were issued by
the company and being restricted hereunder, and be bound by the terms and
conditions of performance on our part. We are not now a party to or involved in
or aware of any litigation or other adverse claims, lawsuits, investigations or
other legal proceedings of a material nature involving us at this
time.
The Company was party to a lawsuit
involving a former service provider. During May 2008, a settlement was reached
between the Company and this service provider in which the Company agreed to pay
$75,000 on or before September 1, 2008 and the service provider agreed to return
to the Company 25,000 shares of preferred stock in the Company. The $75,000
settlement due to the service provider has been paid in full, and the provider
has returned the shares of preferred stock to the Company’s
counsel.
During the past five years none of our
directors, executive officers or persons nominated to become directors or
executive officers, have been convicted in a criminal proceeding. Nor have any
such persons been subject to a petition under the Bankruptcy Act or any state
insolvency; law whether filed by or against such person, or any partnership in
which such person was a general partner at or within two years before the time
of such filing, or corporation or business association of which such person was
an executive officer at or within two years before the time of such filing, or
has a receiver, fiscal agent or similar officer ever been appointed by a court
for the business or property of such person.
We are not involved in any legal
proceedings and we do not know of any legal proceedings, which are threatened or
contemplated.
62
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive
Officers and Directors
Our
Executive officers and directors are as follows:
Name
Age
Title
Julian
T. Ross
42
Chairman,
CEO, President & Interim CFO
Scott
T. Freeman
45
Vice
President of Operations
Dr.
John M. Lansdown
47
Director
of Research
Donald
T. Reed
75
Director
We are not aware of any of our
Executive Officers and Directors being party to any legal proceedings,
bankruptcies, criminal proceedings, court orders, judgments or civil
activities.
Our officers and directors are elected
to hold office until the next annual meeting of shareholders and until their
respective successors have been elected and qualified, or until his prior
resignation or removal. Our executive officers are appointed by the Board of
Directors and hold office until resignation or removal by the Board of
Directors.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
information as of the date of this report concerning beneficial ownership of our
common stock by (i) each director, (ii) each executive officer, (iii) the
directors and officers of our Company as a group, and (iv) each person known by
the Company to own beneficially more than five percent (5%) of the Common
Stock.
Does
not include 120,000 shares common owned by Mrs. Nancy Reed. Mrs. Reed is
the spouse of Director Donald T. Reed. Does not include participation in,
or options held, pursuant to our Voting Stock Option Plan of February 1,2004 as Amended. Please see “Stock Options”
below.
(2)
Does
not include participation in, or options held, pursuant to our Voting
Stock Option Plan of February 1, 2004 as Amended. Please see “Stock
Options” below. In addition, does not include 400,000 common shares held
by The Ross Family Trust u/t/a dated 12/29/1999, to which Mr. Ross serves
as Trustee.
(3)
Shown
on an as-converted basis. Mr. Freeman holds 25,000 preferred shares, which
translates to 30,500 shares common at a conversion ratio of 1.22. Does not
include participation in, or options held, pursuant to our Voting Stock
Option Plan of February 1, 2004 as Amended. Please see “Stock Options”
below.
(4)
Does
not include participation in, or options held, pursuant to our Voting
Stock Option Plan of January 15, 2004 as Amended. Please see “Stock
Options” below.
(5)
Our
Chairman, President & CEO, Julian T. Ross controls JTR Investments,
Limited.
(6)
Does
not include 383,286 penny warrants owned by JTR Investments, Limited, as
at April 2, 2009.
(7)
Director
Donald T. Reed is President and a beneficial owner of Agave Resources,
LLC.
(8)
Represents
the total of 720,000 shares common held by Agave Resources, LLC plus
1,000,000 preferred shares, which translates to 1,220,000 shares common at
a conversion ratio of 1.22.
64
Julian
T. Ross, 42, Chairman, CEO, President & Interim CFO
Mr. Ross
is the developer of the OxySure® technology and the Founder of OxySure® Systems,
Inc. He has over 18 years experience in technology and manufacturing, having
functioned both in consulting and operational capacities at senior management
level. As comfortable as he is in technical settings and technology
environments, Mr. Ross is an accomplished corporate finance manager. He has
worked for and with start-ups and established organizations, including Anglo
American Corporation, Volt Information Sciences, Tandy Corporation, Merrill
Lynch, Ernst & Young, Sun International and Isle of Capri, Inc. He holds an
MBA in Finance from the Edwin L. Cox School of Business at Southern Methodist
University.
Scott
T. Freeman, 45, Vice President of Operations
Mr.
Freeman has over 20 years of engineering experience and operations management
from the plastic and medical device industries. Scott earned a U.S. Patent while
at Mobil Chemical Company's R&D facility, and then went on to hold several
key executive positions including VP Operations, Director of Quality responsible
for ISO 9000 registration, supply chain management, sales and marketing, and
product development, in both public, international corporations, and private
start-up entities. Mr. Freeman has worked closely with regulatory agencies,
scientific bodies, and suppliers to design and successfully launch new medical
products in growing markets. His education includes a B.S. Petroleum Engineering
from the University of Texas, and he is a registered Professional Engineer in
the State of Texas.
Dr.
John M. Lansdown, 47, Director of Research
Dr.
Lansdown has over 25 years experience in research, development and product
commercialization, of which over 11 years experience is in advanced analytical
chemistry. Prior to joining OxySure®, Dr. Lansdown worked as an analytical
geochemist at the University of Texas at Austin. In that capacity, he managed
the state-of-the-art ICP Mass Spectrometry facility in the Department of
Geological Sciences. Dr. Lansdown has also held scientific, development and
management positions with Advanced Technology Materials, Inc., Ashland Chemical
at Motorola and the department of Geochemistry at the University of Toronto. Dr.
Lansdown is well published, and received a B.S. degree in Chemistry from
Syracuse University and a Ph.D. from the University of Washington.
Donald
T. Reed, 75, Director
Don Reed
has over 40 years experience in business development, operations, mergers &
acquisitions and general management. He currently serves as President of Agave
Resources, LLC., a private equity firm focused on investing in early and
mid-stage high growth companies. Prior to that Mr. Reed served as CEO and
Chairman of Geotrace Technologies, Inc., an international reservoir services
company specializing in high technology seismic data processing for oil and gas
companies. Geotrace was founded by Mr. Reed under the name Geo-Trace Enterprises
in 1979, and was active in it's growth and expansion until the company was sold
in 2003. Mr. Reed spent the 17 years prior to founding Geotrace Technologies
with Amoco Production Company in various management, technical and exploration
positions. He served in the U.S. Infantry as an Intelligence Specialist, and
holds a B.A. (Math) and a B.S. (Geology) from the University of
Texas.
65
Compensation
The following table sets forth
information concerning the compensation for the three fiscal years ended
December 31, 2008 of the principal executive officer, principal financial
officer, in addition to our three most highly compensated officers whose annual
compensation exceeded $100,000, and up to two additional individuals, as
applicable, for whom disclosure would have been required but for the fact that
the individual was not serving as an executive officer of the registrant at the
end of the last fiscal year.
Name
and Position
Year
Salary
Bonus
Total
Julian
T. Ross, Chairman,
CEO,
President & Interim CFO
2008
2007
$
180,000
180,000
$
Nil
8,200
$
180,000
188,200
Scott
T. Freeman
2008
2007
$
110,000
110,000
$
Nil
2,600
$
110,000
112,600
Dr.
John M. Lansdown
2008
2007
$
90,000
90,000
$
Nil
1,400
$
90,000
91,400
Donald
T. Reed, Director
2008
2007
$
0
$
0
$
0
1.
The
named executive officers did not receive additional non-cash compensation,
prerequisites or other personal benefits, other than their participation
in the Company’s Voting Stock Action Plan adopted February 1, 2004, as
Amended.
2.
Dollar
value of base salary (both cash and non-cash) earned during the
year.
3.
Dollar
value of bonus (both cash and non-cash) earned during the
year.
In terms
of Section 18 of Mr. Ross’s employment agreement provision is made for
amendments. During FY 2008, the following amendments have been made: In August
2008, Mr. Ross agreed to exchange his salary for a note and for warrants. The
Company agreed with Mr. Ross that for every month of salary sacrifice, the note
payable pursuant to this arrangement shall increase by $15,000, and shall be
senior in rank to all other indebtedness of the Company, unless such other
indebtedness expressly provides for otherwise. In addition, for every month of
salary sacrifice the Company shall issue Mr. Ross 7,000 Warrants at a strike
price of $.01 per share. This arrangement is to remain until the Company’s
balance sheet position becomes improved or until after the Company has completed
an offering of its securities, at Mr. Ross’s sole discretion. As at March 16,2009 the accrual to the note payable to Mr. Ross pursuant to this modification
was $105,000 and the warrants issuable totaled 52,500. During the period of the
modification, the Company continued to pay the health insurance benefits for Mr.
Ross pursuant to his employment contract and Company policy.
In terms
of Section 18 of Mr. Freeman’s employment agreement provision is made for
amendments. For the period commencing in August 31, 2008 through July 15, 2009
Mr. Freeman and the Company agreed to modify Mr. Freeman’s employment agreement
as follows: (i) For the period January 15, 2009 through July 15, 2009 the
modification provides that Mr. Freeman receives: (a) A reduced monthly base
salary of $3,000 per month, which includes provision for payment of medical
benefits. (b) Stock options totaling 6,167 options per month, for a total of
37,002 for the 6 month period.
66
The
strike price of these options is $.82 per share, and all 37,002 options shall
vest on July 15, 2009 provided that Mr. Freeman remains an employee of the
Company. (c) Entitlement to Performance based stock options to the same terms
and conditions as the base employment contract. (d) Commission on product sales
as follows:
· On the
first $9,000 of monthly margin contribution, commission is 0%. The monthly
margin contribution requirement is cumulative, starting January 15.
· For every
dollar above $9,000 of monthly margin contribution, the commission rate is 50%
of margin contribution. If a sales transaction is shared with the “house” or
another sales person, then the commission rate after first $9,000 in monthly
margin contribution is 25% of the margin contribution. Payment of commissions is
based on funds received.
· In the
case of sales produced by distributors introduced and managed, only the first 4
months of sales produced by the distributor is commissionable in accordance with
the above.
(ii) For
the period August 31, 2008 through January 15, 2009 Mr. Freeman has earned a
total of 45,835 stock options at a strike price of $.50 in exchange for certain
salary amounts foregone. These stock options are above and beyond options
provided for in Mr. Freeman’s base employment contract.
Stock
Options
2004 Stock Option Plan. We
maintain a 2004 Stock Option Plan (the “2004 Plan”) under which our directors,
officers, advisory board, other employees and other key individuals may be
granted stock options. Stock option awards to officers and employees under the
2004 Plan generally vest ratably over five years based on continuous service.
Stock option awards are generally granted with an exercise price equal to the
market price of our common stock at the date of grant and expire no later than
ten years from the date of grant. The maximum number of number of Shares to be
issued pursuant to the exercise of all Options granted under the Plan is
5,000,000, as revised from the 3,000,000 originally provided for by the plan. As
of March 15, 2009, there were 2,919,108 shares available for future grant under
the 2004 Plan.
Long-Term Incentive Plans. We do not
provide our officers or employees with pension, stock appreciation rights,
long-term incentive or other plans although we may adopt one or more of such
plans in the future.
Employee Pension, Profit Sharing or
other Retirement Plans. We use ADP Totalsource (“ADP”), a Professional Employer
Organization (PEO) to administer our payroll and benefits and to provide certain
other related human resource functions. Through ADP we provide access to a
voluntary 401(k) plan, but we do not provide any matching contributions at this
time, although we may modify our company policy in this regard in the
future.
67
The
following shows the amounts, which we expect to pay to our officers during the
twelve-month period ending December 31, 2009, and the time, which our executive
officers plan to devote to our business.
Name
Proposed
Time
to be devoted
Compensation
To
OxySure’s Business
Julian
T. Ross
180,000
Full
Time
Scott
T. Freeman
110,000
Full
Time
John
M. Lansdown
90,000
Full
Time
We require employment agreements with
our officers or employees. Our employment agreements generally provide for
assignment of intellectual property rights. We do not maintain any key man
insurance on the life or in the event of disability of any of its
officers.
The
following table sets forth information concerning the compensation of our
executive officers for fiscal year ended December 31, 2009:
Name/Title
Year
Salary
Bonus
Stock
Options
Julian
T. Ross, Chairman, CEO, President & Interim CFO
2009
180,000
(1)
0
(2)
180,000
Scott
T. Freeman, Vice President of Operations
2009
110,000
(3)
0
(4)
30,000
Dr.
John M. Lansdown, Director of Research
2009
90,000
0
(4)
15,000
68
(1).
The
Company entered into an initial employment agreement with Mr. Ross for 5
years, commencing on January 15, 2004 and ending on January 15, 2009 (the
“Initial Employment Agreement”). This agreement was renewed for a period
of 1 year, commencing on January 15, 2009 and ending on January 15, 2010
(the “Second Employment Agreement”). The Second Employment Agreement
provides for an annual salary equivalent of $180,000. In August 2008, the
Initial Employment Agreement was amended. The amendment of the Initial
Employment Agreement provided that Mr. Ross agree to exchange his salary
for a note and for warrants. The Company agreed with Mr. Ross that for
every month of salary sacrifice, the note payable pursuant to this
arrangement shall increase by $15,000, and shall be senior in rank to all
other indebtedness of the Company, unless such other indebtedness
expressly provides for otherwise. In addition, for every month of salary
sacrifice the Company shall issue Mr. Ross 7,000 Warrants at a strike
price of $.01 per share. This arrangement is to remain until the Company’s
balance sheet position becomes improved or until after the Company has
completed an offering of its securities, at Mr. Ross’s sole discretion.
This amendment continued beyond January 15, 2009 (the expiry of the First
Employment Agreement) and applied similarly to the Second Employment
Agreement. As at March 16, 2009 the accrual to the note payable to Mr.
Ross pursuant to the modifications of both the First Employment Agreement
and the Second Employment Agreement was $105,000 and the warrants issuable
totaled 52,500. During the period of the modifications, the Company
continued to pay the health insurance benefits for Mr. Ross pursuant to
his employment contracts and Company policy. Does not include
participation in any ad hoc bonus pool that the Board of Directors may
declare, subject to company
performance.
(2).
The
Second Employment Agreement provides for bonuses in accordance with the
following: Sales Bonus: The company will pay a Sales Bonus at the end of
the term of the Second Employment Agreement if the company achieves
certain target net revenues during the 2009 Fiscal Year (January 1, 2009
through December 31, 2009). Financing Bonus: The company will pay a bonus
if the company closes certain financing amounts during the 2009 Fiscal
Year. Stock Performance Bonus: The company will pay a Stock Performance
Bonus, which shall be paid in unrestricted shares of Common Stock of the
Company or in Cash, at Mr. Ross’s sole discretion if the Company’s stock
price maintains a certain level of performance during the term of the
Second Employment Agreement.
(3).
The
Company entered into an employment agreement (the “Base Employment
Agreement”) with Mr. Freeman on September 6, 2006. The Base Employment
Agreement provides for an annual salary of $180,000. However, for the
period commencing in August 31, 2008 through July 15, 2009 Mr. Freeman and
the Company agreed to modify Mr. Freeman’s employment agreement as
follows: (i) For the period January 15, 2009 through July 15, 2009 the
modification provides that Mr. Freeman receives: (a) A reduced monthly
base salary of $3,000 per month, which includes provision for payment of
medical benefits. (b) Stock options totaling 6,167 options per month, for
a total of 37,002 for the 6 month
period.
69
The
strike price of these options is $.82 per share, and all 37,002 options shall
vest on July 15, 2009 provided that Mr. Freeman remains an employee of the
Company. (c) Entitlement to Performance based stock options to the same terms
and conditions as the base employment contract. (d) Commission on product sales
as follows:
·
On
the first $9,000 of monthly margin contribution, commission is 0%. The
monthly margin contribution requirement is cumulative, starting January
15.
·
For
every dollar above $9,000 of monthly margin contribution, the commission
rate is 50% of margin contribution. If a sales transaction is shared with
the “house” or another sales person, then the commission rate after first
$9,000 in monthly margin contribution is 25% of the margin contribution.
Payment of commissions is based on funds
received.
·
In
the case of sales produced by distributors introduced and managed, only
the first 4 months of sales produced by the distributor is commissionable
in accordance with the above.
(ii) For
the period August 31, 2008 through January 15, 2009 Mr. Freeman has earned a
total of 45,835 stock options at a strike price of $.50 in exchange for certain
salary amounts foregone. These stock options are above and beyond options
provided for in Mr. Freeman’s base employment contract.
(4)
Does
not include participation in any ad hoc bonus pool that the Board of
Directors may declare, subject to company
performance.
We anticipate paying a CFO $160,000 per
year as salary once the company is profitable.
Compensation of Directors. Directors
are compensated as to 1,000 options per meeting attended, with strike prices
equal to the prevailing market value of the stock at the time of
issuance.
The
following table sets out stock option awards to our Officers and Directors since
2004:
Julian
T. Ross, Chairman, CEO, President & Interim CFO
1,080,000
(2)
930,000
71,038
858,962
Scott
T. Freeman
243,935
(3)
183,935
2,000
181,935
Dr.
John M. Lansdown
100,000
(4)
39,750
0
39,750
70
(1).
Aggregate
strike price is $2.00 per share.
(2).
Includes
900,000 options issued pursuant to the Initial Employment Agreement dated
January 15, 2004 and 180,000 options issued pursuant to the Second
Employment Agreement dated January 15, 2009. Aggregate strike price is
$.25 per share.
(3).
Aggregate
strike price is $.76 per share.
(4).
Pursuant
to an employment agreement dated June 1, 2006 for a period of 5 years.
Aggregate strike price is $2.00 per
share.
Family
Relationships
There are
no family relationships among any of the officers and directors.
Indemnifications
of Directors And Executive Officers And Limitations of Liability
Under Section 145 of the General
Corporation Law of the State of Delaware, we can indemnify our directors and
officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the “Securities Act”).
Our certificate of incorporation provides that, pursuant to Delaware law, our
directors shall not be liable for monetary damages for breach of the directors’
fiduciary duty of care to us and our stockholders. This provision in the
certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director’s duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or involving intentional misconduct or knowing violations of the
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director’s
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Our bylaws provide for the
indemnification of our directors to the fullest extent permitted by the Delaware
General Corporation Law. Our bylaws further provide that our Board of Directors
has discretion to indemnify our officers and other employees. We are required to
advance, prior to the final disposition of any proceeding, promptly on request,
all expenses incurred by any director or executive officer in connection with
that proceeding on receipt of an undertaking by or on behalf of that director or
executive officer to repay those amounts if it should be determined ultimately
that he or she is not entitled to be indemnified under the bylaws or otherwise.
We are not, however, required to advance any expenses in connection with any
proceeding if a determination is reasonably and promptly made by our Board of
Directors by a majority vote of a quorum of disinterested Board members that (i)
the party seeking an advance acted in bad faith or deliberately breached his or
her duty to us or our stockholders and (ii) as a result of such actions by the
party seeking an advance, it is more likely than not that it will ultimately be
determined that such party is not entitled to indemnification pursuant to the
applicable sections of our bylaws.
71
We have been advised that in the
opinion of the Securities and Exchange Commission, insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our
directors, officers and controlling persons pursuant to the foregoing
provisions, or otherwise, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event a
claim for indemnification against such liabilities (other than our payment of
expenses incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We may enter into indemnification
agreements with each of our directors and officers that are, in some cases,
broader than the specific indemnification provisions permitted by Delaware law,
and that may provide additional procedural protection. As of the date of the
Share Exchange, we have not entered into any indemnification agreements with our
directors or officers, but may choose to do so in the future. Such
indemnification agreements may require us, among other things, to:
·
indemnify
officers and directors against certain liabilities that may arise because
of their status as officers or
directors;
·
advance
expenses, as incurred, to officers and directors in connection with a
legal proceeding, subject to limited exceptions;
or
·
obtain
directors’ and officers’ insurance.
At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
in which indemnification is sought, nor are we aware of any threatened
litigation that may result in claims for indemnification.
DESCRIPTION
OF SECURITIES
The following description of our
capital stock discloses all material information relating to our common stock
but is not a full summary of all information relating to our common stock. The
description is subject to and qualified in its entirety by our Articles of
Incorporation and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.
72
Common Stock
We are authorized to issue 100,000,000
shares of common stock, $0.0004 par value per share, of which 15,624,816 shares
are issued and outstanding as of the date of this prospectus. Each
outstanding share of common stock is entitled to one vote, either in person or
by proxy, on all matters that may be voted upon by their holders at meetings of
the stockholders.
Holders of our common
stock:
(i)
have
equal ratable rights to dividends from funds legally available
therefore,
if
declared by our Board of Directors;
(ii)
are
entitled to share ratably in all of our assets available for distribution
to
holders
of common stock upon our liquidation, dissolution or winding
up;
(iii)
do
not have preemptive, subscription or conversion rights or redemption
or
sinking
fund provisions; and
(iv)
are
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of our
stockholders.
The holders of shares of our common
stock do not have cumulative voting rights, which means that the holders of more
than fifty percent (50%) of outstanding shares voting for the election of
directors can elect all of our directors if they so choose and, in such event,
the holders of the remaining shares will not be able to elect any of our
directors.
At the date of this prospectus, the
principal stockholders of OxySure Systems, Inc. prior to this registration
statement of which this prospectus is a part, and their designees, beneficially
own approximately 76.11% of the outstanding shares of our common stock.
Accordingly, after completion of the Direct Public Offering, these stockholders
are in a position to exert considerable influence over all affairs of the
Company.
Preferred
Stock
We may issue up to 25,000,000 shares of
our preferred stock, par value $0.0005 per share, from time to time in one or
more series. As of the date of this offering there were 3,126,434 shares
(net of subsequent conversions) of Series A Convertible Preferred stock held by
sixty six (66) shareholders of record. The number of shares of Common Stock into
which each share of Series A Convertible Preferred will convert will be
determined by dividing the original issue price by $0.82 resulting in each share
of the Series A Convertible Preferred becoming 1.22 shares of common
stock.
73
Our Board of Directors, without further
approval of our stockholders, is authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any series. Issuances
of shares of preferred stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of our common
stock and prior series of preferred stock then outstanding.
Warrants
Prior to, and concurrent with, the
Private Placements, our shareholders held an aggregate of 5,000,000 options and
10,334,705 warrants to purchase shares of our common stock. As of the date of
this prospectus, the shareholders held an aggregate of 15,334,705 warrants and
options with an exercise price ranging in exercise prices from $0.01 to
$2.50 per share. In addition, we issued a warrant to GreenThumb
Capital Corporation as partial compensation for advisory services in connection
with our direct public offering preparation of our registration statement of
which this prospectus is a part. GreenThumb Capital may purchase up
to 25,000 shares of common stock at an exercise price of $0.01 per share under
the warrant, which has a term of five years.
Market
Price of Our Common Stock
There is no market for our
securities. The Company intends to file with the Financial Industry
Regulatory Authority (FINRA) a 15 (c) 2-11 for the purpose of securing trading
of the Company's Common stock on the OTC BB. The price of our common stock will
likely fluctuate. The stock market in general has experienced extreme stock
price fluctuations in the past few years. In some cases, these fluctuations have
been unrelated to the operating performance of the affected companies. Many
companies have experienced dramatic volatility in the market prices of their
common stock. We believe that a number of factors, both within and outside our
control, could cause the price of our common stock to fluctuate, when and if the
Company is approved for trading, perhaps substantially. Factors such as the
following could have a significant adverse impact on the market price of our
common stock:
·
Our
financial position and results of
operations;
·
Concern
as to, or other evidence of, the reliability and safety of our products
and services or our competitors’ products and
services;
·
Our
ability to obtain additional financing and, if available, the terms and
conditions of the financing;
·
Announcements
of innovations or new products or services by us or our
competitors;
·
Federal
and state regulatory actions and the impact of such requirements on our
business;
·
The
development of litigation against
us;
·
Changes
in estimates of our performance by any securities
analysts;
·
The
issuance of new equity securities pursuant to a future offering or
acquisition;
·
Changes
in interest rates;
74
·
Competitive
developments, including announcements by competitors of new products or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
·
Period-to-period
fluctuations in our operating
results;
·
Investor
perceptions of us; and
·
General
economic and other national
conditions.
Delaware
Anti-Takeover Law and Charter Bylaws Provisions
We are subject to Section 203 of the
Delaware General Corporation Law. This provision generally prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date the
stockholder became an interested stockholder, unless:
·
upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and
also officers and by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer;
or
·
prior
to such date, the Board of Directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
·
on
or subsequent to such date, the business combination is approved by the
Board of Directors and authorized at an annual meeting or special meeting
of stockholders and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section
203 defines a business combination to include:
·
any
merger or consolidation involving the corporation and the interested
stockholder;
·
any
sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested
stockholder;
·
subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
·
any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
·
the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an
“interested stockholder” as any entity or person beneficially owning 15% or more
of the outstanding voting stock of a corporation, or an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of a corporation at any time within three years prior to the time of
determination of interested stockholder status; and any entity or person
affiliated with or controlling or controlled by such entity or
person.
75
Our certificate of incorporation and
bylaws contain provisions that could have the effect of discouraging potential
acquisition proposals or making a tender offer or delaying or preventing a
change in control of our company, including changes a stockholder might consider
favorable. In particular, our certificate of incorporation and
bylaws, as applicable, among other things, will:
·
provide
our board of directors with the ability to alter our bylaws without
stockholder approval;
·
provide
for an advance notice procedure with regard to the nomination of
candidates for election as directors and with regard to business to be
brought before a meeting of stockholders;
and
·
provide
that vacancies on our board of directors may be filled by a majority of
directors in office, although less than a
quorum.
Such provisions may have the effect of
discouraging a third-party from acquiring us, even if doing so would be
beneficial to our stockholders. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of our
board of directors and in the policies formulated by them, and to discourage
some types of transactions that may involve an actual or threatened change in
control of our company. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal and to discourage some
tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure our
company outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms.
However, these provisions could have
the effect of discouraging others from making tender offers for our shares that
could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in our
management.
All shares offered by the selling
stockholders are validity issued fully paid and non-assessable shares of our
capital stock.
We have advised the selling
shareholders that they and any securities broker/dealers or others who may be
deemed to be statutory underwriters will be subject to the prospectus delivery
requirements under the Securities Act of 1933. We also advised each selling
shareholder that in the event of a “distribution” of the shares owned by the
selling shareholder, such selling shareholder, any “affiliated purchasers”, and
any broker/dealer or other person who participates in the distribution may be
subject to Rule 102 of Regulation M under the Securities Exchange Act of 1934
(“1934 Act”) until their participation in that distribution is complete. Rule
102 makes it unlawful for any person who is participating in a distribution to
bid for or purchase stock of the same class, as is the subject of the
distribution. A “distribution” is defined in Rule 102 as an offering of
securities “that is distinguished from ordinary trading transaction by the
magnitude of the offering and the presence of special selling efforts and
selling methods”.
76
We also
advised the selling shareholders that Rule 101 of Regulation M under the 1934
Act prohibits any “stabilizing bid” or “stabilizing purchase” for purpose of
pegging, fixing or stabilizing the price of the common stock in connection with
this offering.
No selling shareholder has, or had, any
material relationship with us or our officers or directors. To our knowledge, no
selling shareholder is affiliated with a broker/dealer.
Transfer
Agent
The transfer agent and registrar for
our common stock is Action Stock Transfer Corp., 7069 S. Highland Dr., Suite
300, Salt Lake City, UT84121. Telephone number (801) 274-1088.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this
prospectus as having prepared or certified any part of this prospectus or having
given an opinion upon the validity of the securities being registered or upon
other legal matters in connection with the registration or offering of the
common stock was employed on a contingency basis, or had, or is to be connected
with our Company or any of our subsidiaries as a promoter, managing or principal
underwriter, voting trustee, director, officer, or employee.
The Blackwing Group, LLC. has audited
the Financial Statements of OxySure Systems, Inc., for the periods and to the
extent set forth in its report, which are included herein in reliance upon the
authority of said person as an expert in accounting and auditing.
77
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION
FOR
SECURITIES ACT LIABILITIES
We have adopted provisions on our
bylaws that eliminate to the fullest extent permissible under Delaware Statutes,
the liability of our directors to the company for monetary damages. Such
limitations of liability do not affect the availability of your equitable such
as injunctive relief or rescission.
Our bylaws provide that the company
shall indemnify our directors and officers to the fullest extent permitted by
Delaware law including circumstances in which indemnification is otherwise
discretionary under Delaware law.
Insofar as indemnification for
liabilities arising under the Securities Act maybe permitted to directors,
officers and controlling persons of OxySure pursuant to the forgoing
provisions or otherwise, We have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
and is, therefore, unenforceable.
There is no currently pending
litigation or proceeding involving a director, officer, employee or other agent
of the company in which indemnification would be required or permitted. We are
not aware of any threatened litigation or proceeding, which may result in a
claim for such indemnification.
DESCRIPTION
OF PROPERTY
We do not own any property at the
present time and has no agreements to acquire any property. Our executive
offices are located at 10880 John W. Elliot Drive, Suite 600, Frisco Texas,
75034. The space is approximately 16,200 square feet. We feel that this space is
adequate for our needs at this time, and we feel that we will be able to locate
additional space in the future, if needed, on commercially reasonable
terms.
78
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
involving Directors, Officers, Stockholders and Affiliated Parties;
Repayment
During March 2008, the Company
completed a $1 million bridge financing package consisting of a promissory note
for $750,000 (“First Note”) and a promissory note with a draw down provision for
$250,000 (“Second Note”) (collectively, the “Notes”). The Notes are subordinated
notes and are due and payable on the earlier of (i) completion of the next
financing round completed by the Company or (ii) one year after the Notes are
issued. The holder of the First Note was also issued penny warrants to purchase
350,000 shares of common stock. The holder of the First Note is Agave
Resources, LLC (“Agave”), an existing stockholder of the Company, and the
President of Agave is Donald T. Reed, who also serves as a Director of the
Company. The warrants are immediately exercisable and expire on April 15, 2013.
To date $250,000 has been drawn against the Second Note, which was extended by
JTR Investments, Limited (“JTR”), a company controlled by the founder and
Chairman of the Company. The Company is to issue .47 penny warrants for every
dollar drawn under this facility. There is no interest payable on either note.
During February 2009 the First Note and the Second Note were modified by
extending the maturity date in each case by twelve (12) months.
On November 1, 2008 the Board agreed to
a further loan from JTR with a draw down provision for up to $750,000. This is a
Senior Note (the “Senior Note”). The Company is to issue .47 penny warrants for
every dollar drawn under this facility. As of September 30, 2008, there were
$219,000 outstanding under this facility, and 174,200 Warrants issuable pursuant
to the terms. As of April 30, 2009, there was $432,040 outstanding under the
Senior Note, and 390,285 Warrants issuable pursuant to the terms.
Upon the Securities and Exchange
Commission deeming this registration statement effective, we will become a
publicly reporting company under U.S. securities laws, gained ownership of the
subsidiaries. As a result, we became subject to the Sarbanes-Oxley
Act of 2002, including Section 402’s prohibition against personal loans to
directors and executive officers, either directly or
indirectly.
The parties to the Repayment Agreement
also acknowledged that there were no remaining debt obligations owed to the us,
either directly or indirectly, by any employee or any executive officer or
director, or any related family member, of our company or subsidiaries, or any
entity owned or controlled by such persons, including the Related Companies, and
that no loans or similar arrangements will be made by us or our subsidiaries to
such persons or entities in the future.
79
Assignment
and Transfer of Intellectual Property Rights
On January 15, 2004, the Company
executed an Asset Purchase and Stock Transfer Agreement with entities controlled
by the founder of the Company. In connection with this agreement, the Company
acquired certain assets, including certain rights, title and interest to
intellectual property, relating to the oxygen method and apparatus, developed by
the founder of the Company. Subsequent to January 15, 2004 the
Company adopted a policy requiring that substantially all employment agreements
(including that of Mr. Ross), subcontractor agreements and other appropriate
agreements contain a provision assigning to the Company all applicable
intellectual property rights developed during the performance of such
agreements.
Private
Placements
March
2006 Private Placement
On March 31, 2006the Company closed a
private placement of its Series A Convertible Preferred Stock pursuant to which
we sold an aggregate of 3,143,237 shares of preferred stock at $1.00 per share,
for gross proceeds of approximately $3,143,237, including $62,500 exchanged for
services valued at $62,500 and $30,737 exchanged in lieu of cash payments for
premiums on our capital leases. Of the total issued preferred shares, 16,803
shares were subsequently converted into common stock, and the total number of
Series A Convertible Preferred shares issued and outstanding as at December 31,2008 was 3,126,434 shares. The following represents a summary of the
designations and preferences of the Series A Convertible Preferred
Stock:
§
Ranking
– The Series A Preferred ranks senior to common
stock.
§
Dividends
– Series A Preferred may be entitled to receive a quarterly non-cumulative
dividend in the amount of $.01 per share upon approval from the Board of
Directors.
§
Liquidation
Preference – In the event of any liquidation, dissolution, or winding up
of the Company, the holders of Series A Preferred are entitled to receive
100% of the original issue price of $1.00 per
share.
§
Conversion
Rights – Each share Series A Preferred is convertible at any time, at the
option of the holder into 1.22 shares of common stock, subject to
adjustment. Series A Preferred are subject to automatic conversion upon
consummation of an underwritten offering by the Company of shares of
common stock to the public, in which the aggregate cash proceeds are at
least $3 million and the price paid per share is at least
$5.00.
§
Redemption
Rights – All of the Series A Preferred may be called at any time by the
Company within 10 years, but not prior to 2 years after issuance. The
redemption value is $1.00 per share, plus an amount equal to all unpaid
dividends thereon.
§
Voting
Rights – The holder of each share of Series A Preferred has the right to
one vote for each share of common stock into which such share of Series A
Preferred could be converted.
80
February
2008 Private Placement
On February 28, 2008the Company closed
a private placement of common stock pursuant to which we sold an aggregate of
635,000 shares of common stock at an aggregate $2.50 per share, for gross
proceeds of approximately $1,587,500.
March
2009 Private Placement
On March 31, 2009, we conducted an
initial closing of a private placement transaction pursuant to which we sold an
aggregate of 310,500 shares of common stock at an aggregate $1.00 per share, for
gross proceeds of approximately $310,500.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is not quoted on any
national exchange at the present time.
There is no trading market for our
common stock at present and there has been no trading market to date. There is
no assurance that a trading market will ever develop or, if such a market does
develop, that it will continue. We will request a broker-dealer to make
application to the Financial Industry Regulatory Authority (FINRA) to have the
Company’s securities traded on the OTC Bulletin Board System or published, in
print and electronic media, or either, in the Pink Sheets LLC “Pink
Sheet.”
81
Quantitative
and Qualitative Disclosure Regarding Market Risk
Interest
Rate Risk
We may face
some risk from potential fluctuations in interest rates, although our debt
obligations are primarily short-term in nature, but some bank loans have
variable rates. If interest rates have great fluctuations, our financing cost
may be significantly affected.
Foreign
Currency Risk
Substantially
all of our operations are conducted in the United States and our primary
operational currency is the US Dollar (“USD”). As a result, currently
the effect of the fluctuations of USD exchange rates has no appreciable impact
on our business operations, but will be increasingly material as we introduce
our products widely into new international markets. Substantially all of our
revenues and expenses are denominated in USD, and we use the United States
dollar for financial reporting purposes. As we introduce our products widely
into new international markets, there can be no assurance that any applicable
exchange rates will not be volatile or that any particular currencies will not
devalue significantly against the U.S. dollar. Exchange rate fluctuations may
adversely affect the value, in U.S. dollar terms, of our net assets and income
derived from our operations, if any, outside of the United States.
Shareholders
As of April30, 2008, there were 58 holders of record of our common stock. On the same date,
there were 15,624,816 shares of our common stock issued and outstanding. In
addition, there were 52 holders of record of our convertible preferred stock,
for a total of 3,126,434 shares of convertible preferred stock.
This registration is for 39,898,770
shares of common stock held by 110 individuals and
entities, as well as 24 warrant holders.
82
AVAILABLE
INFORMATION
We have filed with
the Securities and Exchange Commission a Registration Statement on Form
S-1(together with all the amendments and exhibits) under the Securities Act of
1933, as amended, with respect to the Securities offered by this prospectus.
This prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Securities and Exchange Commission. For further
information, reference is made to the Registration Statement, which may be read
and copied at the Commission’s Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of
the public Reference Room by calling the Commission at 1-800-SEC-0330. The
registration statement is also available at www.sec.gov, the website of the Securities and
Exchange Commission.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
There are no
changes in and disagreements with accountants.
INDEX
TO FINANCIAL STATEMENTS
Page
Report
of Independent Registered Public Accounting Firm
We have
audited the accompanying balance sheets of Oxysure Systems, Inc. as of December31, 2008 and 2007, and the related statements of operations, stockholders’
equity, and cash flows for the periods then ended and the period from January15, 2004 to December 31, 2008. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our
opinion, such financial statements present fairly, in all material respects, the
financial position of Oxysure Systems, Inc. as of December 31, 2008 and 2007,
and the results of its operations, changes in stockholders’ equity and its cash
flows for the periods then ended and the period from January 15, 2004 to
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company faces competition from existing companies with
considerably more financial resources and business connections. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of significant accounting policies of OxySure® Systems, Inc. (A Development
Stage Company) (the “Company”) is presented to assist in understanding the
Company’s financial statements. The accounting policies presented in these
footnotes conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
accompanying financial statements. These financial statements and notes are
representations of the Company’s management who are responsible for their
integrity and objectivity. The Company has not realized revenues from its
planned principal business purpose and is considered to be in its development
state in accordance with SFAS 7, “Accounting and Reporting by
Development State Enterprises.”
Organization – OxySure®
Systems, Inc. (the “Company” or “OSI”) was incorporated on January 15, 2004 as a
Delaware corporation. The Company is located in Frisco, Texas and is a medical
technology company focused on the design, manufacture and distribution of
specialty respiratory products. The Company and its founder have
developed a third generation catalytic process and methodology to generate
medically pure (USP) oxygen instantly from two proprietary inert powders. The
Company’s product development is based on several pending patents. On December9, 2005, the Company received approval from the Food and Drug Administration
(510k Class II) for its new catalytic, portable oxygen system – the OxySure®
Portable Oxygen Generator, Model 615, for over-the-counter
purchase.
The
Company is currently in the development stage and to date has generated
insignificant revenues. Therefore, the Company is considered to be a development
stage company as defined in Statement of Financial Accounting Standards No.
7. The Company has, at the present time, not paid any dividends and
any dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
On July19, 2004, the Company effected a 1-for-5 reverse stock split of the Company’s
common stock. All share numbers and common stock numbers, including stock
options and warrants, have been retroactively adjusted to reflect the reverse
stock split.
Basis of Presentation - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reported period. Actual results could differ
from those estimates. Management further acknowledges that it is solely
responsible for adopting sound accounting practices, establishing and
maintaining a system of internal accounting control and preventing and detecting
fraud. The Company’s system of internal accounting control is designed to
assure, among other items, that (1) recorded transactions are valid; (2) all
valid transactions are recorded and (3) transactions are recorded in the period
in a timely manner to produce financial statements which present fairly the
financial condition,
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fiscal Year - The Company’s
fiscal year-end is December 31.
Cash and Cash Equivalents -
The Company considers all highly liquid investments purchased with maturity of
three months or less to be cash equivalents. Cash and cash equivalents may at
times exceed Federally insured limits. To minimize this risk, the Company places
its cash and cash equivalents with high credit quality
institutions.
Inventory – The Company’s
inventory consists of raw material components for its portable oxygen systems as
well as completed products and accessories. Inventory is stated at the lower of
cost or market.
Property and Equipment –
Property and equipment are recorded at cost with depreciation and amortization
provided over the shorter of the remaining lease term or the estimated useful
life of the improvement. Renewals and betterments that materially extend the
life of an asset are capitalized. Expenditures for maintenance and repairs are
charged to expense when incurred.
Impairment of Long-Lived Assets
– The Company review long-lived assets, including amortizable
intangibles, for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value and carrying value
of the asset. During 2008 and 2007, the Company recognized impairments charges
of $0 and $84,318, respectively.
Research and Development Costs
– Costs associated with the development of the Company’s products are
charged to expense as incurred.
Income Taxes - The Company
accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 “Accounting for Income Taxes”. Therefore, the Company records
deferred taxes for the tax effect of differences between the financial reporting
basis and the income tax basis of the Company’s assets and liabilities. A
valuation reserve is provided for a portion or all of the deferred tax assets
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Stock-Based Compensation – In December 2004, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123R (FAS-123R), Share-Based Payment, which is
a revision of Statement of Financial Accounting Standards No. 123 (FAS-123),
Accounting for Stock-Based
Compensation.
FAS-123R
eliminates accounting for share-based compensation transactions using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
(APB-25), Accounting for Stock
Issued to Employees, and requires instead that such transactions be
accounted for using a fair-value-based-method. The Company adopted the
provisions of FAS-123R effective January 1, 2006 using the prospective method.
Under the prospective method compensation cost is recognized beginning with the
effective date for all share-based payments granted, modified, repurchased or
cancelled after the effective date.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The
application of SFAS No. 123, involves significant amounts of judgment in the
determination of inputs into the Black-Scholes option-pricing model, which the
Company uses to determine the value of the stock options it grants. Inherent in
this model are assumptions related to expected fair value of the common stock,
stock-price volatility, option life, risk-free interest rate, and dividend
yield. While the risk free interest rate and dividend yield are les subjective
assumptions, typically based on factual data, the expected stock-price
volatility and option life assumptions require a greater level of judgment,
which makes them critical accounting estimates. The Company has not and does not
anticipate distributing dividends to stockholders and accordingly uses a 0%
dividend yield assumption for all Black-Scholes option pricing
calculations.
The
Company uses an expected stock-price volatility assumption that is primarily
based on comparable stock of public companies. With regard to the
weighted-average option life assumption, the Company evaluates the exercise
behavior of past grants as a basis to predict future activity. The amount of
stock based compensation expenses is net of an estimated forfeiture rate, which
is also based on historical data. The fair value of options issued during the
years ended December 31, 2008 and 2007 was approximately $0 and $135,000,
respectively.
The
Company accounted for all share-based payments granted prior to January 1, 2006
in accordance with APB-25 and Financial Accounting Standards Board
Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation, and Interpretation for APB Opinion No. 25.
Under APB-25, the Company recognized no compensation expense related to
employee or director stock options when options were granted with exercise
prices at or above the estimated fair value of the stock on the date of grant,
as determined by the Board of Directors.
The
Company has adopted the disclosure-only provisions of FAS-123 and Statement of
Financial Accounts Standards No. 148(“FAS-148”), Accounting for Stock-Based
Compensation –Transition and Disclosure – An Amendment of FASB Statement No.
123. Under the provisions of FAS-123, compensation expense is recognized
based on the fair value of options on the grant date.
FAS-123
requires disclosure of pro format net income (loss) information computed as if
the Company had accounted for its employee stock options granted under the fair
value method set forth in FAS-123. The fair value for these options was
estimated at the date of grant using the minimum value option pricing model with
no volatility and the following weighted-average assumptions: no dividend
payouts expected, expected option life of five years and a risk-free interest
rate ranging from 4.3% to 5.1%.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
For the
purpose of pro forma disclosers, the estimated fair value of the options if
amortized to expense over the respective options’ vesting period. Had the
Company determined compensation expense for employee stock options granted prior
to January 1, 2006 based on their fair value at the grant date under FAS-123,
the pro forma net loss would have been as follows:
reported
net loss for options granted prior to January 1, 2006
- -
-
25,905
Deduct:
Stock-based compensation expense determined under the
fair value based method for
options granted prior to January 1, 2006
- -
(14,526)
(88,522)
Pro
forma net loss
$ (2,038,114)
$ (2,426,217)
$
(6,299,478)
The
Company follows the provisions of FAS-123R and Emerging issues Task Force No.
96-18, Accounting for Equity
Instruments That are Issued to Other than Employees for Acquiring or in
Connection with Selling Goods or Services, for equity instruments granted
to nonemployees.
Accounting Estimates - The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amount of revenues and expenses during the reported
period. Actual results could differ from those
estimated.
Advertising Costs -
Advertising costs are charged to operations when incurred. The
Company incurred $48,230 and $5,137 in advertising costs in the years ending
December 31, 2008 and 2007.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments - Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2008 and 2007.
The respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values. These financial instruments include cash,
accounts payable, accrued expenses and notes payable. Fair values were assumed
to approximate carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair
values.
Recently Enacted Accounting Standards
– In September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements” (FAS 157), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
provisions of FAS 157 became effective as of the beginning of our 2008 fiscal
year. The adoption of FAS 157 did not have a significant impact on our financial
statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements” (SAB 108), which
addresses how to quantify the effect of financial statement errors. The
provisions of SAB 108 became effective as of the end of our 2007 fiscal year.
The adoption of SAB 108 did not have a significant impact on our financial
statements.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115” (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparison between companies that
choose different measurement attributes for similar types of assets and
liabilities. The provisions of FAS 159 become effective as of the beginning of
our 2009 fiscal year. We are currently evaluating the impact that FAS 159 will
have on our financial statements.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” which applies to
all entities that prepare consolidated financial statements, except
not-for-profit organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. Disclosing the fair values of derivative
instruments and their gains and losses in a tabular format provides a more
complete picture of the location in an entity’s financial statements of both the
derivative positions existing at period end and the effect of using derivatives
during the reporting period. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November15, 2008. Early adoption is permitted. We are currently evaluating the impact
that FAS 161 will have on our financial statements.
In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No.
60.” SFAS 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial
obligation. This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements. SFAS 163
will be effective for financial statements issued for fiscal years beginning
after December 15, 2008. The Company does not expect the adoption of
SFAS 163 will have a material impact on its financial condition or results of
operation.
NOTE
2 – EMPLOYEE NOTE RECEIVABLE
During
2006 the Company loaned $15,845 to an employee. The promissory note bears
interest at 5.25% per annum and requires bi-weekly principal and interest
payments of $238, which were deducted from the employee’s pay. The outstanding
principal balance at December 31, 2008 and 2007 was $0 and $7,354,
respectively.
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, which
contemplate continuation of the Company as a going concern. Since inception, the
Company has been engaged primarily in product research and development,
investigating markets for its products, developing manufacturing and supply
chain partners, and developing distribution, licensing and other channel
relationships. In the course of funding research and development activities, the
Company has sustained operating losses since inception and has an accumulated
deficit of $6,413,905 at December 31, 2008.
The
Company completed product development and launched its products in late 2007.
The Company has and will continue to use significant capital to manufacture and
commercialize its products. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by operations through loans or through additional sales of their common
stock. There is no assurance that the Company will be successful in
raising this additional capital or in achieving profitable
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might result from this
uncertainty.
During
2009, the Company will need additional capital to further develop and enhance
its current product offerings, introduce new products and to address
unanticipated competitive threats, technical problems economic conditions or
other requirements. The Company raised approximately $318,000 and $1,600,000 in
2008 and 2007 through the sale of common stock and the exercise of stock
options. However, there can be no assurance that any additional financing, if
needed will be available to the Company. Additional equity financing may involve
substantial dilution to the Company’s then existing stockholders. In the event
the Company is unable to raise additional capital, the Company may be required
to substantially reduce of curtail its activities.
NOTE
4 – INTANGIBLES
On
January 15, 2004, the Company executed an Asset Purchase and Stock Transfer
Agreement with entities controlled by the founder of the Company. In connection
with this agreement, the Company acquired certain assets, including certain
rights, title and interest to intellectual property, relating to the oxygen
method and apparatus, developed by the founder of the Company.
As
consideration for the purchase, the Company issued 14,000,000 shares of common
stock and a promissory note for $150,000 to these entities. The common stock was
valued at $7,000 using the par value of the common stock on the date of
issuance, which approximates these entities’ basis (which is not indicative of
fair value). The non-recourse promissory note bore interest at 6.5% per annum
and was paid in full during 2006.
During
2008 and 2007, the Company incurred additional costs totaling $62,682 and
$223,903, respectively, for the application and filing of patents and trademarks
related to the intellectual property acquired on January 15, 2004. Those costs
have been capitalized as intangible assets. Amortization of these intangibles
over their 17-year life began during October 2007 upon commencement of
production. During 2007, the Company abandoned patents totaling $84,318. These
patents have been written off as of December 31, 2007. Future amortization of
intangible assets is as follows:
2009
$ 37,371
2010
37,371
2011
37,371
2012
37,371
2013
37,371
Thereafter
$ 448,451
$
635,306
Amortization
of intangible assets during 2008 and 2007 was $84,318 and 8,248.
NOTE
5 – PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at December 31:
2008
2007
Machinery
and Equipment
$
1,036,773
$
986,655
Leasehold
Improvements
517,856
545,299
Computer
Equipment
42,772
38,176
1,597,401
1,570,130
Less:
Accumulated depreciation
(579,147
)
(295,322
)
$
1,018,254
$
1,267,853
Furniture
and equipment are depreciated on a straight line basis over their estimated
useful life; 3 years for all equipment and 5 years for the furniture acquired to
date.
Depreciation
and amortization expense for the twelve months ended December 31, 2008 and 2007
was $283,825 and $279,391, respectively.
NOTE
6 – NOTE PAYABLE
On April3, 2007the Company entered into a note agreement with the City of Frisco, Texas
for $243,000. The note requires varying annual principal payments through August
2012. The note is non-interest bearing; however, interest has been
imputed at 12.18% per annum.
The
unamortized discount at December 31, 2008 is $66,468. Individual annual payments
will be forgiven if certain performance targets are achieved which include the
number of full time employees, square feet occupied and taxable value of
business and personal property in the City of Frisco. The first annual payment
for 2008 in the amount of $30,000 was forgiven.
Future
principal payments of this note payable are as follows:
2009
$ 40,000
2010
50,000
2011
60,000
2012
63,000
$
213,000
NOTE
7 - CAPITAL STOCK
Preferred Stock – The Company
is authorized to issue 5,000,000 shares of preferred stock, par value $0.0005
per share. As of December 31, 2005, the Company had authorized the issuance of
2,000,000 shares of preferred stock designated as Series A Convertible Preferred
Stock (“Series A Preferred”). On March 22, 2006the Company authorized an
increase in the issuance of the Series A Preferred to 3,100,000 shares of
preferred stock. On July 2, 2008the Company further authorized an increase in
the issuance of the Series A Preferred to 3,143,237 shares of preferred stock.
As of December 31, 2008 there were 3,126,434 Series A Preferred shares issued
and outstanding. The original issue price of the Series A Preferred is $1.00 per
share.
During
2004, the Company sold 125,000 shares of Series A Preferred at a price of $1.00
per share.
During
2005, the Company sold 600,000 shares of Series A Preferred at a price of $1.00
per share.
In May
2005, the Company issued 25,000 shares of Series A Preferred to a service
provider for services performed in lieu of cash payment. These shares were
valued at $25,000 using the original issue price of the Series A Preferred,
which is in the management’s best estimate of fair value.
In June
2005, the Company issued 12,500 shares of Series A Preferred in lieu of cash
payment for management fee (see Note 8). These shares were valued at $12,500
using the original issue price of the Series A Preferred, which is management’s
best estimate of fair value.
In
February 2006, the Company issued 25,000 shares of Series A Preferred to a
service provider for service performed in lieu of cash payment. These shares
were valued at $25,000 using the original issue price of the Series A Preferred
which is management’s best estimate of fair value. In March 2006, the Company
sold 2,325,000 shares of Series A Preferred at a price of $1.00 per
share.
During
2007 and 2006, the Company issued 5,728 and 24,979 shares, respectively, of
Series A Preferred in lieu of cash payment for premiums on its capital leases
(see Note 9). These shares were values at $17,554 and $60,924, respectively,
using the fair value of the shares on the date of issuance. The value of these
shares has been recorded as a discount to the capital lease obligation and is
being amortized into interest expense over the term of the related
lease.
Ranking – The Series
A Preferred ranks senior to common stock
Dividends – Series A
Preferred may be entitled to receive a quarterly non-cumulative dividend in
the
amount of $.01 per share upon approval
from the Board of Directors.
Liquidation
Preference – In the event of any liquidation, dissolution, or winding up
of the Company, the
holders
of Series A Preferred are entitled to receive 100% of the original issue price
of $1.00 per share.
Conversion Rights –
Each share Series A Preferred is convertible at any time, at the option of the
holder
into 1.22
shares of common stock, subject to adjustment. Series A Preferred are subject to
automatic
conversion
upon consummation of underwritten offering by the Company of shares of common
stock to
the
public, in which the aggregate cash proceeds are at least $3 million and the
price paid per share is at
least
$5.00.
Redemption Rights –
All of the Series A Preferred may be called at any time by the Company within
10
years,
but not prior to 2 years after issuance. The redemption value is $1.00 per
share, plus an amount
equal to
all unpaid dividends thereon.
Voting Rights – The
holder of each share of Series A Preferred has the right to one vote for each
share of
common
stock into which such share of Series A Preferred could be
converted.
Common Stock - The Company has
authorized 25,000,000 shares of $0.0004 par value common stock.
On
January 15, 2004, the Company issued 14,000,000 shares of common stock valued at
$7,000 for the acquisition of certain intangible assets (see Note
4).
During
2004, the Company sold 310,000 shares of common stock for proceeds of
$126,500.
During
2006, the Company sold 25,000 shares of common stock for proceeds of
$50,000.
During
2007, the Company sold 635,000 shares of common stock for proceeds of
$1,587,500.
During
2007, the Company issued 20,000 shares of commons stock for services valued at
$50,000 based on the fair value of the common stock on the date of issuance and
64,500 shares were issued for stock options exercised for proceeds of $24,068
(see Note 8).
During
2008, the Company sold 288,000 shares of commons stock for proceeds of
$318,000.
During
2008, the Company issued 155,000 shares for stock options exercised for proceeds
of $1,200 (see Note 8).
NOTE
8 - STOCK OPTIONS AND WARRANTS
Stock Option Plan - In April 2004, the Company’s
Board of Directors and the stockholders at that time approved the adoption of a
Voting Stock Option Plan (“the Plan”), which provides for the issuance of stock
options to eligible employees of the Company to acquire up to a maximum of
3,000,000 shares of common stock.
The
Company’s Board of Directors, who determines the number of options that will be
granted, the effective dates of the grants, the option process and the vesting
schedules, administers the Plan. In the absence of an established market for the
common stock of the Company, the Board of Directors determines the fair market
value of the Company’s common stock. Options expire five years from the date of
grant and automatically terminate 90 days after such optionee ceases to be an
eligible individual under the Plan other than by reason of death or
disability.
The
portion of options granted that is not exercisable on the date the optionee
ceases to be an eligible individual under the Plan by reason other than death,
shall terminate and be forfeited to the Company on the date of such cessation.
An optionee has no right as a stockholder with respect to any shares covered by
the options granted to him until a certificate representing such shares is
issued to them.
The
difference between the benefit for income taxes and the amount computed by
applying the federal income tax rate of 34% to loss before benefit for income
taxes for the years ending December 31, 2008 and 2007 is explained
below:
As of
December 31, 2008 and 2007, the Company had a net operating loss carryforwards
of $2,038,114 and $2,411,691 which may be applied against future taxable income
and which begins to expire in 2027. Components of net deferred tax assets,
including a valuation allowance, are as follows at December 31:
2008
2007
Deferred
tax assets:
Benefit
computed at federal statutory rate
$
(692,959
)
$
(819,975
)
Effect
of change in state tax rate
(44,800
)
(53,012
)
Permanent
differences
- -
2,071
State
income tax (benefit)
693,868
821,051
Other
43,891
49,865
Net
deferred tax assets:
$
-
$
-
In
assessing the recovery of the deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The amount of and ultimate realization of the benefits
from the operating loss carryforwards for income tax purposes is dependent, in
part, upon the tax laws in effect, the future earnings of the Company, and other
future events, the effects of which cannot be determined. Because of
the uncertainty surrounding the realization of the net deferred tax assets, the
Company has established a valuation allowance equal to their tax effect and,
therefore, no deferred tax asset has been recognized as of December 31, 2008 and
2007.
The
Financial Accounting Standards Board has published FASB Interpretation 48 (FIN
48), “Accounting for Uncertainty in Income Taxes,” to address the
non-comparability in reporting tax assets and liabilities resulting from a lack
of specific guidance in FASB Statement of Financial Accounting Standards No. 109
(SFAS 109), “Accounting for Income Taxes,” on the uncertainty in income taxes
recognized in an enterprise’s financial statements. Specifically, FIN
48 prescribes (a) a consistent recognition threshold and (b) a measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides related
guidance on derecognition, classification, interest and penalties, accounting
interim periods, disclosure and transition. To the extent interest
and penalties would be assessed by taxing authorities of any underpayment of
income taxes, such amounts would be accrued and classified as a component of
income tax expenses on the statement of operations. FIN 48 will apply
to fiscal years beginning after December 15, 2006, with earlier adoption
permitted.
The
Company has completed its evaluation of the effects of FIN 48 and has concluded
that the adoption of FIN 48 did not impact the financial statements for the
period ended December 31, 2008 and 2007.
NOTE
10 – LICENSE AGREEMENT AND SERVICE AGREEMENT
During
April 2004, the Company entered into a one-year agreement for the use of office
space and common areas. The monthly payment under this license agreement varies
based on the amount of space occupied. During the year ended December 31, 2005,
the monthly payment ranged from $1,316 to $2,648. Upon the expiration of the
one-year term, the license agreement continued on a month-to-month
basis.
In
connection with the execution of the license agreement during April 2004, the
Company issued the licensor 281,200 warrants to purchase common stock of the
Company at $0.0005 per share. The fair value of these warrants was estimated to
be $78,643 using a minimum value option pricing model with no volatility and the
following assumptions: no dividend yield, life of 10 years and a risk-free
interest rate of 4.21%. The fair value of the warrants was recorded as rent
expense over the one-year term of the license agreement. Rent expense related to
these warrants totaled $19,661 during the year ended December 31, 2005. Total
rent expense under this license agreement for the years ended December 31, 2008
and 2007 was approximately $51,000.
NOTE
11 – COMMITMENTS AND CONTINGENCY
Operating Lease – During 2007,
the Company entered into a long-term lease for office space, which expires in
2012. In connection with the execution of this lease agreement, the Company
received leasehold improvements totaling $324,000. The leasehold improvements
are recorded as deferred rent and are being amortized as a reduction to rent
expense of the lease term. Additionally, the Company issued 50,000 warrants in
connection with the lease agreement. The value of these warrants was estimated
to be $90,447 using a Black-Scholes evaluation model with the following
assumptions: 87% volatility, no dividend yield, life of 4.6 years and a risk
free interest rate of 4.77%. The value of the warrants is being expired over the
term of the lease. The unamortized cost at December 31, 2008 of $19,734 and
$62,491 was recorded as prepaid expenses and non-current prepaid expenses,
respectively. Minimum future lease payments required under the operation leases
at December 31, 2008 are as follows:
Total
rent expense for the year ended December 31, 2008 was approximately
$22,000.
Legal Proceedings – The
Company was party to a lawsuit involving a former service provider. During May
2008, a settlement was reached between the Company and this service provider in
which the Company agreed to pay $75,000 on or before September 1, 2008 and the
service provider agreed to return to the Company 25,000 shares of preferred
stock in the Company. The $75,000 settlement due to the service provider has
been paid in full. The provider has returned the shares of preferred stock to
the Company’s counsel.
Financing Package – During
March 2008, the Company completed a $1 million bridge financing package
consisting of a promissory note for $750,000 (“First Note”) and a promissory
note with a draw down provision for $250,000 (“Second Note”) (collectively, the
“Notes”). The Notes are subordinated notes and are due and payable on the
earlier of (i) completion of the next financing round completed by the Company
or (ii) one year after the Notes are issued. The holder of the First Note was
also issued penny warrants to purchase 350,000 shares of common stock. The
warrants are immediately exercisable and expire on April 15, 2013. To date
$250,000 has been drawn against the Second Note, which was extended JTR
Investments, Limited (“JTR”) a company controlled by the founder of the Company.
The Company is to issue .47 penny warrants for every dollar drawn under this
facility. There is not interest payable on either note.
On
November 1, 2008 the Board agreed to a further loan from JTR for up to $750,000.
This is a Senior Note (the “Senior Note”). The Company is to issue .47 penny
warrants for every dollar drawn under this facility. As of September 30, 2008,
the outstanding balance on this facility was $219,000, and 174,200
warrants issuable pursuant to the terms.
Subsequent Events – During
March 2009 the First Note and the Second Note were modified by extending the
maturity date in each case by twelve (12) months. As of March 23, 2009, there
was $415,340 outstanding under the Senior Note and $382,492 warrants issuable
pursuant to the terms.
During
2006 the Company entered into a master lease agreement with a financing company
that allows the Company to lease up to $750,000 of equipment. This maximum
amount available under this lease was subsequently increased to $805,000. The
lease agreement requires a security deposit of 10% of the amount of each
individual lease schedule, a payment of Series A Convertible Preferred Stock
shares equal to 5% of the lease divided by $1.00, and 36 monthly payments of
3.33% of the lease. The Company has the option to purchase the equipment at the
end of each lease term at the lesser of 12% of the original equipment cost or
the fair market value.
During
2007, the Company entered into agreements with other finance companies to
acquire equipment with interest rates ranging from 7% to 15% with five-year
lease terms. Minimum noncancellable lease payments required under the capital
leases for the years ended December 31, 2008 are as follows:
2009
$320,303
2010
56,812
2011
27,935
2012
24,216
Total
minimum lease payments
429,266
Less:
amount representing interest
(59,770)
Less:
unamortized discount related to Series A Convertible Preferred
Stock
(27,967)
Total
capital lease obligations
341,529
Less:
current portion
(320,303)
Long-term
capital lease obligations
$ 21,226
F-27
OUTSIDE
BACK COVER:
COMMON
OxySure® Systems,
Inc.
39,898,770
$0.05
Per Share
STOCK
PROSPECTUS
, 2009
Dealer Prospectus Delivery
Obligation
Prior to the
expiration of ninety days after the effective date of this registration
statement or prior to the expiration of ninety days after the first date upon
which the security was bona fide offered to the public after such effective
date, whichever is later, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses, other than underwriting
discounts and commissions, if any, payable by the Registrant relating to the
sale of common stock being registered.
Securities
and Exchange Commission registration fee(1)
$
78.40
Transfer
Agent Fees
$
4,500.00
Accounting
fees and expenses
$
15,000.00
Legal
fees and expenses
$
10,000.00
Miscellaneous
$
5,000.00
Total
(1)
All amounts are estimates
other than the Commission’s registration fee.
$
34,578.40
Item
14. Indemnification of directors and officers
Under Section
145 of the General Corporation Law of the State of Delaware, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the “Securities Act”). Our certificate of incorporation provides that, pursuant
to Delaware law, our directors shall not be liable for monetary damages for
breach of the directors’ fiduciary duty of care to us and our stockholders. This
provision in the certificate of incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director’s duty of loyalty to us or our stockholders, for acts or omissions
not in good faith or involving intentional misconduct or knowing violations of
the law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a director’s
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
II-1
Our bylaws
provide for the indemnification of our directors to the fullest extent permitted
by the Delaware General Corporation Law. Our bylaws further provide that our
Board of Directors has discretion to indemnify our officers and other employees.
We are required to advance, prior to the final disposition of any proceeding,
promptly on request, all expenses incurred by any director or executive officer
in connection with that proceeding on receipt of an undertaking by or on behalf
of that director or executive officer to repay those amounts if it should be
determined ultimately that he or she is not entitled to be indemnified under the
bylaws or otherwise. We are not, however, required to advance any expenses in
connection with any proceeding if a determination is reasonably and promptly
made by our Board of Directors by a majority vote of a quorum of disinterested
Board members that (i) the party seeking an advance acted in bad faith or
deliberately breached his or her duty to us or our stockholders and (ii) as a
result of such actions by the party seeking an advance, it is more likely than
not that it will ultimately be determined that such party is not entitled to
indemnification pursuant to the applicable sections of our bylaws.
We have been
advised that in the opinion of the Securities and Exchange Commission, insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by our director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
We may enter
into indemnification agreements with each of our directors and officers that
are, in some cases, broader than the specific indemnification provisions
permitted by Delaware law, and that may provide additional procedural
protection. As of the date of the Share Exchange, we have not entered into any
indemnification agreements with our directors or officers, but may choose to do
so in the future. Such indemnification agreements may require us, among other
things, to:
indemnify
officers and directors against certain liabilities that may arise because
of their status as officers or
directors;
advance
expenses, as incurred, to officers and directors in connection with a
legal proceeding, subject to limited exceptions;
or
obtain
directors’ and officers’ insurance.
At present,
there is no pending litigation or proceeding involving any of our directors,
officers or employees in which indemnification is sought, nor are we aware of
any threatened litigation that may result in claims for
indemnification.
II-2
Item
15. Recent Sales of Unregistered Securities
March
2006 Private Placement
On March 31, 2006the Company closed a
private placement of its Series A Convertible Preferred Stock pursuant to which
we sold an aggregate of 3,143,237 shares of preferred stock at $1.00 per share,
for gross proceeds of approximately $3,143,237, including $62,500 exchanged for
services valued at $62,500 and $30,737 exchanged in lieu of cash payments for
premiums on our capital leases. Of the total issued preferred shares, 16,803
shares were subsequently converted into common stock, and the total number of
Series A Convertible Preferred shares issued and outstanding as at December 31,2008 was 3,126,434 shares. The following represents a summary of the
designations and preferences of the Series A Convertible Preferred
Stock:
§
Ranking
– The Series A Preferred ranks senior to common
stock.
§
Dividends
– Series A Preferred may be entitled to receive a quarterly non-cumulative
dividend in the amount of $.01 per share upon approval from the Board of
Directors.
§
Liquidation
Preference – In the event of any liquidation, dissolution, or winding up
of the Company, the holders of Series A Preferred are entitled to receive
100% of the original issue price of $1.00 per
share.
§
Conversion
Rights – Each share Series A Preferred is convertible at any time, at the
option of the holder into 1.22 shares of common stock, subject to
adjustment. Series A Preferred are subject to automatic conversion upon
consummation of an underwritten offering by the Company of shares of
common stock to the public, in which the aggregate cash proceeds are at
least $3 million and the price paid per share is at least
$5.00.
§
Redemption
Rights – All of the Series A Preferred may be called at any time by the
Company within 10 years, but not prior to 2 years after issuance. The
redemption value is $1.00 per share, plus an amount equal to all unpaid
dividends thereon.
§
Voting
Rights – The holder of each share of Series A Preferred has the right to
one vote for each share of common stock into which such share of Series A
Preferred could be converted.
February
2008 Private Placement
On February 28, 2008the Company closed
a private placement of common stock pursuant to which we sold an aggregate of
635,000 shares of common stock at an aggregate $2.50 per share, for gross
proceeds of approximately $1,587,500.
March
2009 Private Placement
On March 31, 2009, we conducted an
initial closing of a private placement transaction pursuant to which we sold an
aggregate of 310,500 shares of common stock at an aggregate $1.00 per share, for
gross proceeds of approximately $310,500.
II-3
The previous
OxySure shares of common and preferred stock has been issued for investment
purposes in "private transaction" and are "restricted" shares as defined in Rule
144 under the Securities Act of 1933, as amended, subject to certain limitations
included in said Rule. In general, under Rule 144, a person (or persons whose
shares are aggregated), who has satisfied a one-year holding period, under
certain circumstances, may sell within any three-month period a number of shares
that does not exceed the greater of one percent of the outstanding common stock,
or the average weekly trading volume during four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sales of shares
without any quantity limitation by a person who has satisfied a two-year holding
period and who is not, and has not been for the three preceding three months, an
affiliate of OxySure Systems, Inc., Inc.
These shares
were issued without solicitation to friends and relatives of the Company's
officers and directors who desired to assist in the building of the Company. The
Company had reasonable grounds to believe prior to making an offer to the above
investors, and did in fact believe, when said investments were accepted, that
such purchasers (1) were purchasing for investment and not with a view to
distribution, and (2) had such knowledge and experience in financial and
business matters that they were capable of evaluating the merits and risks of
their investment and were able to bear those risks. The purchasers had access to
pertinent information enabling them to ask informed questions. All such sales
were affected without the aid of underwriters, and no sales commissions were
paid. An appropriate restrictive legend is imprinted upon each of the
certificates representing such shares, in accordance with Rule 144.
II-4
Item
16. Exhibits
Exhibit
No.
Description
3.1
Certificate
of Incorporation
3.2
Amendment
of Second Amended Certificate of Designations
Employment
Agreement dated January 15, 2009 Entered Into by and Between the
Registrant and Julian T. Ross.
10.3
Form
of Stock Subscription Agreement for Private Placements
10.4
Intellectual
Property Assignment Agreement
10.5
Agreement
for Investors Relations Services
10.6
Stock
Option Plan
10.7
Subcontractor
Agreement and Assignment of Intellectual Property
10.8
Form
of Employment Agreement and Assignment of Intellectual
Property
10.9
Form
of Lock-up Agreement
14.1
Code
of Ethics
23.1
Consent
of The Blackwing Group, LLC
99.1
Subscription
Agreement
II-5
Item
17. Undertakings
The
undersigned registrant hereby undertakes with respect to the securities being
offered and sold in this offering:
The
undersigned Registrant hereby undertakes that to file, during any period in
which offers or sales are being made, a post-effective amendment to this
registration statement:
·
To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
·
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate offering price set forth in the
“Calculation of Registration Fee” table in the effective registration
statement;
·
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change in such information in registration
statement.
That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
For determining liability of the
undersigned registrant under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to the purchaser:
II-6
·
in
any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
·
any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
·
the
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
·
any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the “Act”) may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for
indemnification against such liabilities, other than the payment by the
registrant of expenses incurred and paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered hereby, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
For the purpose of determining
liability under the Securities Act to any purchaser, the undersigned registrant
undertakes that each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
II-7
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this S-1 Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Frisco, Texas as of May 21,2009.
OXYSURE
SYSTEMS, INC.
(Registrant)
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
