Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2/A Amendment No.1 to Registration Statement 52 312K
2: EX-4.1 Certificate of Common Stock 1 6K
3: EX-5.1 Opinion of Counsel 2 12K
4: EX-10.2 Amended Emp. Agree. Valesc & J. Kraus 11 43K
5: EX-10.3 Amended Emp. Agree. Valesc & S. Cohen 11 43K
6: EX-10.4 Amended Emp. Agree. Valesc & G. Miller 10 43K
7: EX-10.5 Amended Emp. Agree. Valesc & H. Kraus 9 36K
9: EX-10.6 Manufacturers Agreement 19 53K
10: EX-10.7 Sales Rep. Agreement 12 36K
8: EX-10.8 Sales Rep. Agreement 17 51K
11: EX-21.1 List of Subsidiaries 1 5K
12: EX-23.2 Consent of Independent Accountants 1 6K
As filed with the Securities and Exchange Commission on June 27, 2002
Registration No. 333-89002
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VALESC INC.
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(Name of small business issuer in its charter)
Delaware
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(State or jurisdiction of incorporation or organization)
5047
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(Primary Standard Industrial Classification Code Number)
23-3048857
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(I.R.S. Employer Identification No.)
2300 Coit Road, Suite 300B, Plano, Texas 75075 (972) 495-3900
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(Address and telephone number of principal executive offices)
1730 SW Skyline Boulevard, Suite 102, Portland, Oregon 97221 (503) 244-5420
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(Address of principal place of business)
Hecht & Associates, P.C., 60 East 42nd Street, Suite 5101,
New York, New York 10165-5101
(212) 490-3232
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(Name, address and telephone number of agent for service)
From time to time after the effective date of this Registration Statement
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(Approximate date of proposed sale to the public)
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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[Enlarge/Download Table]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED(1) OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
REGISTERED UNIT (2) PRICE
------------------- ------------- ------------------ ------------------ ----------------
I. Common Stock, $.0001
par value, underlying
Warrants issued to
certain investors .............. 454,000 $ .40 $ 181,600 $ 45.40
II. Common Stock, $.0001
par value (3) ...................... 807,948 $ .40 $ 323,179 $ 80.79
---------- ---------- ----------
Totals 1,261,948 $ 504,779 $ 126.19*
<FN>
* The Registrant previously paid a filing fee of $125.19 upon the initial filing
of this registration statement, leaving a difference of $1.00 now due. The
Registrant previously paid a filing fee in the amount of $830.71 that is offset
against the currently due filing fee. The file number of the earlier
registration statement on Form SB-2 from which the filing fee is offset is
333-70298, and the initial filing date of that earlier registration statement
was September 27, 2001. The earlier registration statement was withdrawn on
April 26, 2002.
(1) In the event of a stock split, stock dividend or similar transaction
involving our common stock, in order to prevent dilution, the number of shares
registered shall automatically be increased to cover the additional shares in
accordance with Rule 416(a) under the Securities Act of 1933.
(2) We estimated the price of our shares in order to calculate the registration
fees, as determined in accordance with Rule 457, by using the most recent price
at which we sold common stock to investors in private placements.
(3) Represents shares to be sold from time to time by stockholders who received
common stock in exchange for their investment(s) in the Company.
</FN>
WE HEREBY AMEND THIS REGISTRATION STATEMENT AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL WE FILE A FURTHER AMENDMENT STATING 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 BECOMES EFFECTIVE
AS DETERMINED BY THE COMMISSION.
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PROSPECTUS
1,261,948 SHARES
OF COMMON STOCK
VALESC INC.(sm)
We are registering 1,261,948 shares of our common stock for resale
from time to time by the shareholders and warrant holders listed below, who may
resell their shares at the set rate of $.40 per share until such time as our
common stock is quoted in the over-the-counter market, and then at prevailing
market prices, at negotiated prices or otherwise.
The following shareholders and warrant holders can resell the shares
listed below under this prospectus:
(1) 807,948 shares of common stock we issued to investors
in exchange for funds invested in the Company; and
(2) 454,000 shares of common stock issuable under warrants
issued in connection with loans to the Company.
No market currently exists for our shares. We will receive no
proceeds from the sale of shares under this prospectus.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE
"RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OF
THESE SHARES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be
changed.
The shareholders and warrant holders may not sell these shares until
the registration statement is effective. This prospectus is not an offer to sell
or a solicitation for buyers in any state where such offers or sales are not
permitted.
The date of this prospectus is June 27, 2002.
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TABLE OF CONTENTS
PART I
Prospectus Summary............................. 5
Risk Factors................................... 7
Determination of Offering Price................ 10
Selling Stockholders........................... 10
Plan of Distribution........................... 13
Description of Securities...................... 14
Market for Common Stock
and Related Stockholder Matters.............. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business of the Company
Historical Background............... 21
Business............................ 23
Competition......................... 24
Employees........................... 24
Description of Property............. 24
Legal Proceedings................... 24
Government Regulation............... 24
Management..................................... 25
Compensation................................... 26
Security Ownership of Certain
Beneficial Owners and Management............. 27
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure......................... 28
Interests of Named Experts and Counsel......... 29
Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.............................. 29
Certain Relationships and
Related Transactions......................... 29
Financial Statements and Index................. F-1 to F-16
PART II
(not included in prospectus)
Indemnification of Directors
and Officers ............................. 31
Other Expenses of Issuance
and Distribution ......................... 31
Recent Sales of Unregistered
Securities ............................... 32
Undertakings .................................. 33
Signatures .................................... 34
Exhibit Index ................................. 35
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PROSPECTUS SUMMARY
The following is only a summary of the pertinent information
regarding this offering, so you should read the whole prospectus before making
an investment decision.
THE OFFERING
Common Stock
Offered 1,261,948 shares
Common Stock Outstanding
Prior to this Offering 10,396,048 shares
Common Stock Outstanding
After this Offering 10,850,048 shares*
Use of Proceeds We will not receive any of the proceeds
from sales of shares offered under this
prospectus.
Material Risk Factors Because an investment in our company
involves a high degree of risk, please
carefully review the section entitled
"RISK FACTORS".
* Assuming all warrant investors exercise their warrants.
THE COMPANY
We are a sales organization representing manufacturers of orthopedic
care and surgical products. These products include scopes, burrs, saws, cutters,
replacement joints, braces and other implements used in orthopedic surgeries and
post-surgical care and rehabilitation. Generally, our products are sold directly
to either the surgical practice performing the procedure or the affiliated
hospital or surgery center where the procedure is performed. We earn revenues
either through commission agreements with the manufacturers we represent, or
through the distribution of products. Our immediate goal is to expand our
product range and its geographic territory. See "BUSINESS OF THE
COMPANY-BUSINESS".
Our principal offices are located at 2300 Coit Road, Suite 300B, Plano,
Texas, and our telephone number is (972) 495-3900. Our subsidiary, OJI Surgical,
Inc., also maintains a sales office at 1730 SW Skyline Boulevard, Portland,
Oregon, telephone number (503) 244-5420.
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SUMMARY FINANCIAL INFORMATION
This information was derived from the audited consolidated financial
statements and unaudited consolidated financial statements for the three months
ended March 31, 2002 of Valesc Inc. and subsidiary included elsewhere in this
prospectus. See Note A-3 to the Consolidated Financial Statements for a
description of our acquisition of OJI Surgical, Inc. and related accounting.
[Download Table]
VALESC INC. AND SUBSIDIARY (1)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
2001 2000 MARCH 31, 2002
------------- -------------- --------------
Total Assets $ 85,690 $ 37,377 $ 93,861
Total Liabilities 801,160 45,522 791,953
Total Stockholders'
Equity (Deficit) (715,470) (8,145) (698,092)
Total Revenue 259,492 480,690 54,624
Net Income (Loss) (46,974) (8,785) (139,422)
Net Income (Loss) per Share $ (.01) $ (.00) $ (.01)
<FN>
(1) Demonstrates the financial information of the accounting acquiror ("OJI")
pursuant to the reverse acquisition accounting rules, with the financial
information of Valesc Inc. (the legal acquiror) combined since the date of
merger (December 17, 2001), as presented in the accompanying consolidated
financial statements.
</FN>
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RISK FACTORS
The shares of our common stock being offered are highly speculative
and involve a high degree of risk. Only those persons able to lose their entire
investment should purchase these shares. Before purchasing any of these shares,
you should carefully consider the following factors relating to our business and
prospects. You should also understand that this prospectus contains
"forward-looking statements." These statements appear throughout this prospectus
and include statements as to our intent, belief or current expectations or
projections with respect to our future operations, performance or position. Such
forward-looking statements are not guarantees of future events and involve risks
and uncertainties. Actual events and results, including the results of our
operations, could differ materially from those anticipated by such
forward-looking statements as a result of various factors, including those set
forth below and elsewhere in this prospectus.
WE HAVE LOST MONEY SINCE INCEPTION. IF WE CONTINUE TO LOSE MONEY, WE WILL BE
UNABLE TO PURSUE OUR BUSINESS PLAN AND YOU MAY LOSE YOUR INVESTMENT.
We were incorporated on June 2, 2000, and we have lost money since
inception. Valesc Inc. (on a stand-alone basis, without considering the impact
of the merger with OJI) lost $1,083,995 for the year ended December 31, 2001 and
Valesc Inc. and OJI combined lost $139,422 for the quarter ended March 31, 2002,
and we expect operating losses within the foreseeable future until we can expand
our sales force and product line significantly. OJI Surgical, Inc., our
wholly-owned subsidiary, does not generate sufficient cash-flow to cover the
Valesc operating costs, and we may never make money. As of March 31, 2002, we
also owed $791,953, primarily in accounts payable, notes payable and unpaid
salaries to our management and had a stockholders' deficit of $698,092. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." We are subject to all of the business risks associated with a new
enterprise, including risks of unforeseen capital requirements, failure of
market acceptance of the products we sell or distribute and failure to establish
and maintain business relationships. Any of these factors could cause our
business plan to fail, and you may lose all or part of your investment.
OUR AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2001
CONTAIN "GOING CONCERN" LANGUAGE, MEANING THERE IS SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN. IF WE CANNOT CONTINUE AS A GOING
CONCERN, OUR BUSINESS WILL FAIL AND YOU MAY LOSE YOUR INVESTMENT.
Because we have lost money since inception and as of March 31, 2002
had a deficit of approximately $730,000 in working capital, which is not
enough to cover our expected cash requirements, our auditor's report as of
December 31, 2001 says there is substantial doubt about our ability to continue
as a going concern. A "going-concern" opinion means that our auditor has
prepared our financial statements assuming we will continue as a going-concern.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." Because we are not making money from operations at this time, we
are attempting to raise additional funds by selling stock and borrowing from
investors and/or banks. We will receive no proceeds from this offering. We are
seeking additional private financings similar in structure to those we completed
in the last year, as well as a larger financing arrangement as yet undetermined,
to meet our liquidity needs and fund our plans. If we are not successful in
raising additional funds, we will be required to defer expenditures and delay
paying our vendors, in which case we may not be able to continue as a going
concern, and our business will fail and you will lose your investment.
WE DERIVE NEARLY ALL OF OUR REVENUE FROM OUR RELATIONSHIPS WITH A LIMITED NUMBER
OF SUPPLIERS AND THE LOSS OF ANY OF THESE RELATIONSHIPS COULD CAUSE OUR SALES TO
DROP SIGNIFICANTLY, INTERFERE WITH THE SUPPLY OF PRODUCTS WE SELL AND FORCE US
TO SEEK ALTERNATIVE SUPPLIERS, WHICH IN TURN COULD CAUSE OUR BUSINESS TO FAIL.
We derive nearly all of our revenue from our relationships with
several medical equipment manufacturers, including our primary suppliers,
Acumed, Inc. and Smith & Nephew, whose products accounted for approximately 47%
and 36%, respectively, of our total revenue for the quarter ended March 31,
2002. Our agreement with Acumed and our agreements with our other suppliers are
short-term and may be canceled by either party without cause by written notice.
Most of these agreements also generally limit our ability to handle competing
products during and, in some cases, after the term of the agreement, but allow
the manufacturer to distribute directly to customers in certain cases, provided
commissions are paid to us. Further, certain of these agreements provide that
pricing and other terms of these relationships may be adjusted at the discretion
of the manufacturers. Any termination or adverse adjustment to any of these
relationships could cause a significant drop in our sales, interfere with the
supply of products we sell and force us to seek alternative suppliers, which in
turn could cause our business to fail.
BECAUSE WE ARE A VERY SMALL COMPANY, WE MAY HAVE DIFFICULTY ATTRACTING
EXPERIENCED SALESPERSONS. IF WE CANNOT ATTRACT EXPERIENCED SALESPERSONS, WE MAY
NOT BE ABLE TO GROW OUR BUSINESS AND REVENUE, IN WHICH CASE WE MAY CONTINUE TO
LOSE MONEY AND OUR BUSINESS MAY FAIL.
Effective coordination with the surgical staff on the proper use and
surgical procedures required for orthopedic implants is critical to our ability
to successfully market these and related products. Competition for salespersons
with the proper experience in surgical procedures is intense. As a small
company, it is very difficult to attract such persons and, thus, we will
probably be required to expend substantial time and effort to train new
salespersons before those individuals can make a meaningful contribution to our
revenues. Harry Kraus is currently our only salesperson. If we cannot find
properly trained people for our sales staff, our revenues will not be able to
grow and we may continue to lose money; and if we hire and train our own, then
expenses as a percentage of revenues will be disproportionately increased during
the training period, during which time we may lose even more money. If we cannot
grow our business and revenue, we may continue to be unprofitable and our
business may fail.
THE MARKETS FOR MANY OF THE PRODUCTS WE SELL ARE CHARACTERIZED BY CHANGING
TECHNOLOGY THAT CAN RESULT IN SHORT LIFE CYCLES OR OBSOLESCENCE OF PRODUCTS. OUR
ABILITY TO COMPETE IS DEPENDENT, IN PART, UPON PRODUCT INNOVATION BY OUR
SUPPLIERS, OVER WHICH WE HAVE NO CONTROL. IF INNOVATION DECLINES, WE MAY BE
UNABLE TO COMPETE EFFECTIVELY, OUR SALES MAY DROP AND WE MAY CONTINUE TO LOSE
MONEY.
The markets for many products we sell, particularly orthopedic
implants and related products, are characterized by changing technology, new
product introductions and product enhancements, and evolving industry standards.
The introduction or enhancement of products embodying new technology or the
emergence of new industry standards could render existing products obsolete or
result in short product life cycles. Accordingly, our ability to compete is in
part dependent on the ability of our suppliers to continually offer enhanced and
improved products, which we can then resell. Also, changing technology could
reduce the need for our attendance in the operating room, which, in turn, may
lead to a drop in our commission income due to the reduction of prices for the
products we sell.
Since innovation in the creation of new devices by new companies with
insufficient capital for their own marketing staff is our source of product,
should innovation decline, we may be unable to compete effectively, our sales
may drop and we may continue to lose money.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS RESULTING FROM THE USE OF PRODUCTS
WE SELL, WHICH COULD IMPACT OUR CASH FLOW, INCREASE INSURANCE COSTS AND CAUSE US
TO CONTINUE TO LOSE MONEY.
We may be exposed to product liability claims resulting from the use
of the products we distribute. Our products can be used in high risk medical
situations where there is a risk of injury. Component failures, manufacturing
flaws, design defects or inadequate disclosure of product-related risks with
respect to products we sell could result in injury to, or death of, a patient.
We do not maintain liability insurance that includes product liability coverage.
To date, there have been no material threatened or asserted claims against us.
However, product liability claims in the future could result in judgments
against us or, regardless of their ultimate outcome, costly litigation which
could impact our cash flow, increase insurance costs and cause us to continue to
lose money.
CHANGES IN THE LAWS AND REGULATIONS AFFECTING THE HEALTHCARE INDUSTRY RESULTING
IN A REDUCTION IN GOVERNMENTAL SUPPORT OF HEALTHCARE COULD REDUCE PROFITS IN OUR
INDUSTRY. BECAUSE WE ARE CURRENTLY UNPROFITABLE, A FURTHER EROSION OF PROFITS
COULD CAUSE OUR BUSINESS TO FAIL.
Our customers and suppliers are subject to extensive federal and
state regulations relating to healthcare. In recent years there have been a
number of government initiatives to reduce healthcare costs. Congress and
various state legislatures have proposed changes in laws and regulations that
could result in major restructuring of the healthcare industry. We cannot
predict the extent to which changes in governmental support of healthcare
services, the methods by which such services are delivered, the prices for such
services or other legislation or regulation governing such services or mandated
benefits may reduce profits in our industry. Because we are currently
unprofitable and may not have the resources to adapt to industry changes, a
further erosion of profits could cause our business to fail. See "BUSINESS OF
THE COMPANY--GOVERNMENT REGULATION."
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BECAUSE WE ARE A NEW COMPANY, WE DEPEND ON OUR KEY PERSONNEL FOR CRITICAL
MANAGEMENT DECISIONS AND THESE PERSONS MAY LEAVE THE COMPANY IN THE
FUTURE. IF ANY OF OUR KEY PERSONNEL LEAVE AND WE CANNOT REPLACE THEM, THE
REMAINING PERSONNEL MAY NOT BE ABLE TO RUN THE COMPANY PROFITABLY AND OUR
BUSINESS MAY FAIL.
Because we are a new company, our success depends, to a significant
extent, on our key employees, including our Chairman and Chief Executive
Officer, Jeremy Kraus, our President, Samuel Cohen, and our Vice President,
Garrett Miller, all of whom are under 27 years of age. Our recently acquired
subsidiary, OJI Surgical, Inc., is run by Harry Kraus. These are currently our
only executives, and the loss of any of them would make it difficult to operate
the Company profitably. We have no key man insurance. Furthermore, we believe
that our future success will also depend in part upon our ability to retain key
management and to attract and motivate qualified personnel. Competition for
capable people with experience and motivation in the sales and distribution of
medical products is intense, so we may not be able to attract and retain them.
If any of our key personnel leave and we cannot replace them, the remaining
personnel may not be able to run the company profitably and our business may
fail. See "MANAGEMENT."
BECAUSE OUR OPERATIONS CURRENTLY ARE NOT PROFITABLE, WE ARE DEPENDENT
ON FINANCING. IF WE CANNOT OBTAIN ADEQUATE FINANCING, OUR BUSINESS MAY FAIL
AND YOU MAY LOSE YOUR INVESTMENT.
We do not expect to make a profit from operations for the foreseeable
future. However, our business strategy within the next 12 months contemplates
the expansion of our business by, among other things, increasing our sales
force. See "BUSINESS OF THE COMPANY -- BUSINESS." Therefore, we will need
outside financing to pursue our business strategy. Given our current financial
position and prospects for the immediate future, we expect to operate on a very
limited budget.
We will also need to raise additional capital in the long-term to
continue operations and to accelerate our development and marketing plans. If we
cannot obtain the financing to fund these needs, we may have to delay, scale
back or eliminate some of our development or marketing programs which may cause
us to be unprofitable. Although we have obtained short term bridge loans from
investors, these loans are insufficient to meet our financing needs. If we
cannot obtain other sources of financing, our business may fail and you may lose
your investment.
-8-
THERE IS NO TRADING MARKET FOR OUR STOCK, WHICH COULD MAKE IT DIFFICULT FOR YOU
TO SELL YOUR SHARES.
Our common stock is not traded on any national securities exchange
and is not listed by Nasdaq, which means you will not be able to sell your
shares through any such exchange. Even if the stock is listed in the future, it
will be subject to "penny stock" rules and regulations that may make it
difficult to sell. In particular, broker-dealers who recommend our stock to
people who are not established customers or qualifying investors must follow
special sales procedures, including obtaining the purchaser's written consent
prior to completing the transactions and delivering a schedule explaining the
penny stock market and the associated risks before any sale. See "MARKET FOR
COMMON STOCK AND RELATED STOCKHOLDER MATTERS." These requirements may make it
difficult for you to sell your shares.
WE HAVE ISSUED OPTIONS AND WARRANTS THAT MAY DILUTE OUR SHAREHOLDERS AND CAUSE
THE MARKET PRICE OF OUR COMMON STOCK TO FALL, WHICH COULD MAKE IT DIFFICULT FOR
YOU TO SELL YOUR SHARES, AS WELL AS HURT OUR ABILITY TO GET ADDITIONAL FINANCING
THAT WE WILL NEED TO BECOME PROFITABLE.
As of June 20, 2002, we had warrants and options outstanding for the
purchase of 1,971,500 shares of our common stock, as well as options issuable to
our executives over the next three years for up to 900,000 shares. In the
future, we may issue more warrants or options under our stock option plan or
otherwise. The exercise of options and warrants will dilute the percentage
ownership of our other stockholders. It may also depress the price of our stock
and make it difficult for you to sell your shares. Also, if our stock price
drops, new investors or lenders may reconsider investing in us, making it harder
for us to raise money and grow our business, in which case we may continue to
lose money.
In particular, as consideration for making a financing commitment to
us, which has since been cancelled, we issued Commitment Warrants to Swartz
Private Equity, LLC for 780,000 shares of stock, which will provide an
opportunity for Swartz to profit from a rise in the price of our stock. Swartz
will be likely to exercise the warrants at a time when we may be able to get
financing on better terms than the warrants, which could make it difficult for
us to get other financing.
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DETERMINATION OF OFFERING PRICE
There is no established public market for our shares. As a result,
the offering price and other terms and conditions relative to our shares have
been arbitrarily determined by us and do not bear any relationship to assets,
earnings, book value, or any other objective criteria of value. In addition, no
investment banker, appraiser, or other independent third party has been
consulted concerning the offering price for the shares or the fairness of the
offering price used for the shares. Therefore, the offering price stated on the
cover page of this prospectus should not be considered an indication of the
actual value of the shares of common stock offered in this prospectus.
SELLING STOCKHOLDERS
The shares we are registering under this prospectus constitute
approximately 12.1% of our outstanding common shares as of June 20, 2002
and may be sold by investors holding warrants and other stockholders
who previously purchased our stock, each as described below.
WARRANT INVESTORS
The investors listed below who have received warrants (the "Warrant
Investors") may resell all of their shares under this prospectus. Each of the
Warrant Investors received warrants in connection with loans made to us in the
amounts specified, as well as registration rights requiring inclusion of the
shares issuable upon exercise of these warrants in this registration statement.
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[Enlarge/Download Table]
Name of Selling Maximum No. of Exercise Loan Amount Interest Date of Percent Ownership Percent Ownership
Stockholder Shares Issuable Price Per Rate Loan Prior to Prior to After Offering
under Warrant Share Offering (5)
Dean Vilone 25,000 $ .01 $10,000 14% August 13, 2001 * *
Paul Dorsey 14,000 $ .01 $ 5,000 14% August 13, 2001 * *
Harry Kraus(2)(4) 25,000 $ .01 $10,000 14% July 26, 2001 2.6% 2.1%
25,000 $ .33 $25,000 14% October 3, 2001
Edward Kraus(1)(4) 100,000 $ .10 $23,000 14% March 23, 2001 5.51% 4.58%
Milton and
Golda
Toorans (3) 50,000 $ .01 $20,000 14% April 20, 2001 * *
Wetlands
Mitigation
Services, LLC(6) 15,000 $ .25 $ 5,000 10% March 23, 2001 * *
Christopher
Coons 200,000 $ .01 $100,000 14% June 19, 2001 1.8% *
--------- --------
454,000 $198,000
<FN>
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* Less than 1%
(1) Edward Kraus is the father of Jeremy Kraus, our Chairman and Chief
Executive Officer, and owns 413,516 of our shares directly and 78,736 shares
indirectly through SMT Enterprises Corporation, which owns 2.5% of our
common stock and is owned 29% by Edward Kraus.
(2) Harry Kraus, the President of OJI Surgical, Inc. and a Director, is the
uncle of Jeremy Kraus, and owns 144,632 of our shares directly and 82,992
shares indirectly through SMT Enterprises Corporation, which owns 2.5% of
our common stock and is owned 31% by Harry Kraus.
(3) Milton and Golda Toorans are the grandparents of Jeremy Kraus, and own
38,951 shares of our common stock.
(4) Harry Kraus and Edward Kraus own 31% and 29%, respectively, of SMT
Enterprises Corporation, which in turn owns 266,000 shares, or 2.5%, of
our common stock.
(5) Assuming that all Warrant Investors have exercised their warrants and
including all shares of the class owned by the investor.
(6) Archibald Reid, Todd Collaruso and Matthew Mancuso are the principals of
Wetlands and together own 40,000 shares of our common stock.
</FN>
Warrant Investors are under no obligation to sell all or any portion
of their shares. Particular Warrant Investors may not have a present intention
of selling their shares and may sell less than the number of shares indicated.
As of June 20, 2002, none of the Warrant Investors had exercised any warrants
and none owned any of our stock, upon exercise of warrants or otherwise, except
as set forth in the footnotes to the table above.
Except for the family relationships with our officers specified in
the footnotes above, none of the Warrant Inventors has had any relationship with
us or any of our predecessors or affiliates within the past three years. None of
the Warrant Investors and, to the best of our knowledge, no principal of any
Warrant Investor, is a broker-dealer or an affiliate of a broker-dealer.
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SELLING INVESTORS
The shareholders listed below (the "Selling Investors"), who received
shares (i) in exchange for their investments in us, (ii) in exchange for their
shares of Valesc Inc., a New Jersey corporation we acquired on March 22, 2001,
or (iii) in exchange for their shares of Atlas Holdings Inc., a New Jersey
corporation we acquired on May 20, 2002, may resell all of their shares under
this prospectus.
[Enlarge/Download Table]
Name of Selling Number of Price per Date of Purchase Percent Ownership Percent Ownership
Stockholder Shares Share upon or Acquisition Prior to After Offering
Acquisition Offering(6)
Andrewson, Katherine 5,000 $.25 March 22, 2001 + +%
Century Goal Holding Ltd.(7) 10,000 $.30 January 28, 2002 4.6% 4.5%
Cipollone, Peter 20,000 $.25 March 22, 2001 + +
Colgan, Sean 20,000 $.25 March 22, 2001 + +
Cuffner, Monica 20,000 $.25 March 22, 2001 + +
Deutsch, Karin 8,000 $.25 March 22, 2001 + +
Dewey, Carpenter 75,000 $.33 October 24, 2001 + +
Hoffman, Joel 31,063 $ 0* May 20, 2002 + +
Holk, Timothy (3) 20,000 $.25 March 22, 2001 + +
Ingle, R. Edward 40,000 $.25 March 22, 2001 + +
Jaccarino, Michael 3,000 $.25 March 22, 2001 + +
Kaehler, Robert 10,000 $.25 March 22, 2001 + +
Klein, Robert and Helen 16,272 $ 0* May 20, 2002 + +
Klepacki, Jeffrey (3) 40,000 $.25 March 22, 2001 + +
Kraus, Daniel (5) 7,890 $ 0* May 20, 2002 + +
Linde, Virginia 31,063 $ 0* May 20, 2002 + +
Linde, Virginia 15,000 $.33 September 17, 2001 + +
Lipman, Mae 7,890 $ 0* May 20, 2002 + +
Loomis, Deborah 20,000 $.25 March 22, 2001 + +
Mehling, Andrea 20,000 $.25 March 22, 2001 + +
Miller, Gary and Diane (1) 40,000 $.25 March 22, 2001 + +
Miller, Scott (2) 10,000 $.25 March 22, 2001 + +
Nuzum, Henry 3,000 $.33 June 8, 2001 + +
Osofsky, Anita 34,515 $ 0* May 20, 2002 + +
Otto, William 30,000 $.33 March 22, 2001 + +
Read, Joan(8) 20,000 $.25 March 22, 2001 + +
Reid, Archibald 30,000 $.33 March 22, 2001 + +
Saliba, Anis 20,000 $.25 March 22, 2001 + +
Shannon, Phillip 30,303 $.33 April 24, 2001 + +
Strawley, Jennifer 5,000 $.25 March 22, 2001 + +
Tay, William (9) 1,000 $.11 June 2, 2000 2.5% 2.5%
Toorans, Milton and Golda (4) 38,952 $ 0* May 20, 2002 + +
Torgerson, Ryan 15,000 $.33 March 22, 2001 + +
Weise, Linda 40,000 $.25 March 22, 2001 + +
Welsh, Thomas 20,000 $.25 March 22, 2001 + +
Whittaker, Richard 40,000 $.25 March 22, 2001 + +
Zador, William and Marlene 10,000 $.25 March 22, 2001 + +
--------
Total 807,948
<FN>
-------------
+ Less than 1%.
* Shares acquired by the former Atlas shareholders in the Atlas merger have
no purchase price because they were acquired in exchange for Atlas shares.
Atlas was the founding shareholder of Valesc NJ, and the Atlas shares were
founders shares with zero basis because the shares were issued within one
month of the formation of Atlas on November 14, 2000, at which time Atlas
had no business or assets and was merely seeking investment opportunities,
and no services of any kind were rendered or contemplated being rendered in
exchange for the issuance of the shares. Atlas served only as a holding
company for Valesc NJ prior to the merger of Valesc NJ into us on March 22,
2001.
(1) Gary and Diane Miller are the parents of Garrett Miller, our Vice President.
They own 40,000 shares directly and 5,666 indirectly through SMT Enterprises
Corporation.
(2) Scott Miller is the brother of Garrett Miller.
(3) Affiliate of a registered broker-dealer. These shareholders purchased our
shares in the ordinary course of business and, at the time of purchase, we
had no agreements or understandings, directly or indirectly, with any person
to distribute the securities.
(4) Milton and Golda Toorans are the grandparents of Jeremy Kraus, our Chairman
and Chief Executive Officer and also own warrants to purchase 50,000
shares.
(5) Daniel Kraus is the brother of Jeremy Kraus.
(6) Assuming that all Warrant Investors have exercised their warrants and
including all shares of the class owned by the investor.
(7) Peter Liu is the Managing Director of Century, which owns a total of
500,000 shares, plus warrants to purchase an additional 500,000 shares.
(8) Owns 20,000 shares directly and 2,820 indirectly through SMT Enterprises
Corporation.
(9) In connection with our formation on June 2, 2000, we issued a total of
5,000,000 shares to DotCom Internet Ventures Ltd. for services rendered to
us, which amount was split on a 277,237 for 5,000,000 basis in March 2001.
William Tay, our sole officer, director and shareholder from the time of
formation until the Atlas merger on March 22, 2001, was the sole director,
controlling shareholder and president of DotCom Internet Ventures.
</FN>
Selling Investors are under no obligation to sell all or any portion
of their shares. Particular Selling Investors may not have a present intention
of selling their shares and may sell less than the number of shares indicated.
None of the Selling Investors has had any relationship with us or any
of our predecessors or affiliates within the past three years, except in
connection with providing consulting services, except as noted in the footnotes
to the table above. As of June 20, 2002, none of the Selling Investors owned any
of our stock except as set forth in the table above and in the table for Warrant
Investors. None of the Selling Investors and, to the best of our knowledge, no
principal of any Selling Investor, is a broker-dealer or an affiliate of a
broker-dealer, except as set forth in the notes to the table above.
-12-
PLAN OF DISTRIBUTION
The Warrant Investors and the Selling Investors may sell the stock
directly to one or more purchasers (including pledgees) or through brokers,
dealers or underwriters who may act solely as agents or may acquire common stock
as principals at the set rate of $.40 per share until such time as the common
stock is quoted in the over-the-counter market. Thereafter, sales may be made
(i) at market prices prevailing at the time of sale, (ii) at prices related to
such prevailing market prices, (iii) at negotiated prices or (iv) at fixed
prices, which may be changed. These parties may distribute the stock in one or
more of the following methods:
(a) ordinary brokers transactions, which may include long or short
sales;
(b) transactions involving cross or block trades or otherwise on the
open market;
(c) purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts under this
prospectus;
(d) "at the market" to or through market makers or into an existing
market for the common stock;
(e) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
(f) through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise); or
(g) any combination of the above, or by any other legally available
means.
In addition, these parties may enter into (i) hedging transactions
with broker-dealers who may engage in short sales of common stock in the course
of hedging the positions they assume, and (ii) option or other transactions with
broker-dealers that require delivery by such broker-dealers of the common stock,
which common stock may be resold thereafter under this prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the common stock may receive compensation in the form of
discounts, concessions or commissions from the sellers of common stock for whom
they act (which compensation as to a particular broker-dealer may be in excess
of customary commissions).
Each of the Warrant Investors and Selling Investors, and any
broker-dealers acting in connection with the sale of the common stock by this
prospectus, may be deemed to be an underwriter within the meaning of Section
2(11) of the Securities Act. Therefore, any commissions or profits realized by
such parties on the resale of common stock as principals, may be deemed
underwriting compensation under the Securities Act. Neither we nor the sellers
can presently estimate the amount of such compensation. We do not know of any
existing arrangements between the Warrant Investors and the Selling Investors
and any other shareholder, broker, dealer, underwriter or agent relating to the
sale or distribution of the common stock.
-13-
The Warrant Investors and the Selling Investors, and any other
persons participating in a distribution of our common stock will be subject to
applicable provisions of the Securities Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M, which may
restrict certain activities of, and limit the timing of purchases and sales of
securities by, these parties and other persons participating in a distribution
of securities. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging in market
making and certain other activities with respect to such securities for a
specified period of time prior to the commencement of such distributions subject
to specified exceptions or exemptions.
Any securities covered by this prospectus that qualify for sale under
Rule 144 under the Securities Act may be sold under that Rule rather than under
this prospectus.
We cannot assure you that the Warrant Investors and the Selling
Investors will sell any of their shares of common stock.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.0001 par value per share, and 20,000,000 shares of preferred stock,
$.0001 par value per share.
Our transfer agent is StockTrans, Inc., 44 West Lancaster Avenue,
Ardmore, PA 19003, telephone no. (610) 649-7300.
The following summary of all material terms of our securities is
subject to, and qualified in its entirety by, the provisions of our Articles of
Incorporation and Bylaws.
-14-
COMMON STOCK
As of June 20, 2002, there were 10,396,048 shares of common stock
outstanding.
Holders of common stock are each entitled to cast one vote for each
share held of record on all matters presented to stockholders. Cumulative voting
is not allowed; hence, the holders of a majority of the outstanding common stock
can elect all directors.
Holders of common stock are entitled to receive dividends declared by
the Board of Directors out of legally available funds and, in the event of
liquidation, to share pro rata in any distribution of assets after payment of
liabilities. The Board of Directors is not obligated to declare a dividend and
it is not anticipated that dividends will be paid in the foreseeable future.
Holders of common stock do not have preemptive rights to purchase any of our
additional shares. There are no conversion, redemption, sinking fund or similar
provisions regarding the common stock.
PREFERRED STOCK
We are authorized to issue 20,000,000 shares of preferred stock, but
to date no preferred stock has been issued and we have not designated any terms
for the preferred stock.
SWARTZ WARRANTS
As consideration for making a financing commitment to us, which has
since been cancelled, Swartz Private Equity was issued the Commitment Warrants
on April 24, 2001, subsequently amended with an issue date of May 21, 2002, to
purchase 780,000 shares of our common stock. The exercise price for the
Commitment Warrants is $1.00 per share, provided that on each six month
anniversary of the issue date of May 21, 2002, if the shares are trading at that
time, the exercise price is subject to adjustment based on the lowest closing
price for the five trading days preceding the adjustment.
-15-
OTHER WARRANTS
We have issued warrants to the Warrant Investors that may be
exercised for up to 454,000 shares of common stock. Each of the Warrant
Investors received warrants in connection with loans made to the Company, as
well as registration rights requiring inclusion of the shares issued upon
exercise of these warrants in this registration statement. For the terms of
these loans and warrants, see "SELLING STOCKHOLDERS--WARRANT INVESTORS."
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is currently no public market for our stock. The common
stock is subject to the regulations of the SEC relating to the market for penny
stocks. Penny stock, as defined by the Penny Stock Reform Act, is any equity
security not traded on a national securities exchange or not quoted on the
Nasdaq National or Small Cap Market that has a current price of less than $5.00
per share. The penny stock regulations generally require that a disclosure
schedule explaining the penny stock market and risks associated therewith be
delivered to purchasers of penny stocks and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. The broker-dealer must make a
suitability determination for each purchaser and receive the purchaser's written
agreement prior to the sale. In addition, the broker-dealer must make certain
mandated disclosures, including the actual sale or purchase price and actual
bid/offer quotations, as well as the compensation to be received by the
broker-dealer and certain associated persons. The regulations applicable to
penny stocks may severely affect the market liquidity for our common stock and
could limit your ability to sell our stock in the secondary market.
As of June 20, 2002, there was one class of common equity held
by 54 holders of record, including those held in street name.
DIVIDENDS
No dividends have been declared to date. There are no restrictions
which affect or are likely to affect our ability to pay dividends in the future.
However, we do not expect to pay dividends in the foreseeable future.
OPTIONS, WARRANTS AND RESTRICTED SECURITIES
The exercise of outstanding options and warrants may adversely affect
our stock price and your percentage ownership. As of June 20, 2002, there were
outstanding warrants and options to purchase 1,971,500 shares of our common
stock, including the Commitment Warrants to purchase 780,000 shares that were
issued to Swartz. In addition, we have granted options to our executives
exercisable over the next three years for up to 900,000 shares. See
"MANAGEMENT--EMPLOYMENT AND RELATED AGREEMENTS." The exercise of stock options
and warrants that are presently outstanding or may be issued in the future will
dilute the percentage ownership of our other stockholders.
We have issued "restricted securities" to investors that are not
being registered in this offering and that may be eligible for resale pursuant
to Rule 144 under the Securities Act either now or in the future, subject to
expiration of the restricted period prescribed by Rule 144. As of June 20, 2002,
these restricted securities in the aggregate represent 12.5% of our outstanding
common stock and may be eligible for resale under Rule 144 during the months and
in the amounts specified below:
AVAILABLE NUMBER OF SHARES
FOR RESALE
AS OF:
Present 620,237
January 2003 490,000
April 2003 75,000
May 2003 12,500
June 2003 100,000
---------
Total 1,297,737
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We acquired OJI Surgical, Inc. on December 17, 2001. Prior to the
acquisition, we were not yet an operating company and therefore had financial
performance driven by our expenses associated with becoming operational and
completing the acquisition. OJI Surgical was an operating company for more than
10 years prior to the acquisition.
Under generally accepted accounting principles, the acquisition is
considered to be a capital transaction in substance, rather than a business
combination. That is, the acquisition is equivalent to the issuance of stock by
OJI for the net monetary assets of Valesc, accompanied by a recapitalization,
and is accounted for as a change in capital structure. Accordingly, the
accounting for the acquisition is identical to that resulting from a reverse
acquisition, except that no goodwill is recorded. Under reverse takeover
accounting, the post-reverse-acquisition comparative historical financial
statements of the "legal acquirer" (Valesc) are those of the "accounting
acquirer" (OJI).
COMBINED OPERATING RESULTS OF THE COMPANY COMPARING THE QUARTERS ENDED MARCH 31,
2002 AND 2001, AND THE YEARS ENDED DECEMBER 31, 2001 AND 2000.
REVENUE
Revenues declined from $97,533 for the quarter ended March 31, 2001
to $54,624 for the quarter ended March 31, 2002. Approximately one-half of the
decline was the result of less commission income, principally due to our sales
force having been reduced to one person, thus resulting in lesser marketing,
solicitation of customers and potential customers and less sales of all of the
products we represent. Approximately one-half of the decline in revenues
resulted primarily from our decision to cease providing complimentary
reconditioning and repair service for our products and the products of our
competitors, and the attendant reduction in sales staff associated with this
elimination of services. OJI's revenues declined from $480,960 for the year
ended December 31, 2000 to $259,492 for the year ended December 31, 2001. This
decline resulted primarily from OJI's decision to cease providing complementary
reconditioning and repair service for its products and the products of its
competitors. These services became less attractive because of increased
competition that resulted in an increasing administrative burden associated with
processing transactions for a broader range of products. We may re-enter this
complementary service offering in the future, but currently have no plans to do
so. We did not separately track revenues and costs relating to this service
offering to our customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our operating expenses increased from $50,167 for the quarter ended
March 31, 2001 to $164,840 for the quarter ended March 31, 2002, primarily as a
result of the additional burden of the activities of Valesc Inc. after the
merger as well as the commencement of our expansion plan. Selling, General and
Administrative expenses for the OJI business remained relatively consistent for
both quarters. Costs relating to the OJI operations have been reduced to the
lowest sustainable levels, as there was only one employee (Harry Kraus) serving
in a sales/executive capacity at a fixed salary in both periods, until such time
as we can hire additional sales people and create a fixed and variable-cost
compensation plan for such sales people. These Valesc Inc. and expansion plan
activities included: expenses associated with our reporting obligations under
the Securities Exchange Act of 1934, filings with the Securities and Exchange
Commission pursuant to our Investment Agreement with Swartz Private Equity,
OJI's rental of new office space and hiring of a new administrative staff
person, and OJI's travel and other costs associated with seeking additional
product lines to represent.
OJI's operating expenses decreased from $386,890 for the year ended December 31,
2000 to $289,478 for the year ended December 31, 2001, primarily as a result of
a reduction in staff selling OJI's representative products and administrative
support costs associated with increased personnel.
NET INCOME (LOSS)
Our reported net income of $47,212 for the quarter ended March 31,
2001 as compared to net loss of ($139,422) for the quarter ended March 31, 2002,
OJI reported a net loss of ($8,785) for the year ended December 31, 2000 as
compared to net loss of ($46,974) for the current period, primarily as a result
of the inclusion of Valesc Inc.'s net losses in the current quarter and the
commencement of our expansion plan.
SIGNIFICANT COMMITMENTS OF THE COMBINED ENTITY
We have no significant financial commitments beyond customary
payables and employment contracts. As to our debt, $133,083 is due this year and
$68,000 is due in 2003. We plan to request extensions of the maturity dates for
much of this debt and believe, based upon discussions with each of the debt
holders during the past month, that our requests will be granted.
-17-
CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition," to provide guidance
on the recognition, presentation, and disclosure of revenue in financial
statements. Our policies on revenue recognition are consistent with this
bulletin. Commission income as a manufacturers' representative on new product
sales are recorded in the period during which the underlying product sale
occurs. Product returns by our customers are rare due to the specialized nature
of the product, and therefore, we have concluded that no material allowance for
refundable commission income on returned products is necessary at March 31, 2002
and December 31, 2001. Our revenues from product sales and service income are
derived from the sale of new products distributed by us, and the refurbishment
of used products. Revenue is recognized as products are delivered to our
customers. As of the end of 2001 and during 2002, we were not distributing any
new or refurbished products.
STOCK-BASED COMPENSATION
As permitted by the Statement of Financial Accounting Standards No.
123 (SFAS No. 123), Accounting for Stock-Based Compensation, we account for
stock-based employee compensation arrangements in accordance with provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." Compensation expense for stock options issued to employees is
based on the difference, on the date of grant, between the fair value of our
stock and the exercise price of the option. We account for equity instruments
issued to non-employees in accordance with the provisions of SFAS No. 123 and
Emerging Issues Task Force (EITF) Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction With Selling, or in Conjunction With Selling, Goods or Services."
All transactions in which goods or services are the consideration received for
the issuance of equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date of the fair value of
the equity instrument issued is the date on which the counter-party's
performance is complete.
-18-
LIQUIDITY AND CAPITAL RESOURCES OF THE COMBINED ENTITY
As of March 31, 2002, we had cash and cash equivalents of $42,465,
negative working capital of ($729,760) and a stockholder's equity (deficiency)
of ($698,092). We have no credit or financing facility in place at the present
time. Valesc Inc. received approximately $150,000 during the three months ended
March 31, 2002 from private placements of equity. Cash used in operating
activities of Valesc Inc. was approximately $(133,850) during the period ended
March 31, 2002. The consolidated financial statements indicate that the
profitability and operating contribution of OJI have not been sufficient to
offset the developmental and expansion expenses reflected in the Valesc
financial statements. Until we can significantly expand the business of OJI we
will be unlikely to achieve profitability. As of March 31, 2002, our current
assets are less than our cash requirements for three months activities. As a
result of our lack of profitability, our accountants, in their report on the our
financial statements for the period ended December 31, 2001, included an
explanatory paragraph indicating there is substantial doubt about our ability to
continue as a going concern. The time and money required before we can complete
our expansion plan and implement our growth strategy cannot be estimated with
precision. We expect significant expenditures associated with entering into the
expansion plan, including the cost of hiring and "sponsoring" new salespeople
and the cost of the upgraded software and administrative infrastructure
necessary to manage them, as well as travel and other expenses associated with
acquiring new product lines and territories. Our anticipated cash requirements
for the next twelve months are approximately $550,000, which includes $250,000
to fund the expansion plan and an expected cash-flow deficit from regular
operations of $300,000. Because we do not expect the expansion plan to begin
contributing significantly to revenue during the next twelve months, we
anticipate a negative cash-flow from regular operations similar to the previous
year. The Company has commitments under employment agreements with each of its
three executive officers totaling $130,269 in deferred salaries as of March 31,
2002. Total commitments under these agreements will be $300,894 as of March 31,
2003. Additionally, the Company has lease commitments totaling approximately
$32,000 through March 31, 2005.
As consideration for making a financing commitment to us, which was
subsequently cancelled, Swartz Private Equity was issued the Commitment Warrants
on April 24, 2001, subsequently amended with an issue date of May 21, 2002, to
purchase 780,000 shares of our common stock. The exercise price for the
Commitment Warrants is $1.00 per share, provided that on each six month
anniversary of the issue date of May 21, 2002, if the shares are trading at that
time, the exercise price is subject to adjustment based on the lowest closing
price for the five trading days preceding the adjustment.
We will receive no proceeds from this offering. We are seeking
additional private financings similar in structure to those we completed in the
last year, as well as a larger financing arrangement as yet undetermined, to
meet our liquidity needs and fund our plans.
-19-
SUBSEQUENT EVENTS
On June 7, 2001, we entered into an equity line transaction under an
Investment Agreement with Swartz Private Equity, which was amended and restated
as of August 29, 2001 and September 26, 2001. The Investment Agreement entitled
us to sell up to $20 million of our common stock to Swartz, subject to a formula
based on our stock price and trading volume, from time to time over a three year
period following the effective date of a registration statement covering the
Swartz stock. We filed Amendment No. 2 of a registration statement on Form SB-2
covering the Swartz stock on March 25, 2002, but withdrew the registration
statement on April 26, 2002. We were informed by the Commission that a
"completed private placement" would be deemed not to have occurred in connection
with an equity line transaction in cases where no market exists for the
underlying securities at the time of registration. Because no market currently
exists for our securities, we requested withdrawal. No shares of common stock of
the Company were issued or sold under the Swartz registration statement. On May
21, 2002, we terminated the Investment Agreement. We may enter into another
equity line transaction with Swartz after such time as our shares are traded on
the OTC Bulletin Board.
-20-
BUSINESS OF THE COMPANY
HISTORICAL BACKGROUND
We were incorporated on June 2, 2000 in the State of Delaware under
the name NetCentral Capital Fund, Inc. We were formed as a development stage
company for the specific purpose of becoming a reporting company with a class of
registered securities to enable us to be in a better position to seek suitable
acquisitions. On September 5, 2000, we filed a Form 10-SB General Form for
Registration of Securities of Small Business Issuers. We had no operations prior
to the acquisition of OJI Surgical, Inc., and we are not yet cleared by the
National Association of Securities Dealers, Inc. for an unpriced quotation in
the over-the-counter Bulletin Board. Upon effectiveness of this registration
statement we intend to apply for such a clearance so that there is a basis for a
meaningful market to permit trading in registered shares. William Tay was the
sole director, officer and shareholder of NetCentral.
On March 22, 2001 we acquired Valesc Inc., a New Jersey corporation
("Valesc NJ") for 8,964,008 shares of common stock, which we exchanged on a
1-for-1 basis with Valesc NJ stock. In anticipation of the acquisition, we
executed a 1-for-18.04 reverse stock split that left us with 277,237 shares
outstanding, and Valesc NJ executed a 2-for-1 stock split. As a result of the
merger, Atlas Holdings Inc., the controlling shareholder of Valesc NJ, owned
8,458,008 or approximately 80% of our common stock at that time. Atlas Holdings
was owned 50% by Jeremy Kraus, our Chairman and Chief Executive Officer, 12.5%
by Garrett Miller, our Vice President and Director, 25% by Samuel Cohen, our
President and Director, and 4% by Harry Kraus, the President of OJI Surgical and
a Director.
-21-
In connection with a simultaneous change of management upon
consummation of the merger, we changed our name to Valesc Inc. The basis for our
name is the Latin word VALESCO which means to grow strong.
On March 22, 2001, William Tay resigned as an officer and director.
Our new officers and directors are Jeremy Kraus, Samuel Cohen and Garrett
Miller.
On December 17, 2001, we acquired 100% of the capital stock of OJI
Surgical, Inc., an Oregon corporation, from SMT Enterprises Corporation, in
exchange for 266,000 shares of our common stock. OJI Surgical has been in
business since 1988 and is now a wholly-owned subsidiary of Valesc. The purchase
price was determined based upon a multiple of OJI's previous years' gross
profits.
OJI is operated by Harry Kraus, who serves as the sole director and
President. Harry Kraus is the uncle of Jeremy Kraus, our Chief Executive Officer
and director, and is also the owner of 31% of the outstanding capital stock of
SMT.
Two of our executive officers, Jeremy Kraus and Samuel Cohen, who are
also shareholders and serve as directors, served as directors of SMT Enterprises
Corporation until their resignation on May 17, 2002. As interested directors,
Mr. Kraus and Mr. Cohen abstained from voting to authorize the acquisition of
OJI on behalf of us and SMT.
Edward Kraus, the President of SMT and a director and owner of 29%
of the outstanding capital stock of SMT, is the father of Jeremy Kraus, our
Chief Executive Officer and director. Robert Kraus, a director of SMT and owner
of 25% of the outstanding capital stock of SMT, is the uncle of Jeremy Kraus,
our Chief Executive Officer and director.
On May 20, 2002, Atlas Holdings Inc., the holder of 82.8% of our
stock on such date, was merged into us. Pursuant to the merger (a) each issued
and outstanding share of the stock of Atlas was exchanged for 986.12568 shares
of our common stock, for a total of 8,458,000 shares of our common stock to the
Atlas shareholders, and (b) 8,458,000 shares of our common stock owned by Atlas
prior to the merger were cancelled. Jeremy Kraus, our Chairman and Chief
Executive Officer, Garrett Miller, our Vice President and Director, Samuel
Cohen, our President and Director, and Harry Kraus, the President of our
subsidiary, OJI Surgical, Inc. and a Director, owned 41%, 25%, 25% and 2%,
respectively, of Atlas before the merger. As a result of the merger, they now
beneficially own 34%, 21%, 21% and 2%, respectively, of our common stock. Each
of the foregoing officers and Edward Kraus, who now owns 4.6% of our common
stock, executed a shareholders agreement prohibiting transfers of shares except
in certain circumstances and in limited amounts. The agreement also provides a
right of first refusal in favor of the Company to purchase shares proposed to be
transferred, which right is assignable to the other parties to the agreement at
the discretion of the Company.
On June 19, 2002, Harry Kraus was appointed as a director of Valesc.
-22-
BUSINESS
We are a sales organization representing manufacturers of orthopedic
care and surgical products. These products include scopes, burrs, saws, cutters,
orthopedic implants, braces and other implements used in orthopedic surgeries
and post-surgical care and rehabilitation. Generally, our products are sold
directly to either the surgical practice performing the procedure or the
affiliated hospital or surgery center where the procedure is performed. We do
not manufacture any of the products we sell, but earn revenues either through
commission agreements with the manufacturers we represent, or through the
distribution of products. Our products currently include a variety of implements
and tools utilized during surgical procedures, as well as artificial joints and
other implants. We represent several different manufacturers who do not compete
with one another under exclusive contracts covering defined territories
generally within the northwest United States, some of which have been in place
for as long as 11 years. Manufacturers generally pay us a fixed commission
ranging from 12% to 25% of the sales price of goods sold.
We do not carry any inventory and do not take ownership of the
products we sell. Some of the products we sell are shipped directly to customers
by the manufacturer. In this case our role is solely as a sales representative
and we do not take part in the physical distribution of the product. In cases
where we are responsible for physical distribution, we do not take ownership of
the product or hold it in inventory, but merely accept delivery from the
manufacturer and then make local delivery of the product to the customer. In
these cases we serve as both a sales representative and as a logistical conduit
for the products, with responsibility for the proper handling and short-term
storage. We do not generally receive additional compensation for these
additional services.
Most of our representation agreements have a one-year term and are
automatically renewable, although the agreements may be canceled by either party
without cause upon prior notice. Two of our sales representation agreements with
Smith & Nephew, which is one of our primary suppliers, were entered into by
Harry Kraus personally rather than by OJI Surgical. Furthermore, these
agreements contain provisions that could be deemed to result in a technical
default upon the transfer of OJI's shares to Valesc in the OJI acquisition.
Although these agreements are terminable at will, upon notice, by either party,
we are in the process of seeking a waiver of any technical defaults from Smith &
Nephew and the consent of Smith & Nephew for the assignment of these agreements
to OJI. We do not expect any impairment of our relationship with Smith & Nephew
as a result of the foregoing or any material changes to the agreements.
Previously, we also served as distributors of certain orthopedic products,
whereby we earned revenues on the sale of products. We took ownership of such
products but generally did not carry inventories.
Sales of products from our primary suppliers, Acumed, Inc. and Smith
& Nephew, provided approximately 47% and 36%, respectively, of our total
revenue for the quarter ended March 31, 2002.
During the next twelve to eighteen months, we intend to devote our
time and resources to the growth of our medical device sales business. We
currently sell a variety of medical products, including replacement joints and
surgical implements and tools, for use in the orthopedic care and surgical area.
We intend to expand our sales of these products in three ways: (i) increased
penetration in market areas already covered, (ii) the addition of sales
personnel to expand our geographic coverage and (iii) the addition of new
product lines. In the initial phase of our expansion plan over the next six to
twelve months, we hope to increase our market penetration in areas already
serviced by the company and to add new sales personnel to expand our geographic
coverage. This additional coverage would initially focus on Northern Oregon and
Southern Washington. In the second phase of our expansion plan over the period
twelve to eighteen months from now, we will be focusing on the addition of new
product lines. We expect these new product lines to include medical devices
similar to the products we currently distribute but produced by different
manufacturers.
For our expansion to be successful, we will need to greatly expand
our administrative capabilities and our sales force. We intend to invest
approximately $100,000 in the purchase, customization and installation of
accounting and back-office software to enable us to manage a larger number of
transactions, customers and suppliers without substantially increasing our
administrative staff. Selection, set-up and implementation of this back-office
software is expected to take between six to nine months, and we will need to
hire at least one additional employee to perform administrative tasks. We expect
these requirements to add approximately $5,000 to our monthly general and
administrative costs. We will also need to rent office space sufficient to house
our expanded personnel and back office system.
We also expect to incur significant expenses for hiring additional
sales people. In addition to normal hiring costs, manufacturers' representatives
like us generally "sponsor" new sales people for a period of up to one year
during which the company subsidizes the employee's wages until they have built a
sufficient customer base to support themselves solely on a commission basis.
During this sponsorship period, new salespeople are often paid a base salary of
$4,000 per month, leading to a total employee cost of approximately $7,000 per
month including salary, payroll taxes, benefits and increased general and
administrative costs associated with travel and office equipment. We expect to
hire two additional salespeople during this expansion plan, each of whom will
likely need to be fully sponsored for an average period of six months. This will
result in a potential expenditure of approximately $85,000 associated with the
expansion of our sales force, along with additional costs that we cannot predict
at this time. These expenditures will represent a substantial increase over our
current costs.
We will need significant new financing in order to fund our expansion
plan. The total expenses of our expansion plan as outlined above will approach
$250,000 during the next twelve months. Although we expect additional costs to
be offset by increased revenues, we cannot be certain whether increases in
revenues will occur and whether any such increases will offset costs. We are
seeking additional private financings similar in structure to those we completed
in the last year, as well as a larger financing arrangement as yet undetermined,
to meet our liquidity needs and fund our plans.
We need to complete our expansion plan and achieve a substantial
increase in revenues in order to become profitable. In the event we are unable
to secure financing for the expansion plan, or if it is ineffective once
completed, we will likely be unable to continue as a going concern.
-23-
COMPETITION
The sale of medical products retailing for less than $10,000 is
currently dominated by the sales organizations of Fortune 500 and other very
large companies. There are also numerous small, independent manufacturers'
representatives, such as Valesc, who are engaged in this business. Most of the
companies presently engaged in this business are better financed and have a
longer operating history than we do. Even if we are successful in our expansion
plans, we would still have an insignificant market share of medical products
retailing for less than $10,000.
Competition within our industry is based largely on product selection
and service level. Companies with a greater variety of products to sell
generally possess an advantage over companies with more limited catalogues.
Customers also expect a very high level of service, especially in connection
with scheduling and delivering products, and training for the use of new
products.
As a small company, we are currently unable to offer a product
selection on a competitive level. While our service level is comparable to that
of our competitors, we cannot expand our product offerings due largely to the
limitations of having only a single salesperson. We also face competition on the
supply side due to the short-term nature of our representation agreements with
manufacturers. Manufacturers look for companies capable of providing the highest
sales and service levels, which reinforces the competitive nature of the demand
side and puts small companies such as ours at a further competitive
disadvantage. Our expansion plan seeks to address these competitive
disadvantages.
EMPLOYEES
We have five full-time employees, three of whom are also our officers
and directors, and one of whom is Harry Kraus, President of our OJI Surgical
operating subsidiary, a director, and the uncle of our Chief Executive Officer.
DESCRIPTION OF PROPERTY
Apart from our OJI subsidiary, we do not own or rent any significant
physical properties and are currently utilizing, at no cost, office space from
our Chief Executive Officer. No decision has been made at this time as to
where our headquarters will be located.
OJI Surgical does not own any properties. In March of 2002, OJI
entered into a three-year lease for approximately 700 square feet of office
space located at 1730 SW Skyline Boulevard, Portland, Oregon, for $880 per month
with maximum annual increases of 5%. OJI believes that this office space is
adequate for its needs at this time.
LEGAL PROCEEDINGS
We are currently not a party to any material pending legal
proceeding, nor do we know of any proceeding that any governmental authority or
anyone else may be contemplating against us. One of the shareholders of a
predecessor to Atlas Holdings Inc., formerly our controlling shareholder, filed
a suit against its predecessor seeking more shares which, if successful, would
have made him an owner of more than 10% of Atlas Holdings' stock. That case was
dismissed on July 20, 2000 for failure to prosecute. Atlas Holdings has advised
us that it believes this suit against its predecessor was without merit and that
there are valid and meritorious defenses to such claims if the suit is refiled.
GOVERNMENT REGULATION
The healthcare industry is affected by extensive government
regulation at the Federal and state levels. In addition, through the Medicare,
Medicaid and other programs the Federal and state governments are responsible
for the payment of a substantial portion of healthcare expenditures. Changes in
regulations and healthcare policy occur frequently and may impact the current
results of the growth potential for and the profitability of products sold by
the Company. Although we are not a direct provider under Medicare and Medicaid,
many of our customers are providers under these programs and depend upon
Medicare and/or Medicaid reimbursement for a portion of their revenue. Changes
in Medicare and Medicaid regulations may adversely impact our revenues and
collections indirectly by reducing the reimbursement rate received by our
customers and consequently placing downward pressure on prices we charge for our
products.
In certain cases, the ability of our customers to pay for the
products we distribute depends on governmental and private insurer reimbursement
policies. Consequently, those policies have an impact on the level of our sales.
Continuing governmental and private third-party payor cost-cutting efforts have
led and may continue to lead to significant reductions in the reimbursement
levels. Furthermore, governmental reimbursement programs, such as the Medicare
and Medicaid programs, are subject to substantial regulation by Federal and
state governments, which are continually reviewing and revising the programs and
their regulations. There can be no assurance that changes to governmental
reimbursement programs will not have a material adverse effect on the Company.
The Federal Food, Drug and Cosmetic Act and regulations issued or
proposed thereunder provide for regulation by the Food and Drug Administration
("FDA") of the marketing, manufacturing, labeling, packaging and distribution of
medical devices and drugs, including the products we distribute. The majority of
our products constitute Class II products under FDA regulations, which must be
appropriately labeled and packaged by the manufacturers. As a distributor of
such products, we are subject to unscheduled FDA inspections of our facilities
from time to time to determine compliance with FDA regulations.
We are also subject to the Safe Medical Devices Act of 1990, which
imposes certain reporting requirements on distributors in the event of an
incident involving serious illness, injury or death caused by a medical device.
-24-
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the names, ages and current positions of each of our
directors and executive officers:
NAME AGE POSITION
---- --- --------
Jeremy Kraus 26 Director, Chairman of the Board of
Directors and Chief Executive Officer
Samuel Cohen 25 Director and President (and acting chief
financial and accounting officer)
Garrett Miller 25 Director and Vice President
Harry Kraus 46 President of OJI Surgical, Inc. and a
Director
The following is a description of the qualifications and experience
of each of our current directors and executive officers:
Jeremy Kraus is the Chairman of the Board of Directors and Chief
Executive Officer and has served in this capacity since October 2000. Prior to
this appointment, Mr. Kraus served as Chairman and Chief Executive Officer of
Jeremy's MicroBatch Ice Creams for approximately three years. Mr. Kraus is a
1998 graduate of the Wharton School of the University of Pennsylvania, where he
received a B.S. in economics. Apart from his work with MicroBatch, Mr. Kraus did
not have significant business experience prior to graduation.
Samuel Cohen is a Director and the President of the Company and has
served in this capacity since October 2000. Prior to this appointment, Mr. Cohen
served as Chief Operating Officer of Jeremy's MicroBatch Ice Creams for
approximately two years and as a Product Design Consultant for Rosenbluth
International for two years. Mr. Cohen is a 1998 graduate of the Wharton School
of the University of Pennsylvania, where he received a B.S. in economics. Apart
from his work with MicroBatch and Rosenbluth, Mr. Cohen did not have significant
business experience prior to graduation.
Garrett Miller is a Director and the Vice President of the Company
and has served in this capacity since October 2000. Prior to this appointment,
Mr. Miller served as management data contact for Mount Lucas Management, a hedge
fund in Princeton, New Jersey, for approximately one year, and in 2000 Mr.
Miller was a member of the U.S. Olympic Rowing Team that competed in Sydney,
Australia. Mr. Miller is a 1999 graduate of the Wharton School of the University
of Pennsylvania, where he received a B.S. in economics. Mr. Miller did not have
significant business experience prior to graduation.
Harry Kraus is the President of OJI Surgical, Inc. and was appointed
a Director in June 2002, and is responsible for all of our sales efforts. Mr.
Kraus served as President from the founding of OJI in 1988 to the present. Prior
to founding OJI, Mr. Kraus served as a sales agent for the State of Oregon for
Howmedica for two years. From 1984 to 1986, he served as product manager for
Porous-Coated Knee Systems for Howmedica in Rutherford, New Jersey. From 1990 to
1999 Mr. Kraus served as a director of Acumed, Inc., a medical device
manufacturer that is currently our primary supplier. In 1999, Acumed was sold to
the Marmon Group in a private transaction. From 1978 to 1984, Mr. Kraus held a
variety of corporate sales positions at Howmedica and I.B.M., both in Los
Angeles, California. He is a 1978 graduate of San Jose State University, where
he received a B.S. in Business Administration.
Harry Kraus, the President of OJI Surgical, Inc. and a Director, is
the uncle of Jeremy Kraus, our Chief Executive Officer.
Directors serve until the next annual meeting or until their
successors are qualified and elected. Officers serve at the discretion of the
Board of Directors.
During the past five years, none of our directors or executive
officers has:
(1) been general partner or executive officer of a business at
the time a bankruptcy petition was filed by, or against it,
or a receiver, fiscal agent or similar officer was
appointed by a court for it or its property;
(2) been convicted in a criminal proceeding and are not
currently a named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses);
(3) been subject to an order, judgment or decree, permanently
or temporarily enjoining, barring, suspending or otherwise
limiting their involvement in any type of business,
securities or banking activities; or
(4) been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, or the
Commodity Futures Trading Commission, to have violated a
federal of state securities or commodities law.
-25-
COMPENSATION
The following table provides information relating to compensation (i)
for the period from our formation on June 2, 2000 through December 31, 2000, and
for the year ended December 31, 2001, for each of our executive officers, and
(ii) for the last three fiscal years for the President of our OJI Surgical
subsidiary. The amounts shown include compensation for services in all
capacities provided to us.
[Enlarge/Download Table]
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
AWARDS
------------ -------------
NAME AND PERIOD SALARY SECURITIES ALL OTHER
PRINCIPAL UNDERLYING COMPENSATION
POSITION OPTIONS
--------- -------- ------------- ------------- -------------
JEREMY KRAUS 10/24/00 $14,000 -- --
Chief Executive to 12/31/00(1)
Officer
1/1/01 $50,000(3) 300,000(4) --
to 12/31/01(2)
SAMUEL COHEN 10/24/00 $14,000 -- --
President to 12/31/00(1)
1/1/01
to 12/31/01(2) $50,000(3) 300,000(4) --
GARRETT MILLER 1/1/01 $50,000(3) 300,000(4) --
Vice President to 12/31/01(2)
WILLIAM TAY 6/2/00 -- -- --
(Chief Executive to 12/31/00
Officer
prior to Merger) 1/1/01 -- -- $75,000(5)
to 3/22/01
HARRY KRAUS 1/1/99
President of OJI to 12/31/99 $209,898 -- --
Surgical, Inc. (6)
1/1/00
to 12/31/00 $126,804 -- --
1/1/01
to 12/31/01 $135,902 -- --
<FN>
(1) Jeremy Kraus and Samuel Cohen began working for Valesc NJ upon its formation
on October 24, 2000.
(2) Our current executive officers were appointed in connection with the closing
of the merger on March 22, 2001. However, for services rendered prior to that
date, we have entered into employment agreements with each of our current
executive officers effective January 1, 2001. The terms of these agreements are
substantially identical. See "MANAGEMENT--EMPLOYMENT AND RELATED AGREEMENTS".
(3) As of March 31, 2002, $130,269 in the aggregate was accrued and unpaid to
Jeremy Kraus, Samuel Cohen, and Garrett Miller.
(4) Options vest in three tranches of 100,000 shares each on December 31, 2001,
2002 and 2003. See "MANAGEMENT--EMPLOYMENT AND RELATED AGREEMENTS".
(5) On March 2, 2001, Valesc NJ entered into an agreement with William Tay for
consulting services. See "BUSINESS OF THE COMPANY--HISTORICAL BACKGROUND." The
agreement provided for a total of $75,000 payable to Mr. Tay in installments
from April 2001 through August 2001. To date we have paid approximately $50,000
under the agreement and are continuing to make payments on the remaining amount.
(6) We acquired OJI Surgical, Inc. on December 17, 2001. All compensation paid
to Mr. Kraus was paid by OJI.
</FN>
EMPLOYMENT AND RELATED AGREEMENTS
Effective January 1, 2001, we entered into employment agreements with
each of our executive officers containing identical terms. The agreements may be
summarized as follows: (A) initial term of three years, with automatic one-year
renewal terms thereafter; (B) during each year of the first three years, each
executive shall receive: (i) during the first year, an annual base salary equal
to the greater of (a) $50,000 or (b) 2.5% of the total revenue of Valesc and its
subsidiaries for such year, up to a maximum of $150,000; (ii) during the second
year, an annual base salary equal to the greater of (a) $55,000 or (b) 2.5% of
the total revenue of Valesc and its subsidiaries for such year, up to a maximum
of $165,000; and (iii) during the third year, an annual base salary equal to the
greater of (a) $60,500 or (b) 2.5% of the total revenue of Valesc and its
subsidiaries for such year, up to a maximum of $181,500; (C) the Board of
Directors may consider one or more increases in the salary payable to the
executive in respect of any renewal term; (D) in the event we are not in a
position, due to our then-current financial situation, to make any salary
payment(s) to the executives, the unpaid salary shall accrue without interest;
and (E) all accrued and unpaid salary shall be immediately due and payable upon
the occurrence of any "change of control", defined as the sale of a controlling
interest in our capital stock to one or more buyers acting in concert, the sale
of all or substantially all of our assets, or any corporate merger or
consolidation resulting in one or more parties, who did not previously hold a
controlling interest in our capital stock, owning a controlling interest in our
capital stock or our successor entity; (F) the executives shall be eligible to
participate in bonuses awarded to senior management to the extent that such
bonuses are awarded or authorized by the Board of Directors from time to time.
Because compensation in the employment agreements is based, in part,
on a percentage of our revenue rather than net income, a possible conflict of
interest exists for our executives, since management decisions that increase
revenue in the short term may not be in the long term best interests of the
Company.
-26-
The total payments deferred pursuant to clause (D) above as of
March 31, 2002 amounts to $130,269.
In addition to the foregoing, each executive has been granted the
option to purchase a total of 300,000 shares of common stock in equal
installments of 100,000 shares at the end of each year of employment. The
options are exercisable for a period of three years following the date of
vesting, and the exercise price is as follows: (i) $.25 per share for the
100,000 shares that vest after the first year; (ii) $.50 per share for the
100,000 shares that vest after the second year; and (iii) $.75 per share for the
100,000 shares that vest after the third year. In the event the executive is
terminated "without cause" by us or the executive terminates his employment
"for good reason", any options then outstanding that have neither vested nor
been terminated as of such date shall vest and become subject to purchase by the
executive.
Effective January 1, 2002 and in connection with our acquisition of
OJI Surgical, Inc., OJI entered into an employment agreement with its President,
Harry Kraus. The agreement provides as follows: (A) an initial term of one year,
with automatic one-year renewal terms thereafter; (B) a monthly salary of
$10,800; (C) all accrued and unpaid salary shall be immediately due and payable
upon the occurrence of any "change of control", defined as the sale of a
controlling interest in OJI's capital stock to one or more buyers acting in
concert, the sale of all or substantially all of our assets, or any corporate
merger or consolidation resulting in one or more parties, who did not previously
hold a controlling interest in OJI's capital stock, owning a controlling
interest in OJI's capital stock; and (D) the executive shall be eligible to
participate in bonuses awarded to senior management to the extent that such
bonuses are awarded or authorized by the Board of Directors of OJI from time to
time.
INCENTIVE STOCK OPTIONS
Under our stock option incentive plan approved on April 1, 2001,
directors and executive officers may receive options to purchase our common
stock. No options may be granted at less than fair market value on the date of
the grant. To date, no options have been granted to our directors or executive
officers under the plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information furnished to us with
respect to the beneficial ownership of our common stock by (i) each executive
officer, director and nominee, and by all directors and executive officers as a
group, and (ii) each beneficial owner of more than five percent of our
outstanding common stock, in each case as of June 20, 2002. Unless
otherwise indicated, each of the persons listed has sole voting and dispositive
power with respect to the shares shown as beneficially owned.
TITLE NAME OF AMOUNT AND NATURE OF PERCENT OF
OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------- -------------------- -------------------- ----------
Common Jeremy Kraus 3,510,937(1) 33.8%
Stock Chairman and Chief
Executive Officer
Common Samuel Cohen 2,110,639(1) 20.3%
Stock President and
Director
Common Garrett Miller 2,110,639(1) 20.3%
Stock Vice President
and Director
Common Harry Kraus 227,624(2) 2.2%
Stock President of
OJI Surgical, Inc.
and Director
--------- -----
Total (all directors and 7,959,834 76.6%
executive officers as a group)
(1) Owned directly. Each officer also holds unexercised options to purchase
100,000 shares of common stock at $.25 per share. See "COMPENSATION --
EMPLOYMENT AND RELATED AGREEMENTS."
(2) Mr. Kraus owns 144,632 shares directly, subject to the lock-up agreement
described below, and 82,992 shares indirectly through SMT Enterprises
Corporation, which owns 2.5% of our common stock and is owned 31% by Harry
Kraus. Mr. Kraus also holds warrants to purchase 50,000 shares of common stock.
See "SELLING STOCKHOLDERS -- WARRANT INVESTORS."
In connection with the merger of Atlas Holdings into us on May 20,
2002, each of our executive officers, including Harry Kraus, and Edward Kraus,
executed a shareholders agreement prohibiting transfers of shares except in
certain circumstances and in limited amounts. The agreement also provides a
right of first refusal in favor of the Company to purchase shares proposed to be
transferred, which right is assignable to the other parties to the agreement at
the discretion of the Company.
-27-
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On September 5, 2001, we decided to terminate our relationship with
our independent accountants, Stan J.H. Lee, CPA, and engaged Grant Thornton LLP
as our independent accountants to audit and report on our financial statements
for the period from June 2, 2000 to December 31, 2000. Our Board of Directors
approved this decision.
Stan Lee's reports since our formation on June 2, 2000 do not contain
any adverse opinion or a disclaimer of opinion, nor are they qualified or
modified as to uncertainty, audit scope or accounting principles.
Stan Lee was the beneficial owner of 14,700 shares of our common
stock issued on April 20, 2001 upon exercise of an option granted by Valesc NJ,
a company we acquired, pursuant to a consulting agreement between Valesc NJ and
Stan Lee dated March 2, 2001, for services rendered in connection with the
acquisition. Stan Lee's shares should have been cancelled following the
acquisition because Stan Lee continued as our independent auditor. On August 23,
2001, we cancelled Stan Lee's shares pursuant to a Stock Cancellation Agreement
between us and Stan Lee.
For our first fiscal period ending December 31, 2000 and the interim
period through September 5, 2001, we did not have any disagreements with Stan
Lee on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Stan Lee, would have caused Stan Lee to make a
reference to the subject matter of the disagreement(s) in connection with its
report.
For our first fiscal period ending December 31, 2000 and the interim
period through September 5, 2001, there were no reportable events with Stan Lee
as described in Item 304(a)(1)(iv)(B) of Regulation S-B.
At no time during our first fiscal period ending December 31, 2000
and the interim period through September 5, 2001, and prior to engaging Grant
Thornton, did we consult Grant Thornton regarding (i) the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements,
or (ii) any matter that was the subject of a disagreement as defined in
paragraph 304(a)(1)(iv)(A) of Regulation S-B and the related instructions or a
reportable event described in paragraph 304(a)(1)(iv)(B).
-28-
INTERESTS OF NAMED EXPERTS AND COUNSEL
Our Financial Statements included in this registration statement have
been audited by Grant Thornton LLP, New York, New York, independent certified
public accountants, to the extent, and for the periods set forth in their report
thereon, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
On January 1, 2002, we issued options for the purchase of 50,000
shares of our common stock to Hecht & Associates, P.C. Hecht & Associates was
our counsel with respect to the preparation and filing of this registration
statement. The options are exercisable until January 1, 2007. One half of the
options vested on January 11, 2002 and the remaining one half vest 10 days after
the date on which our shares begin trading. The options are exercisable at $.333
per share, subject to downward adjustment based upon the average trading price
for the 10 days after the date on which our shares begin trading.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons by the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 23, 2001, Edward Kraus loaned us $23,000 pursuant
to a Debenture and Warrant Purchase Agreement with an interest rate of 14%. The
agreement provides warrants for the purchase of up to 100,000 shares of common
stock at $.10 per share, exercisable until February 1, 2003. Edward Kraus is the
father of Jeremy Kraus, our Chairman and Chief Executive Officer.
On July 26, 2001, Harry Kraus loaned us $10,000 pursuant to a
Debenture and Warrant Purchase Agreement with an interest rate of 14%. The
agreement provides warrants for the purchase of up to 25,000 shares of common
stock at $.01 per share, exercisable until February 1, 2003. On October 3, 2001,
Harry Kraus loaned us an additional $25,000 pursuant to a Debenture and Warrant
Purchase Agreement with an interest rate of 14%. The agreement provides warrants
for the purchase of up to 25,000 shares of common stock at $.33 per share,
exercisable until October 3, 2003. Harry Kraus, the President of OJI Surgical,
Inc. and a Director, is the uncle of Jeremy Kraus, our Chairman and Chief
Executive Officer.
-29-
On April 20, 2001, Milton and Golda Toorans loaned us $20,000
pursuant to a Debenture and Warrant Purchase Agreement with an interest rate of
14%. The agreement provides warrants for the purchase of up to 50,000 shares of
common stock at $.01 per share, exercisable until February 1, 2003. Milton and
Golda Toorans are the grandparents of Jeremy Kraus, our Chairman and Chief
Executive Officer.
We entered into employment agreements with each of our three
executive officers providing base salaries and options, and Harry Kraus entered
into an employment agreement with OJI Surgical. See "MANAGEMENT--EMPLOYMENT AND
RELATED AGREEMENTS."
On January 1, 2001, we entered into an agreement with Garrett Miller
appointing Mr. Miller as a director and providing compensation of $3,000 per
month, a 4% equity interest and a 10% commission to Mr. Miller, payable in cash
or stock, on total capital raised for us as a result of Mr. Miller's
introductions. Mr. Miller earned a total of $12,000 in commissions under the
agreement. On March 22, 2001, Mr. Miller's commission earnings and remaining
equity were exchanged for a 12.5% equity interest in Atlas Holdings Inc., and
all commission arrangements with Mr. Miller were eliminated. Atlas Holdings was
owned 50% by Jeremy Kraus, our Chairman and Chief Executive Officer, 25% by
Samuel Cohen, our President and Director, and the remaining 12.5% was owned by
approximately nine persons, four of whom were related to Jeremy Kraus.
On March 2, 2001, Valesc NJ entered into an agreement with William
Tay, our sole director, officer and shareholder at the time, to compensate Mr.
Tay for consulting services in connection with the acquisition of Valesc NJ. See
"BUSINESS OF THE COMPANY--HISTORICAL BACKGROUND." The agreement provided for a
total of $75,000 payable to Mr. Tay in installments from April 2001 through
August 2001. To date we have paid approximately $53,000 under the agreement and
are continuing to make payments on the remaining amount.
On June 1, 1996, OJI Surgical, Inc. entered into a manufacturer's
representative agreement with Acumed, Inc. The agreement has been renewed each
year for one-year periods and is currently in effect. The terms of the agreement
are consistent with OJI's other manufacturer's representative agreements. See
"BUSINESS OF THE COMPANY--BUSINESS." Harry Kraus, the President of OJI and a
Director, served as a director of Acumed from 1990 to 1999.
In connection with our formation on June 2, 2000 as NetCentral
Capital Fund, Inc., William Tay, our sole director, officer and shareholder at
the time, served as a promoter in exchange for 5,000,000 shares of common stock.
This amount was subsequently reverse split down to 277,237 shares. See "BUSINESS
OF THE COMPANY--HISTORICAL BACKGROUND."
In connection with the merger of Atlas Holdings into us on May 20,
2002, each of our executive officers, including Harry Kraus, and Edward Kraus,
executed a shareholders agreement prohibiting transfers of shares except in
certain circumstances and in limited amounts. The agreement also provides a
right of first refusal in favor of the Company to purchase shares proposed to be
transferred, which right is assignable to the other parties to the agreement at
the discretion of the Company.
On May 20, 2002, Atlas Holdings Inc., the holder of 82.8% of our
stock on such date, was merged into us. Pursuant to the merger (a) each issued
and outstanding share of the stock of Atlas was exchanged for 986.12568 shares
of our common stock, for a total of 8,458,000 shares of our common stock to the
Atlas shareholders, and (b) 8,458,000 shares of our common stock owned by Atlas
prior to the merger were cancelled. Jeremy Kraus, our Chairman and Chief
Executive Officer, Garrett Miller, our Vice President and Director, Samuel
Cohen, our President and Director, and Harry Kraus, the President of our
subsidiary, OJI Surgical, Inc. and a Director, owned 41%, 25%, 25% and 2%,
respectively, of Atlas before the merger. As a result of the merger, they now
beneficially own 34%, 21%, 21% and 2%, respectively, of our common stock. Each
of the foregoing officers and Edward Kraus, who now owns 4.6% of our common
stock, executed a shareholders agreement prohibiting transfers of shares except
in certain circumstances and in limited amounts. The agreement also provides a
right of first refusal in favor of the Company to purchase shares proposed to be
transferred, which right is assignable to the other parties to the agreement at
the discretion of the Company.
OJI Surgical, Inc. entered into a three-year lease commencing March
8, 2002 for approximately 700 square feet of office space located at 1730 SW
Skyline Boulevard, Portland, Oregon, for $880 per month with maximum annual
increases of 5%. Harry Kraus, the President of OJI and a Director of Valesc, is
a party to the lease, as well as the personal guarantor of OJI's obligations
under the lease.
-30-
FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
I N D E X
VALESC INC. AND SUBSIDIARY PAGE
-------------------------- ----
Report of Independent Certified Public Accountants F-1
Balance Sheets ............................................. F-2
Statements of Operations ................................... F-3
Statement of Shareholder's Equity (Deficiency) ............. F-4
Statements of Cash Flows ................................... F-5
Notes to Financial Statements .............................. F-6
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
STOCKHOLDERS AND BOARD OF DIRECTORS
VALESC INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of
Valesc Inc. and Subsidiary as of December 31, 2001, and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
the years ended December 31, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valesc Inc. and Subsidiary as
of December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years ended December 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming Valesc Inc.
and subsidiary will continue as a going concern. As more fully described in Note
B, the Company has incurred recurring operating losses and negative cash flows
from operations, which resulted in an accumulated deficit, and shareholders'
deficiency at December 31, 2001. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note B. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/S/ GRANT THORNTON LLP
----------------------
New York, New York
March 8, 2002
F-1
[Enlarge/Download Table]
FINANCIAL STATEMENTS AND REPORTS OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Valesc Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
March 31, 2002 December 31, December 31,
(unaudited) 2001 2000
-------------- ------------- ----
ASSETS
Current Assets
Cash $ 42,465 $ 26,311 $ 1,680
Accounts Receivable 15,705 20,560 20,682
Prepaid Expenses 765 -- 1,141
--------- --------- -----------
Total Current Assets $ 58,935 $ 46,871 $ 23,503
Property and equipment, net of accumulated
depreciation of $25,558 at December 31, 2000,
$7,746 at December 31, 2001
and $8,159 at March 31, 2002 5,960 6,553 13,874
Deferred financing costs, net of accumulated
amortization of $7,514 at December 31, 2001
and $10,815 at March 31, 2002 28,966 32,266 --
--------- --------- -----------
Total Assets $ 93,861 $ 85,690 $ 37,377
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts Payable $ 271,061 $ 336,585 $ 31,680
Current maturities of notes payable, net of debt discount 133,083 84,008 8,623
Accrued interest payable 21,217 14,205 --
Accrued expenses and other current liabilities 233,065 228,916 1,352
Officers' salaries payable 130,269 105,519 3,867
--------- --------- -----------
Total current liabilities 788,695 769,233 45,522
Notes Payable - long term, net of debt discount 3,258 31,927 --
--------- --------- -----------
Total Liabilities 791,953 801,160 45,522
Commitments and contingencies
Shareholders' equity (deficiency)
Preferred stock; $.0001 par value;
20,000,000shares authorized,
none issued and outstanding -- -- --
Common stock, $.0001 par value;
100,000,000 shares authorized;
shares issued and outstanding:
10,208,548 (March 31, 2002)
9,708,548 (December 31, 2001 and
2000, as restated) 106 56 1,000
Additional paid-in capital 156,750 -- --
Accumulated deficit (854,948) (715,526) (9,145)
--------- --------- -----------
Total shareholders' equity (deficiency) (698,092) (715,470) (8,145)
--------- --------- -----------
Total liabilities and shareholders' equity (deficiency) $ 93,861 $ 85,690 $ 37,377
========= ========= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. The balance
sheet at December 31, 2000 reflects the financial condition of OJI Surgical,
Inc., the "accounting acquiror."
F-2
[Enlarge/Download Table]
Valesc Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, Year ended Year ended
(UNAUDITED) December 31, December 31,
2002 2001 2001 2000
----------- ------------ ------------ -----------
Revenues from product sales
and service income $ -- $ -- $ 20,765 $ 217,772
Commission Income 54,624 97,533 $ 238,727 $ 262,918
----------- ----------- ---------- -----------
Total Revenues 54,624 97,533 259,492 480,690
Cost of Revenues -- -- 11,939 99,315
Selling, general and administrative expenses 164,840 50,167 284,327 386,890
----------- ----------- ---------- -----------
Income (Loss) from Operations (110,216) 47,366 (41,925) (5,515)
Interest Expense 29,206 154 4,814 1,918
----------- ----------- ---------- -----------
NET INCOME (LOSS) $ (139,422) $ 47,212 $ (46,974) $ (8,785)
=========== =========== ========== ===========
Basic income (loss) per shares $ (.01) $ .00 $ (.01) $ (.00)
----------- ----------- ---------- ----------
Diluted income (loss) per share $ (.01) $ .00 $ (.01) $ (.00)
=========== =========== ========== ==========
Weighted average shares outstanding used in
Computing basic income (loss) per common share
(as adjusted for stock split and effect of merger) 9,785,470 9,708,548 9,320,278 8,690,008
Weighted average shares outstanding used in
Computing diluted income (loss) per common share
(as adjusted for stock split and effect of merger) 9,785,470 10,308,547 9,320,278 8,690,008
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. The statement
of operations reflects the results of OJI Surgical, Inc., from January 1, 2000
to March 31, 2002, and includes the results of Valesc Inc., from December 17,
2001 to March 31, 2002.
F-3
[Enlarge/Download Table]
Valesc Inc. and Subsidiary
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Year ended December 31, 2001, and three
months ended March 31, 2002 (unaudited)
--------------------------- -- ----------------- ----------------- ----------------------------
Common Stock
Number of Value Additional Accumulated Total Shareholders' Equity
Shares Paid-in Capital Deficit (Deficiency)
---------------- ----------- ------------------- ----------------- ----------------------------
Balance, December 31, 1999 1,000 $1,000 $ (360) $ 640
Net loss -- 2000 (8,785) (8,785)
--------- ------- -------- ---------
Balance, December 31, 2000 1,000 1,000 (9,145) (8,145)
Net loss -- 2001 (46,974) (46,974)
Effect of merger of
OJI into Valesc Inc. 9,707,548 (944) (659,407) (660,351)
--------- ------- -------- ---------
Balance December 31, 2001 9,708,548 56 -- (715,526) (715,470)
Sale of common stock 500,000 50 $ 149,950 -- 150,000
Issuance of warrants for -- -- 6,800 -- 6,800
services rendered
Net Loss - three months ended -- -- -- (139,422) (139,422)
March 31, 2002 (unaudited)
---------------- ----------- ------------------- ----------------- ----------------------------
Balance, March 31, 2002 10,208,548 $ 106 $ 156,750 $ (854,948) $ (698,092)
================ =========== =================== ================= ============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS, and reflects
the shareholder's equity of OJI Surgical, Inc., the "accounting acquiror," as
adjusted to give effect to the capitalization of Valesc Inc., the "legal
acquiror."
F-4
[Enlarge/Download Table]
Valesc Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Year Ended Year
March 31, December 31, Ended
2002 2001 2001 December 31,
(UNAUDITED) 2000
---------- -------- ------------ -------------
Cash flows from operating activities
Net income (loss) $(139,422) $ 47,212 $(46,974) $ (8,785)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 593 1,760 7,865 7,012
Equity based compensation charges 6,800 -- 5,151 --
Noncash interest accretion 3,301 -- 3,364 --
Changes in assets and liabilities
Accounts Receivable 4,855 (1,682) 122 17,099
Prepaid Expenses (765) 1,141 1,141 (270)
Accounts Payable (65,524) (16,762) 61,320 --
Accrued Expenses and other current liabilities 31,566 (2,477) 568 (6,976)
Accrued officers' salaries 24,750 (3,867) 697 --
--------- -------- -------- ------------
Net cash provided by (used in) operating activities (133,846) 25,325 33,254 (8,080)
Cash flows from investing activities
Purchase of equipment -- (3,385) -- (400)
--------- -------- -------- ------------
Net cash used in investing activities -- (3,385) -- (400)
Cash flows from financing activities
Repayment of loans -- (8,623) (8,623) (10,480)
Issuance of common stock 150,000 -- -- --
--------- -------- -------- ------------
Net cash provided by (used in) financing activities 150,000 (8,623) (8,623) (10,480)
Net increase (decrease) in cash 16,154 13,317 24,631 (2,800)
Cash at beginning of period 26,311 1,680 1,680 4,480
--------- -------- -------- ------------
Cash at end of period $ 42,465 $ 14,997 $ 26,311 $ 1,680
========= ======== ======== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ -- $ -- $ 2,300 $ 200
========= ======== ======== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. The statements
of cash flows reflects the activities of OJI Surgical, Inc., from January 1,
2000 through March 31, 2002, and includes the activities of Valesc Inc., from
December 17, 2001 through March 31, 2002.
F-5
VALESC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(Information with respect to the three months ended
March 31, 2002 is unaudited)
NOTE A - DESCRIPTION OF BUSINESS AND FORMATION OF COMPANY
The accompanying financial statements present the accounts of OJI Surgical, Inc.
for 2000 and 2001 and the effect of the acquisition (for accounting purposes --
see Note A-3) of Valesc Inc. on December 17, 2001. The information with respect
to the quarters ended March 31, 2002 and 2001 is unaudited and reflects the
accounts of OJI Surgical, Inc., for the 2001 quarter and the post-acquisition
consolidated accounts of OJI Surgical, Inc., and Valesc for the 2002 quarter.
1. DESCRIPTION OF BUSINESS ENTITIES
Valesc Inc., a New Jersey corporation ("Valesc NJ") was incorporated on October
24, 2000, and at the date of inception was owned 100% by Atlas Holdings Inc.
Atlas Holdings is owned 50% by Jeremy Kraus, the Company's Chairman and Chief
Executive Officer, 25% by Samuel Cohen, the Company's President and Director
and, 12.5% by Garrett Miller, the Company's Vice President and Director. Atlas
Holdings was formed in November 2000 and had no assets or business, other than
establishing Valesc NJ. On March 21, 2001, Valesc NJ executed a 2:1 stock split.
NetCentral Capital Fund, Inc. ("NetCentral") was incorporated in the State of
Delaware on June 2, 2000, for the specific purpose of providing a method,
through a merger or otherwise, for a foreign or domestic private company to
become a reporting company with a class of registered securities. NetCentral had
a single shareholder. It had no operating business from the date of inception
until March 22, 2001. At March 22, 2001, NetCentral had no assets. From
inception through March 22, 2001 NetCentral had no revenues, and expenses of
approximately $30,000 of professional fees relating to the formation. On March
21, 2001, NetCentral had a 1:18.04 reverse stock split, and thereafter had
277,237 shares outstanding.
Founded as an Oregon corporation in 1988, OJI Surgical, Inc. ("OJI") is a
manufacturer's representative for medical devices and health care products,
primarily in the orthopedic field. OJI serves customers in the Pacific Northwest
of the US from its Portland, Oregon base.
The accompanying consolidated financial statements include the accounts of
Valesc and OJI Surgical, Inc. from the date of the acquisition of OJI (December
17, 2001) by Valesc. All material inter-company accounts and transactions
between the Company and its subsidiary have been eliminated.
2. DESCRIPTION OF MERGER BETWEEN VALESC AND NETCENTRAL
On March 22, 2001, Valesc NJ was acquired by NetCentral (the "Merger") for
8,964,008 shares of Common Stock, which were exchanged on a 1-for-1 basis with
Valesc NJ stock. Simultaneously therewith, the Directors of NetCentral resigned,
and the Company was renamed "Valesc Inc." ("Valesc Inc."). After the Merger,
Atlas Holdings Inc. owned 8,458,548 or 90.4% of the outstanding Common Stock of
Valesc Inc.
Under generally accepted accounting principles, the Merger is considered to be a
capital transaction in substance, rather than a business combination. That is,
the acquisition is equivalent to the issuance of stock by Valesc NJ for the net
monetary assets of NetCentral, accompanied by a recapitalization, and is
accounted for as a change in capital structure. Accordingly, the accounting for
the acquisition is identical to that resulting from a reverse acquisition,
except that no goodwill is recorded. Under reverse takeover accounting, the
post-reverse-acquisition comparative historical financial statements of the
"legal acquirer" (NetCentral) are those of the "accounting acquirer" (Valesc
NJ). Earnings (loss) per share ("EPS") are calculated to reflect the Company's
change in capital structure for all periods presented. Costs associated with
merger were expensed as incurred, by Valesc NJ.
F-6
3. DESCRIPTION OF MERGER BETWEEN VALESC AND OJI SURGICAL
On December 17, 2001 SMT Enterprises Corporation ("SMT") sold OJI to Valesc
Inc., a Delaware corporation. Valesc Inc. received 100% of the outstanding stock
of the Company in exchange for 266,000 shares of its common stock. The Chief
Executive of Valesc Inc. is Jeremy Kraus, a board member of SMT as well as the
son of SMT's President and the nephew of the Company's President. In addition,
Samuel Cohen is a member of the board of both SMT and Valesc, and serves as the
President of Valesc. Several members of the Kraus family are investors in
Valesc. Valesc and its wholly-owned subsidiary, OJI Surgical, Inc. are hereafter
referred to as "the Company."
Under generally accepted accounting principles, the acquisition is considered to
be a capital transaction in substance, rather than a business combination. That
is, the acquisition is equivalent to the issuance of stock by OJI for the net
monetary assets of Valesc, accompanied by a recapitalization, and is accounted
for as a change in capital structure. Accordingly, the accounting for the
acquisition is identical to that resulting from a reverse acquisition, except
that no goodwill is recorded. Under reverse takeover accounting, the
post-reverse-acquisition comparative historical financial statements of the
"legal acquirer" (Valesc) are those of the "accounting acquirer" (OJI).
4. DESCRIPTION OF MERGER BETWEEN OJI SURGICAL AND SMT
In 1999, OJI was purchased from Harry Kraus, its current President, founder and
then sole shareholder, by SMT, a Delaware company. SMT was an inactive company
prior to this transaction. SMT received 100% of the outstanding stock of OJI in
exchange for 32% of its outstanding stock. Edward Kraus, the brother of Harry
Kraus, is the President of SMT and Robert Kraus, Harry Kraus's brother and
Jeremy Kraus, Harry Kraus's nephew are also members of the board of SMT.
Under generally accepted accounting principles, the acquisition is considered to
be a capital transaction in substance, rather than a business combination. That
is, the acquisition is equivalent to the issuance of stock by OJI for the net
monetary assets of SMT, accompanied by a recapitalization, and is accounted for
as a change in capital structure. Accordingly, the accounting for the
acquisition is identical to that resulting from a reverse acquisition, except
that no goodwill is recorded. Under reverse takeover accounting, the
post-reverse-acquisition comparative historical financial statements of the
"legal acquirer" (SMT) are those of the "accounting acquirer" (OJI). Costs
associated with merger were expensed as incurred.
NOTE B - LIQUIDITY AND GOING CONCERN
The accompanying financial statements of the Company have been prepared assuming
the Company will continue as a going concern. No adjustment has been made for
this uncertainty. The Company has invested a significant amount of its effort
and cash in the development of its business plan. As of March 31, 2002, the
Company has a stockholders' deficit of approximately $698,000. For the period
ended March 31, 2002, the Company had net losses of approximately $139,400. The
Company will be required to seek external financing to continue developing its
business plan and to consummate planned acquisitions, and to cover the overhead
costs associated with Valesc. Operating losses are expected to continue in 2002.
During the next twelve months, the Company intends to devote its time and
resources to the growth of its medical device sales business. The Company
currently sells a variety of medical products, including replacement joints and
surgical implements and tools, for use in the orthopedic care and surgical area.
The Company intends to expand its sales of these products in three ways: (i)
increased penetration in market areas already covered, (ii) the addition of
sales personnel to expand geographic coverage and (iii) the addition of new
product lines.
In order for the Company's expansion to be successful, it will need to greatly
expand its administrative capabilities and its sales force. The Company intends
to invest approximately $100,000 in the purchase, customization and installation
of accounting and back-office software to enable it to manage a larger number of
transactions, customers and suppliers without substantially increasing its
administrative staff. The Company also expects to incur significant expenses for
hiring additional sales people. In addition to normal hiring costs,
manufacturers' representatives like OJI generally "sponsor" new sales people for
a period of up to one year during which the company subsidizes the employee's
wages until they have built a sufficient customer base to support themselves
solely on a commission basis. The Company cannot predict these additional costs
at this time, but they may represent a substantial increase over the Company's
current costs.
F-7
The Company will need significant new financing in order to fund these expansion
plans. Although the company expects additional costs to be offset by increased
revenues, it cannot be certain whether increases in revenues will occur and
whether any such increases will offset costs.
Management's plans with respect to its liquidity issues include the following:
o The Company is in the process of completing the registration of its common
stock, which would allow it to apply for trading of its common stock on the
Over-the-counter Bulleting Board.
o Raise additional funding through the sale of debt and equity instruments to
fund activities.
o From April through May 2002, the Company received proceeds from the issuance
of common stock of $35,000.
To date, the Company has supported its activities through debt and equity
investments. Management plans to continue to seek the funding required to
finance operations as the Company commences its business plan and expansion
plan. Failure to find additional financing, create a public market for its
stock, and execute its expansion plan, could negatively impact the Company's
ability to continue as a going concern.
NOTE C - PRO FORMA STATEMENT OF OPERATIONS
The following Pro Forma income statement has been prepared based upon the
historical unaudited financial statements of Valesc Inc. and OJI Surgical, Inc.
period ended March 31, 2001 and the year ended December 31, 2001 and gives
effect to the merger of the two companies, showing OJI as the "accounting
acquirer" as if the merger occurred on January 1, 2000. The equity accounts of
the combined entities have been presented to reflect the share structure of the
legal acquirer -- Valesc Inc.
The following Pro Forma Condensed financial information is not necessarily
indicative of the actual results of operations that would have been reported if
the events described above had occurred as of January 1, 2000 nor do they
purport to indicate the results of Valesc's future operations. Furthermore, the
pro forma results do not give effect to all cost savings or incremental costs
that may occur as a result of the integration and consolidation of the
companies.
[Download Table]
Three months Twelve months
ended ended
March 31, December 31,
(Unaudited)
-----------------------
2001 2001 2000
------ ------ ----
Revenues $97,533 $ 259,492 $480,690
Cost of Revenues 2,845 11,939 99,315
-------- ---------- ----------
Gross profit 94,688 247,553 381,375
Operating expenses
Merger expense 75,000 75,000 0
Equity-based compensation expense 137,640 172,080 0
Selling, general and administrative
expense 279,722 1,006,370 582,308
--------- ---------- ----------
Total expenses 492,362 1,253,450 582,308
--------- ---------- ----------
Loss from operations (397,674) (1,005,897) (200,933)
Interest expense 601 60,147 0
Income tax expense 0 235 1,352
--------- ---------- ----------
Net loss (398,275) (1,066,279) (202,285)
======== ========== ==========
Net loss per common share - basic
and diluted $(.04) $(.11) $(.02)
Weighted average shares outstanding 10,308,548 9,320,278 8,916,008
F-8
NOTE D - ACCOUNTING POLICIES
1. REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition," to provide guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
The Company's policies on revenue recognition are consistent with this bulletin.
Commission income as a manufacturers' representative on new product sales are
recorded in the period during which the underlying product sale occurs. Product
returns by our customers are rare due to the specialized nature of the product,
and therefore, we have concluded that no material allowance for refundable
commission income on returned products is necessary at March 31, 2002 and
December 31, 2001.
OJI's revenues from product sales and service income are derived from the sale
of new products distributed by the Company, and the refurbishment of used
products. Revenue is recognized as products are delivered to its customers,
which are typically the same customers as commission sales are transacted. As of
the end of 2001, the Company was not distributing any new or refurbished
products, but may in the future.
2. EARNINGS (LOSS) PER SHARE
Basic income (loss) per share for the quarter ended March 31, 2002 is computed
by dividing the income (loss) for the period by the weighted average number of
common shares outstanding income during the period. Diluted income (loss) per
share is computed by dividing the income (loss) for the period by the weighted
average number of common shares adjusted for the dilutive effect of any
potential common shares issuable during the period. The amount of options or
warrants not considered in the income (loss) per share calculation because their
effect was antidilutive was 115,000 and 2,134,000 for the periods ended March
31, 2001 and March 31, 2002, respectively. The amount of options or warrants not
considered in the loss per share calculations because their effect was
antidilative was 2,134,00 and 0 for the years ended December 31, 2001 and 2000,
respectively. Earnings (loss) per share are calculated to present the change in
capital structure for all periods presented. The diluted earnings per share for
the three months ended March 31, 2002 and 2001 includes the effect of 0 and
600,000 potentially dilutive securities, respectively.
3. USE OF ESTIMATES
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 affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates and assumptions. Significant estimates that affect the financial
statements include, but are not limited to, the valuation of options and
warrants granted.
4. CONCENTRATIONS OF CREDIT RISK
Product sales from a relatively few suppliers account for a substantial portion
of the Company's revenues. During the period ended March 31, 2002, product sales
from two suppliers accounted for 82.5% of net sales (47% and 35.5% for each
supplier).
Financial instruments which subject the Company to concentrations of credit risk
consist primarily of cash, notes payable and trade accounts payable. The Company
considers the book values of these investments to be indicative of their
respective fair values.
F-9
5. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with maturities
of 90 days or less when purchased to be cash equivalents.
6. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." SFAS
No. 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
attributable to differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their respective tax bases, and
for operating loss and tax credit carryforwards. A valuation allowance is
recorded if it is more likely than not that some portion or all of a deferred
tax asset will not be realized.
7. LONG-LIVED ASSETS AND IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in operations or
expected to be disposed of when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets. No
impairment losses were recorded during the quarter.
8. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method for financial reporting
purposes, and accelerated methods for tax purposes, over the following estimated
useful lives: Office Equipment 3-7 years
9. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. The Company has
incurred no research and development expenses to date.
10. STOCK-BASED COMPENSATION
As permitted by the Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation", the Company accounts for
stock-based employee compensation arrangements in accordance with provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." Compensation expense for stock options issued to employees is
based on the difference, on the date of grant, between the fair value of the
Company's stock and the exercise price of the option. The Company accounts for
equity instruments issued to nonemployees in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction With Selling, or in Conjunction With Selling, Goods or Services."
All transactions in which goods or services are the consideration received for
the issuance of equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date of the fair value of
the equity instrument issued is the date on which the counterparty's performance
is complete.
F-10
11. MARKETING COSTS
The Company expenses marketing costs as incurred, and amounted to approximately
$110 for the quarter ended March 31, 2002.
12. RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, "Business Combinations",
and SFAS 142 "Goodwill and Tangible Assets". SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
o all business combinations initiated after June 30, 2001 must use the purchase
method of accounting. The pooling of interest method of accounting is prohibited
except for transactions initiated before July 1, 2001.
o intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal rights or
are separable from the acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a related contract, asset
or liability.
o goodwill, as well as intangible assets with indefinite lives, acquired after
June 30, 2001, will not be amortized. Effective September 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives will
no longer be subject to amortization.
o effective September 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an impairment
indicator.
o all acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No.144, "Accounting for the Impairment of Disposal of Long-Lived Assets" ("SFAS
144"). This statement is effective for fiscal years beginning after December 15,
2001. This supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," while retaining many of the requirements of such statement.
Although it is still reviewing the provisions of these Statements, management's
preliminary assessment is that these Statements will not have a material impact
on the Company's financial position or results of operations.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of March 31, 2002, and the
consolidated statements of operations for the three months ended March 31, 2002
and 2001, stockholders' equity for the three months ended March 31, 2002, and
cash flows for the three months ended March 31, 2002 and 2001, are unaudited.
The unaudited interim financial statements have been prepared on the same basis
as the annual financial statements and, in the opinion of management, reflect
all adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position as of March 31, 2002, results of
operations and cash flows as of and for the three months ended March 31, 2002
and 2001. The financial data and other information disclosed in these notes to
the financial statements related to these periods are unaudited. The results for
the three months ended March 31, 2002 are not necessarily indicative of the
results to be expected for the year ending December 31, 2002.
NOTE E - CAPITAL STOCK OF THE COMPANY
Valesc Inc. authorized capital stock consists of 100,000,000 shares of Common
Stock, $.0001 par value per share, and 20,000,000 shares of preferred stock,
$.0001 par value per share. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefore and, in the event of liquidation, to share pro rata in any
distribution of assets after payment of liabilities. The Board of Directors is
not obligated to declare a dividend and it is not anticipated that dividends
will be paid in the foreseeable future. Holders of Common Stock do not have
preemptive rights to subscribe to any of our additional shares. There are no
conversion, redemption, sinking fund or similar provisions regarding the Common
Stock. All of the outstanding shares of Common Stock are fully paid and
non-assessable and all of the shares of Common Stock offered hereby will be,
upon issuance, fully paid and non-assessable. The Company has not designated any
terms for the preferred stock.
On March 21, 2000, Valesc NJ declared a 2:1 stock split. All share and per share
references have been updated to reflect the stock split.
F-11
1. COMMON STOCK ISSUANCES BY VALESC INC.
During 2000, Valesc issued 370,000 shares (as adjusted for the stock split) of
common stock for aggregate net proceeds of $92,500. The shares were offered to
employees, directors, related party investors and non-related investors.
During 2001, Valesc issued 319,303 (as adjusted for the stock split) shares of
common stock for aggregate net proceeds of $94,445. The shares were offered to
employees, directors, related party investors and non-related investors.
During 2001, Valesc issued 266,000 shares of common stock to SMT in connection
with the merger of OJI into the Company, 277,237 shares of common stock in
connection with the merger of Valesc NJ into NetCentral and 70,000 shares of
common stock to consultants for services rendered (See Note E-5).
During January 2002, the Company received an aggregate of $150,000 for issuance
of 500,000 shares of common stock to a single non-related investor. The investor
also received an option to purchase an additional 500,000 shares of common stock
during a period of 3 years, to begin 6 months after the effectiveness of the
Company's registration statement at a price of 30% discount to the market price
of the common stock. Proceeds were used for working capital purposes.
2. WARRANTS
From January 1, 2001 through December 31, 2001, an aggregate of 454,000 warrants
were issued by Valesc in connection with the notes payable with a face value of
$198,000 (See Note F). Proceeds of approximately $128,000 was allocated to these
warrants. The assumptions used in determining the warrant valuation using the
Black-Scholes option pricing model are risk-free interest rate (4.72% and
2.12%), volatility factor (45%), fair value ($0.33) and term of warrants (1 -
2.5 years). Further, for purposes of this calculation the Company assumed the
maximum number of warrants would be issued or exercised at the lowest price
indicated in the terms of the warrant agreement. The terms of these warrants are
summarized as follows:
o 15,000 of these warrants are exercisable at $.25 per share through
December 31, 2003.
o 50,000 of these warrants are exercisable at $.01 per share through
February 1, 2004.
o 100,000 of these warrants are exercisable at $.10 per share through
February 2, 2004.
o The Company also issued warrants with an exercise price of $.01 through
December 19, 2003. The number of shares permitted to be exercised under these
warrants is pre-set based upon the date the note payable is repaid - 120,000 if
repaid prior to February 2, 2002, 150,000 if repaid between February 3, 2002 and
August 1, 2002, and 200,000 if repaid after August 1, 2002.
o 64,000 warrants, with an exercise price of $.01 per share, were issued in
connection with $25,000 of the notes payable. The number of shares permitted to
be exercised under these warrants is pre-set based upon the date the note
payable is repaid - 11,500 if repaid prior to February 2, 2002, 39,000 if repaid
between February 3, 2002 and August 1, 2002, and 64,000 if repaid after August
1, 2002.
o 25,000 warrants, with an exercise price of $.33 per share were issued in
connection with $25,000 of notes payable. These warrants, which will not be
registered, vest immediately and are exercisable through October 3, 2004.
In January 2002, the Company issued 50,000 warrants to a consultant of the
Company for services rendered, exercisable at $.333 per share through Janaury 1,
2007. One half of the warrants vest upon the filing of this registration
statement, the remaining half vests 10 days after shares of Company stock begins
trading.
F-12
3. STOCK OPTION PLAN
On April 6, 2001, the Company adopted a Stock Option Plan (the "Option Plan").
The Option Plan authorized the granting of both incentive and nonqualified stock
options to employees for up to 1,500,000 shares of common or preferred stock to
officers, directors and key employees. The objectives of the Option Plan include
attracting and retaining the best personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees with the opportunity to acquire both Common and Preferred Stock.
Options under the company's Option Plan generally vest over a four-year period,
and generally expire ten years after the grant date.
As discussed in Note H-2, on January 1, 2001, 900,000 stock options were granted
pursuant to employment contracts. 300,000 of the granted shares become
exercisable on each of December 31, 2001, 2002 and 2003. There were no options
exercised or forfeited through March 31, 2002. The exercise price of the
first-year element of the stock option grant is below the fair value of the
company's stock, therefore a 2001 compensation charge of $75,000, computed under
the intrinsic value method, was recognized over the one-year vesting period. The
second and third-year elements contain an exercise price at or above the fair
value of the company's stock at the date of grant and therefore no compensatory
charge has been recorded.
The fair value of each option grant is estimated on the date of grant using the
Black Scholes Option pricing model with the following assumptions used: dividend
yield of 0%, expected volatility of 45%, risk-free interest rate of 4.72% and
expected life of 10 years.
4. OTHER STOCK OPTIONS
Valesc Inc. recorded expenses of $38,000 and $218,000 in the periods ended
December 31, 2000 and 2001, respectively, for expenses incurred by several
consultants, representing the estimated fair value of the services rendered. In
March 2001 the company issued equity instruments in lieu of cash for such
expenses incurred. The company initially issued 512,700 shares to such
consultants pursuant to cashless-exercise agreements entered into to discharge
the liabilities. In September 2001, the Company informed the consultants that
the agreements were invalid and required revision. All but 78,000 of the
initially issued shares were rescinded or cancelled. The Company continues to
carry the costs of these services in accrued expenses for those consultants
whose shares were rescinded or cancelled. The consultants who agree to retain
70,000 of the 78,000 shares were required to enter into a promissory note
(bearing interest at 3% per annum, commencing six months after issuance) to the
Company for the fair value ($.33) of the shares granted. The promissory note
requires payment of amounts due the Company upon sale of the underlying shares
by the holder. The consultant holding 8,000 of such shares paid the Company for
the shares in July 2001.
5. THE INVESTMENT AGREEMENT WITH SWARTZ
On June 7, 2001 as amended on August 29, 2001 and September 26, 2001 the Company
entered into an Investment Agreement with Swartz Private Equity, LLC ("Swartz")
under which the Company, from time to time, has the option to issue Swartz
shares of Common Stock up to a maximum aggregate offering amount of $20,000,000.
Under the Investment Agreement, shares are issued to Swartz, and Swartz pays for
the shares in transactions referred to as Puts. The Company has the right, at
its sole discretion, to put shares of its Common Stock, to Swartz, which Swartz
must purchase, for a dollar amount of up to $2.0 million in each Put, subject to
additional limitations on the timing of our exercise of Put rights and on the
number of shares Swartz is obligated to purchase. The Company's right to Put
shares to Swartz is for a period of three years beginning on the effective date
of the registration statement.
The purchase price to be paid for the Put Shares by Swartz is equal to the
lesser of (i) the Market Price (as defined below), minus $.09, or (ii) 91% of
the Market Price. The Market Price for each Put equals the average of the two
lowest volume weighted average trading prices of the shares of Common Stock
during the Pricing Period (as defined below) for the applicable Put. The Pricing
Period means, unless otherwise shortened under the terms of the Investment
Agreement, the period beginning on the business day immediately following the
Put Date (as defined below) and ending on and including the date which is 20
business days after such Put Date. The Put Date is the date that is specified in
a written notice delivered to Swartz (the Put Notice) in which the Company
notifies Swartz of our intention to commence a Put.
F-13
The Company has the option, on the date of notification to Swartz of a Put, to
designate a minimum price for the shares to be purchased by Swartz in the Put
which is no greater than the lesser of 80% of the closing bid price of our
Common Stock on the day preceding the notice or the closing bid price on that
day minus $.14. If the Company designates a minimum price, Swartz must pay at
least that price for our Common Stock.
As consideration for entering into the Investment Agreement, the Company granted
to Swartz a warrant to purchase 780,000 shares of our Common Stock (the
Commitment Warrants). The exercise price for the Commitment Warrants is: $1.00,
provided that on the date six months after the date of issuance of the warrants,
or October 24, 2001, and on each six month anniversary thereafter, the exercise
price is subject to adjustment based on the lowest closing price for the five
trading days preceding the adjustment.
For financial reporting purposes, the Company computed the value of the warrant
using the Black-Scholes model and assuming a $1.00 exercise price. The resultant
value is considered a deferred offering cost and will be amortized over the life
of the equity agreement. To the extent the exercise price per share is adjusted
pursuant to the formulas mentioned above, the Company will record additional
deferred offering costs.
The Put Shares have demand registration rights and the Commitment Warrants have
piggyback registration rights, semi-annual reset provisions and a 5-year term.
The Swartz agreement contains certain penalties if the Company does not execute
minimum financings under this agreement.
On May 21, 2002 we terminated the Investment Agreement after withdrawing the
registration statement for the Swartz shares from filing with the SEC.
6. TRANSACTION WITH GARRETT MILLER
In January 2001, Valesc entered into an agreement with Garrett Miller, an
officer in the Company, whereby he would exchange purchased shares and earned
(through investment commissions and equity-based compensation) shares of Valesc
Inc. for shares of Atlas Holdings. Valesc recorded a charge to operations of
approximately $84,000 related to the equity-based compensation, during 2001,
prior to the date of the Valesc/OJI merger.
NOTE F - NOTES PAYABLE
The principal amount of the notes payable issued by Valesc Inc. mature as
follows:
$130,000 in 2002 and
$ 68,000 in 2003
1. RELATED PARTY NOTES
During the period ended December 31, 2001, the Company received advances from
related parties aggregating $78,000. These notes included detachable warrants as
summarized in Note E-2. These loans bear interest at a rate of 14% per annum,
none of which has been paid to date. Each of the notes are guaranteed by the
company's officers and directors. Of the total proceeds of this financing,
approximately $49,200 was allocated to warrants (Note E).
2. NON-RELATED PARTY NOTES
During the year ended December 30, 2001, the Company issued notes to non-related
parties aggregating $120,000. One loan ($5,000) bears interest at a rate of 10%
per annum, and the second loan ($100,000) and third loans ($15,000) bear
interest at a rate of 14% per annum, none of which has been paid to date.
$100,000 of these notes are due in December 2002, $5,000 due in September 2001,
and $15,000 due May 23, 2003. Payment of these notes are guaranteed by the
company's officers and directors. These notes included detachable warrants. Of
the total proceeds of this financing, approximately $78,500 was allocated to
warrants (Note E).
F-14
The note due in September 2001, has not been extended, however, the Company has
received a verbal agreement from the noteholder that it will not attempt to
enforce payment.
NOTE G - INCOME TAXES
At December 31, 2001, Valesc Inc. has deferred organizational costs and net
operating loss carryforward of approximately $1,200,000. Deferred tax assets
arise from these net operating loss carryforwards, organization costs and
certain accruals are approximately $660,000. The Company has fully reserved all
deferred tax assets due to the uncertainty of realization.
OJI is a cash basis taxpayor. The tax expense of OJI consists of the following
current taxes:
2001 2000
---- ----
Federal $ 68 $1,227
State 167 125
------ ------
Total $ 235 $1,352
====== ======
OJI's effective tax rate for the years ended December 31, 2001 and December 31,
2000 are lower than the statutory rate because companies with taxable income of
this size have a lower Federal tax rate and because of the reversal of
previously recorded valuation allowances on deferred tax asseets. Deferred
income tax assets resulting from the conversion from the accrual basis to the
cash basis are approximately $300 and $3,000 at December 31, 2001 and 2000,
respectively. The deferred income tax assets have been fully reserved due to the
uncertainty of realization.
Changes in ownership resulting from transactions among our stockholders and
sales of common stock by us, may limit annual realization of the tax net
operating loss carryforwards that could become available under Section 382 of
the Internal Revenue Code.
NOTE H - COMMITMENTS AND CONTINGENCIES
1. LEASES
Valesc leased office space under an operating lease that expired in June 2001.
OJI leased office space under a lease which expired in March 2001. The Company
did not lease any office space at December 31, 2001. The Company's OJI
subsidiary has entered into a lease agreement beginning March 1, 2002 which will
result in a monthly rent expense of $880 beginning in April 2002.
2. EMPLOYMENT AGREEMENTS
Effective January 1, 2001, the Company entered into employment agreements with
each of the three executive officers containing identical terms. The agreements
are summarized as follows: (A) initial term of three years, with automatic
one-year renewal terms thereafter; (B) during each year of the first three
years, each executive shall receive: (i) during the first year, an annual base
salary equal to the greater of (a) $50,000 or (b) 2.5% of the total revenue of
the Company and its subsidiaries for such year, up to a maximum of $150,000;
(ii) during the second year, an annual base salary equal to the greater of (a)
$55,000 or (b) 2.5% of the total revenue of the Company and its subsidiaries for
such year, up to a maximum of $165,000; and (iii) during the third year, an
annual base salary equal to the greater of (a) $60,500 or (b) 2.5% of the total
revenue of the Company and its subsidiaries for such year, up to a maximum of
$181,500; (C) the Board of Directors may consider one or more increases in the
salary payable to the executive in respect of any renewal term; (D) in the event
the Company is not in a position, due to our then-current financial situation,
to make any salary payment(s) to the executives, the unpaid salary shall accrue
without interest; (E) all accrued and unpaid salary shall be immediately due and
payable upon the occurrence of any change of control, defined as the sale of a
controlling interest in the Company's capital stock to one or more buyers acting
in concert, the sale of all or substantially all of our assets, or any corporate
merger or consolidation resulting in one or more parties, who did not previously
hold a controlling interest in our capital stock, owning a controlling interest
in our capital stock or our successor company; (F) the executives shall be
eligible to participate in bonuses awarded to senior management to the extent
that such bonuses are awarded or authorized by the Board of Directors from time
to time.
In addition to the foregoing, each executive will be granted the option to
purchase a total of 300,000 shares of Common Stock in equal installments of
100,000 shares at the end of each year of employment. The options shall be
exercisable for a period of three years following the date of vesting, and the
exercise price shall be as follows: (i) $.25 per share for the 100,000 shares
that vest after the first year; (ii) $.50 per share for the 100,000 shares that
vest after the second year; and (iii) $.75 per share for the 100,000 shares that
vest after the third year. In the event the executive is terminated without
cause by Company or the executive terminates his employment for good reason, any
options then outstanding that have neither vested nor been terminated as of such
date shall vest and become subject to purchase by the executive.
F-15
Effective January 1, 2002 and in connection with our acquisition of OJI
Surgical, Inc., OJI entered into an employment agreement with its President,
Harry Kraus. The agreement provides as follows: (A) an initial term of one year,
with automatic one-year renewal terms thereafter; (B) a monthly salary of
$10,800; (C) all accrued and unpaid salary shall be immediately due and payable
upon the occurrence of any "change of control", defined as the sale of a
controlling interest in OJI's capital stock to one or more buyers acting in
concert, the sale of all or substantially all of our assets, or any corporate
merger or consolidation resulting in one or more parties, who did not previously
hold a controlling interest in OJI's capital stock, owning a controlling
interest in OJI's capital stock; and (D) the executive shall be eligible to
participate in bonuses awarded to senior management to the extent that such
bonuses are awarded or authorized by the Board of Directors of OJI from time to
time.
3. LITIGATION
A shareholder of a predecessor of Atlas Holdings filed a suit against the
predecessor company seeking additional stock ownership of Atlas Holdings. The
case was dismissed for failure to prosecute. Management of Atlas believes there
are valid and meritorious defenses to such claim, if the suit is re-filed.
NOTE I - BANK LOANS
On June 10, 1997, OJI entered into a bank line of credit for maximum borrowings
of $100,000. The line of credit was repaid in full and the agreement terminated
in March 2001. Interest was payable at prime + 2.5% (12% at December 31, 2000).
All assets of OJI were pledged as collateral for the line of credit. At
December 31, 2000, the Company had no borrowings under its bank line of credit.
Harry Kraus served as the guarnator of the line of credit.
OJI financed its vehicle purchase with a note payable, secured by the vehicle.
OJI made monthly payments of $764, including interest at 6.9%. The final payment
was made in October, 2000.
NOTE J - SUBSEQUENT EVENTS
During April and June 2002, the Company received an aggregate of $75,000 for
issuance of 187,500 shares of common stock to two non-related investors. The
investors also received options to purchase an additional 87,500 shares of
common stock during a period of 3 years, to begin 6 months after the
effectiveness of the Company's registration statement at a price of 30% discount
to the market price of the common stock. Proceeds were used for working capital
purposes.
On May 20, 2002, Atlas Holdings Inc., the holder of 82.8% of our
stock on such date, was merged into us. Pursuant to the merger (a) each issued
and outstanding share of the stock of Atlas was exchanged for 986.12568 shares
of our common stock, for a total of 8,458,000 shares of our common stock to the
Atlas shareholders, and (b) 8,458,000 shares of our common stock owned by Atlas
prior to the merger were cancelled. Jeremy Kraus, our Chairman and Chief
Executive Officer, Garrett Miller, our Vice President and Director, Samuel
Cohen, our President and Director, and Harry Kraus, the President of our
subsidiary, OJI Surgical, Inc. and a Director, owned 41%, 25%, 25% and 2%,
respectively, of Atlas before the merger. As a result of the merger, they now
beneficially own 34%, 21%, 21% and 2%, respectively, of our common stock. Each
of the foregoing officers and Edward Kraus, who now owns 4.6% of our common
stock, executed a shareholders agreement prohibiting transfers of shares except
in certain circumstances and in limited amounts. The agreement also provides a
right of first refusal in favor of the Company to purchase shares proposed to be
transferred, which right is assignable to the other parties to the agreement at
the discretion of the Company.
On June 7, 2001, we entered into an equity line transaction under an
Investment Agreement with Swartz Private Equity, which was amended and restated
as of August 29, 2001 and September 26, 2001. The Investment Agreement entitled
us to sell up to $20 million of our common stock to Swartz, subject to a formula
based on our stock price and trading volume, from time to time over a three year
period following the effective date of a registration statement covering the
Swartz stock. We filed Amendment No. 2 of a registration statement on Form SB-2
covering the Swartz stock on March 25, 2002, but withdrew the registration
statement on April 26, 2002. We were informed by the Commission that a
"completed private placement" would be deemed not to have occurred in connection
with an equity line transaction in cases where no market exists for the
underlying securities at the time of registration. Because no market currently
exists for our securities, we requested withdrawal. No shares of common stock of
the Company were issued or sold under the Swartz registration statement. On May
21, 2002, we terminated the Investment Agreement. We may enter into another
equity line transaction with Swartz after such time as our shares are traded on
the OTC Bulletin Board.
F-16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to our Restated Certificate of Incorporation and our
By-Laws, we are authorized to indemnify and hold harmless any person who was or
is our director, officer, employee or agent, or such other person acting at the
request of the foregoing, from and against liability incurred as a result of the
fact that he or she is or was our director, officer, employee or agent, or such
other person acting at the request of the foregoing. The permitted
indemnification is to the full extent permitted by the Delaware General
Corporation Law ("GCL"). Under the GCL, a corporation may indemnify any of the
foregoing persons as long as he or she was acting, in good faith, in the best
interests of the corporation, and the corporation does not have reason to
believe that the actions taken were unlawful.
Pursuant to our By-Laws, in derivative actions, indemnification is
not permitted in the event that our director, officer, employee or agent is
adjudged liable to us unless, and only to the extent that, the Delaware Court of
Chancery or the court in which the action was brought so determines.
Our Restated Certificate of Incorporation also permits us to
indemnify our directors except in the event of (i) a breach of the duty of
loyalty to us or our stockholders, (ii) an act or omission not in good faith or
that involves intentional misconduct or a knowing violation of law, (iii)
liability arising under Section 174 of the GCL, relating to unlawful stock
purchases, redemptions, or payment of dividends, or (iv) a transaction from
which the director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers, or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering are estimated as follows:
Attorneys Fees $35,000
Accountants Fees $15,000
Registration Fees $ 125
Blue Sky Fees (including counsel fees) $ 0
Transfer Agent Fees $ 500
Printing $ 3,000
Advertising $ 0
Other Expenses $ 2,000
--------
Total $55,625
No fees or expenses are being paid by any of the Warrant Investors or
the Selling Investors. We presently do not have any directors and officers
liability insurance.
-31-
RECENT SALES OF UNREGISTERED SECURITIES
In connection with our formation on June 2, 2000, we issued a total
of 5,000,000 unregistered shares of common stock to DotCom Internet Ventures
Ltd. for services rendered by DotCom Internet Ventures to us, which amount was
split on a 277,237 for 5,000,000 basis in March 2001. William Tay, our sole
officer, director and shareholder from the time of formation until the March 22,
2001 merger, was the sole director, controlling shareholder and president of
DotCom Internet Ventures. We relied upon Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 promulgated thereunder for this transaction.
In connection with loans provided to us during the period from March
22, 2001 through October 2001, we issued warrants to the Warrant Investors for
the purchase of up to 454,000 shares of common stock. The terms of each loan
transaction are set forth in "SELLING STOCKHOLDERS--WARRANT INVESTORS." Each
such transaction was accomplished in reliance upon Section 4(2) of the
Securities Act. The facts relied upon for exemption are that each of the Warrant
Investors was an accredited investor, each was a sophisticated purchaser and
each had full access to the information on us necessary to make an informed
investment decision by virtue of the due diligence conducted by the purchaser or
available to the purchaser prior to the transaction.
In connection with (i) investments in us during the period from April
24, 2001 through January 28, 2002, (ii) the exchange of our shares for shares of
Valesc Inc., a New Jersey corporation that we acquired on March 22, 2001, and
(iii) the exchange of our shares for shares of Atlas Holdings Inc., a New Jersey
corporation we acquired on May 20, 2002, we issued a total of 807,948
unregistered shares of common stock to the Selling Investors. The terms of each
sale or exchange are set forth in "SELLING STOCKHOLDERS-- SELLING INVESTORS."
Each such sale or exchange was accomplished in reliance upon Section 4(2) of the
Securities Act. The facts relied upon for exemption are that each of the Selling
Investors was an accredited investor, each was a sophisticated purchaser and
each had full access to the information on us necessary to make an informed
investment decision by virtue of the due diligence conducted by the purchaser or
available to the purchaser prior to the transaction.
On March 22, 2001, we issued 8,458,008 shares of common stock to
Atlas Holdings Inc. pursuant to a Merger Agreement dated March 2, 2001 between
Valesc NJ and NetCentral. The sale was accomplished in reliance upon Section
4(2) of the Securities Act. The facts relied upon for exemption are that Atlas
Holdings was an accredited investor, a sophisticated purchaser and had full
access to the information on us necessary to make an informed investment
decision by virtue of the due diligence conducted by the purchaser or available
to the purchaser prior to the transaction. At the time, Jeremy Kraus, our
Chairman and Chief Executive Officer, Samuel Cohen, our President, and Garrett
Miller, our Vice President, owned 50%, 25% and 12.5%, respectively, of Atlas
Holdings.
On December 17, 2001, we issued 266,000 shares of common stock to SMT
Enterprises Corporation ("SMT") pursuant to a Share Purchase Agreement dated
December 3, 2001 between us, SMT and OJI Surgical, Inc. The sale was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that SMT was an accredited investor, a
sophisticated purchaser and had full access to the information on us necessary
to make an informed investment decision by virtue of the due diligence conducted
by the purchaser or available to the purchaser prior to the transaction. At the
time, Jeremy Kraus, our Chairman and Chief Executive Officer, Samuel Cohen, our
President, and Garrett Miller, our Vice President, owned 8.5%, 4.25% and 2.12%,
respectively, of SMT through Atlas Holdings Inc.
On September 17, 2001, we sold 15,000 shares of our common stock to
Virginia Linde at $.33 per share. The sale was accomplished in reliance upon
Section 4(2) of the Securities Act. The facts relied upon for exemption are that
Ms. Linde was an accredited investor, a sophisticated purchaser and had full
access to the information on us necessary to make an informed investment
decision by virtue of the due diligence conducted by the purchaser or available
to the purchaser prior to the transaction.
On October 24, 2001, we sold 75,000 shares of our common stock to
Carpenter Dewey at $.33 per share. The sale was accomplished in reliance upon
Section 4(2) of the Securities Act. The facts relied upon for exemption are that
Mr. Dewey was an accredited investor, a sophisticated purchaser and had full
access to the information on us necessary to make an informed investment
decision by virtue of the due diligence conducted by the purchaser or available
to the purchaser prior to the transaction.
On October 3, 2001, Harry Kraus loaned us $25,000 pursuant to a
Debenture and Warrant Purchase Agreement with an interest rate of 14%. The
agreement provides warrants for the purchase of up to 25,000 shares of common
stock at $.33 per share, exercisable until October 3, 2003. The sale was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that Mr. Kraus was an accredited investor, a
sophisticated purchaser and had full access to the information on us necessary
to make an informed investment decision by virtue of the due diligence conducted
by the purchaser or available to the purchaser prior to the transaction.
On January 1, 2002, we issued options for the purchase of 50,000
shares of our common stock to Hecht & Associates, P.C. The options are
exercisable until January 1, 2007. One half of the options vested on January 11,
2002 and the remaining one half vest 10 days after the date on which our shares
begin trading. The options are exercisable at $.333 per share, subject to
downward adjustment based upon the average trading price for the 10 days after
the date on which our shares begin trading. The issuance of the options was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that Hecht & Associates, P.C. was an accredited
investor, a sophisticated purchaser and had full access to the information on us
necessary to make an informed investment decision by virtue of the due diligence
conducted by the purchaser or available to the purchaser prior to the
transaction.
On January 28, 2002, we sold 500,000 shares of our common stock to
Century Goal Holding Ltd. for $150,000, or $.30 per share, with options for the
purchase of 500,000 additional shares. The options are not exercisable until six
months after our registration statement currently on file with the Commission is
declared effective and expire on February 1, 2005. The options are exercisable
at a price equal to 70% of the average closing price of our common stock in the
ten trading days prior to the exercise date. The sale of the shares and options
was accomplished in reliance upon Regulation S promulgated under the Securities
Act. The facts relied upon for the exemption were that the beneficial owner was
a non-U.S. person as defined under the Securities Act.
On April 29, 2002, we sold 75,000 shares of our common stock to Tim
Kain for $30,000, or $.40 per share, with options for the purchase of 75,000
additional shares. The options are not exercisable until six months after our
registration statement currently on file with the Commission is declared
effective and expire on May 1, 2005. The options are exercisable at a price
equal to 70% of the average closing price of our common stock in the ten trading
days prior to the exercise date. The sale of the shares and options was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that Tim Kain is an accredited investor, a
sophisticated purchaser and had full access to the information on the registrant
necessary to make an informed investment decision by virtue of the due diligence
conducted by the purchaser or available to the purchaser prior to the
transaction.
On May 8, 2002, we sold 12,500 shares of our common stock to Matt
Williams, an unrelated investor, for $5,000, or $.40 per share, with options for
the purchase of 12,500 additional shares. The options are not exercisable until
six months after our registration statement currently on file with the
Commission is declared effective and expire on May 1, 2005. The options are
exercisable at a price equal to 70% of the average closing price of our common
stock in the ten trading days prior to the exercise date. The sale of the shares
and options was accomplished in reliance upon Section 4(2) of the Securities
Act. The facts relied upon for exemption are that Matt Williams is an accredited
investor, a sophisticated purchaser and had full access to the information on us
necessary to make an informed investment decision by virtue of the due diligence
conducted by the purchaser or available to the purchaser prior to the
transaction.
On May 20, 2002, Atlas Holdings Inc., the holder of 82.8% of our
stock on such date, was merged into us. Pursuant to the merger (a) each issued
and outstanding share of the stock of Atlas was exchanged for 986.12568 shares
of our common stock, for a total of 8,458,000 shares of our common stock to the
Atlas shareholders, and (b) 8,458,000 shares of our common stock owned by Atlas
prior to the merger were cancelled. Jeremy Kraus, our Chairman and Chief
Executive Officer, Garrett Miller, our Vice President and Director, Samuel
Cohen, our President and Director, and Harry Kraus, the President of our
subsidiary, OJI Surgical, Inc. and a Director, owned 41%, 25%, 25% and 2%,
respectively, of Atlas before the merger. As a result of the merger, they now
beneficially own 34%, 21%, 21% and 2%, respectively, of our common stock. The
exchange of shares was accomplished in reliance upon Section 4(2) of the
Securities Act. The facts relied upon for exemption are that each of the Atlas
shareholders is an accredited investor, a sophisticated purchaser and had full
access to the information on us necessary to make an informed investment
decision by virtue of the due diligence conducted by the shareholder or
available to the shareholder prior to the transaction.
On April 24, 2001, as consideration for making a financing commitment
to us, Swartz Private Equity was issued the Commitment Warrants, subsequently
amended with an issue date of May 21, 2002, to purchase 780,000 shares of our
common stock. The exercise price for the Commitment Warrants is $1.00 per share,
provided that on each six month anniversary of the issue date of May 21, 2002,
if the shares are trading at that time, the exercise price is subject to
adjustment based on the lowest closing price for the five trading days preceding
the adjustment. The issuance of the warrants was accomplished in reliance upon
Section 4(2) of the Securities Act. The facts relied upon for exemption are that
Swartz is an accredited investor, a sophisticated purchaser and had full access
to the information on us necessary to make an informed investment decision by
virtue of the due diligence conducted by the purchaser or available to the
purchaser prior to the transaction.
On June 14, 2002, we sold 37,500 shares of our common stock to Mark
Walsh, an unrelated investor, for $15,000, or $.40 per share, with options for
the purchase of 37,500 additional shares. The options are not exercisable until
six months after our registration statement currently on file with the
Commission is declared effective and expire on June 1, 2005. The options are
exercisable at a price equal to 70% of the average closing price of our common
stock in the ten trading days prior to the exercise date. The sale of the shares
and options was accomplished in reliance upon Section 4(2) of the Securities
Act. The facts relied upon for exemption are that Mark Walsh is an accredited
investor, a sophisticated purchaser and had full access to the information on us
necessary to make an informed investment decision by virtue of the due diligence
conducted by the purchaser or available to the purchaser prior to the
transaction.
On June 21, 2002, we sold 62,500 shares of our common stock to Brian
Kraus for $25,000, or $.40 per share, with options for the purchase of 62,500
additional shares. The options are not exercisable until six months after our
registration statement currently on file with the Commission is declared
effective and expire on June 1, 2005. The options are exercisable at a price
equal to 70% of the average closing price of our common stock in the ten trading
days prior to the exercise date. The sale of the shares and options was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that Brian Kraus is an accredited investor, a
sophisticated purchaser and had full access to the information on us necessary
to make an informed investment decision by virtue of the due diligence conducted
by the purchaser or available to the purchaser prior to the transaction.
-32-
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post- effective amendment to this
registration statement:
i. To include any prospectus required by Section
10(a)(3) of the Securities Act;
ii. 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;
and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement;
iii. To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act, 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;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
The undersigned Registrant hereby further undertakes:
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
-33-
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Plano,
State of Texas on June 27, 2002.
VALESC INC.
By: /S/ JEREMY KRAUS
--------------------
Jeremy Kraus
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the dates indicated.
/S/ SAMUEL COHEN
--------------------------------- June 27, 2002
Samuel Cohen
Director and President
(chief financial and accounting officer)
/S/ GARRETT MILLER
--------------------------------- June 27, 2002
Garrett Miller
Director and Vice President
/S/ HARRY KRAUS
---------------------------------- June 27, 2002
Harry Kraus
Director
-34-
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Index of exhibits required by Item 601 of Regulation S-B:
2.1 Merger Agreement dated as of March 21, 2001 between Valesc
Inc. and NetCentral Capital Fund, Inc. (filed as part of our
Form 8-K filed on March 23, 2001 and incorporated herein by
reference);
2.2 Share Purchase Agreement dated December 3, 2001 between Valesc
Inc., SMT Enterprises Corporation and OJI Surgical, Inc. for
the acquisition of OJI by Valesc (filed as part of our Form
8-K filed on December 21, 2001 and incorporated herein by
reference);
2.3 Merger Agreement dated May 20, 2002 between Valesc Inc. and
Atlas Holdings Inc. (filed as part of our Form 8-K filed on
May 22, 2002 and incorporated herein by reference);
3.1 Amended and Restated Certificate of Incorporation (filed as
part of our Form 8-K filed on March 23, 2001 and incorporated
herein by reference);
3.2 Amended and Restated By-Laws (filed as part of our Form 8-K
filed on March 23, 2001 and incorporated herein by reference);
4.1 Specimen Certificate for Common Stock;
5.1 Opinion of Hecht & Associates, P.C., regarding legality;
10.1 2001 Stock Option Plan (filed as part of our Form S-8 filed
April 6, 2001 and incorporated herein by reference);
10.2 Amended and Restated Employment Agreement between Valesc Inc.
and Jeremy Kraus dated January 1, 2002;
10.3 Amended and Restated Employment Agreement between Valesc Inc.
and Samuel Cohen dated January 1, 2002;
10.4 Amended and Restated Employment Agreement between Valesc Inc.
and Garrett Miller dated January 1, 2002;
10.5 Amended and Restated Employment Agreement between OJI
Surgical, Inc. and Harry Kraus dated January 1, 2002;
10.6 Manufacturer's Representative Agreement dated June 1, 1996, as
amended, between OJI Surgical, Inc., and Acumed, Inc.;
10.7 Sales Representative Agreement dated July 1, 2000, between
Harry Kraus, as representative, and Smith & Nephew, Inc.;
10.8 Sales Representative Agreement dated July 2, 2000, between
Harry Kraus, as representative, and Smith & Nephew
Orthopaedics;
10.9 Sales Representation Agreement dated March 1, 2002 between OJI
Surgical, Inc./Harry Kraus and Hand Innovations, Inc. (filed
as part of our Form 10-QSB filed on May 15, 2002 and
incorporated herein by reference);
10.10 Lease dated as of February 13, 2002 between Harry Kraus and
OJI Surgical, Inc., and American Property Management Corp.
(filed as part of our Form 10-QSB filed on May 15, 2002 and
incorporated herein by reference);
10.11 Second Amended Commitment Warrant to Purchase Common Stock
between Valesc Inc. and Swartz Private Equity, L.L.C. with an
issue date of May 21, 2002;*
10.12 Shareholders Agreement dated May 21, 2002 by and among Valesc
Inc., Harry Kraus, Edward Kraus, Jeremy Kraus, Garrett Miller
and Samuel Cohen;*
10.13 Termination Agreement dated May 21, 2002 by and between Valesc
Inc. and Swartz Private Equity, LLC;*
21.1 Subsidiaries of the Registrant;
23.1 Consent of counsel to the use of the opinion annexed at
Exhibit 5.1 is contained in the opinion;
23.2 Consent of Certified Public Accountants for use of their
report.
* Previously filed with this Registration Statement on May 24, 2002.
-35-
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
---|
This ‘SB-2/A’ Filing | | Date | | First | | Last | | | Other Filings |
---|
| | |
| | 1/1/07 | | 29 | | 49 |
| | 6/1/05 | | 49 |
| | 5/1/05 | | 49 |
| | 3/31/05 | | 19 |
| | 2/1/05 | | 49 |
| | 10/3/04 | | 43 |
| | 2/2/04 | | 43 |
| | 2/1/04 | | 43 |
| | 12/31/03 | | 26 | | 44 |
| | 12/19/03 | | 43 |
| | 10/3/03 | | 29 | | 49 |
| | 5/23/03 | | 45 | | | | | 10QSB |
| | 3/31/03 | | 19 | | | | | 10QSB, DEF 14A, NT 10-K, NT 10-Q |
| | 2/1/03 | | 29 | | 30 |
| | 12/31/02 | | 26 | | 44 | | | 10KSB, NT 10-K |
| | 9/1/02 | | 42 |
| | 8/1/02 | | 43 | | | | | SB-2/A |
Filed on: | | 6/27/02 | | 1 | | 51 |
| | 6/21/02 | | 49 |
| | 6/20/02 | | 9 | | 27 |
| | 6/19/02 | | 22 |
| | 6/14/02 | | 49 |
| | 5/24/02 | | 52 | | | | | 10KSB/A, SB-2 |
| | 5/22/02 | | 52 | | | | | 8-K |
| | 5/21/02 | | 15 | | 52 |
| | 5/20/02 | | 12 | | 52 | | | 8-K |
| | 5/17/02 | | 22 |
| | 5/15/02 | | 52 | | | | | 10QSB |
| | 5/8/02 | | 49 |
| | 4/29/02 | | 49 |
| | 4/26/02 | | 2 | | 47 | | | RW |
| | 3/31/02 | | 6 | | 44 | | | 10QSB, 10QSB/A, 5 |
| | 3/25/02 | | 20 | | 47 | | | SB-2/A |
| | 3/8/02 | | 30 | | 32 |
| | 3/1/02 | | 46 | | 52 |
| | 2/13/02 | | 52 |
| | 2/3/02 | | 43 |
| | 2/2/02 | | 43 |
| | 1/28/02 | | 49 |
| | 1/11/02 | | 29 | | 49 | | | 8-K/A, SB-2/A |
| | 1/1/02 | | 27 | | 52 | | | 4 |
| | 12/31/01 | | 7 | | 46 | | | 10KSB, 10KSB/A |
| | 12/30/01 | | 45 |
| | 12/21/01 | | 52 | | | | | 8-K |
| | 12/17/01 | | 6 | | 49 | | | 8-K/A |
| | 12/15/01 | | 42 |
| | 12/3/01 | | 49 | | 52 |
| | 10/24/01 | | 12 | | 49 |
| | 10/3/01 | | 11 | | 49 |
| | 9/27/01 | | 2 | | | | | SB-2 |
| | 9/26/01 | | 20 | | 47 |
| | 9/17/01 | | 12 | | 49 |
| | 9/5/01 | | 28 | | | | | 8-K, 8-K/A |
| | 8/29/01 | | 20 | | 47 |
| | 8/23/01 | | 28 |
| | 8/13/01 | | 11 |
| | 7/26/01 | | 29 |
| | 7/20/01 | | 42 |
| | 7/1/01 | | 42 |
| | 6/30/01 | | 42 | | | | | 10-Q, 10QSB/A, NT 10-Q |
| | 6/8/01 | | 12 |
| | 6/7/01 | | 20 | | 47 |
| | 4/24/01 | | 12 | | 49 |
| | 4/20/01 | | 11 | | 30 |
| | 4/6/01 | | 44 | | 52 | | | S-8 |
| | 4/1/01 | | 27 |
| | 3/31/01 | | 17 | | 42 | | | 10QSB, 10QSB/A, 5 |
| | 3/23/01 | | 11 | | 52 | | | 8-K |
| | 3/22/01 | | 12 | | 49 | | | 8-K, 8-K/A |
| | 3/21/01 | | 37 | | 52 | | | 4 |
| | 3/2/01 | | 26 | | 49 | | | 10KSB |
| | 1/1/01 | | 26 | | 46 |
| | 12/31/00 | | 17 | | 47 | | | 10KSB, 10KSB/A, 5 |
| | 11/14/00 | | 12 |
| | 10/24/00 | | 26 | | 37 |
| | 9/5/00 | | 21 | | | | | 10SB12G |
| | 7/20/00 | | 24 |
| | 7/2/00 | | 52 |
| | 7/1/00 | | 52 |
| | 6/2/00 | | 7 | | 49 |
| | 3/21/00 | | 42 |
| | 1/1/00 | | 34 | | 39 |
| | 6/10/97 | | 47 |
| | 6/1/96 | | 30 | | 52 |
| List all Filings |
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