As filed with the Securities and Exchange Commission on September 14, 2005
Registration Number __________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formerly IN VIVO MEDICAL DIAGNOSTICS, INC.)
(Name of Small Business Issuer in its Charter)
Colorado 3841 84-1579760
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer)
incorporation or organization) Classification Code Number) Identification No.
The Green House, Beechwood Business Park North
Inverness, Scotland IV2 3BL
011 44-1463-667-347
(Address and telephone number of principal executive offices)
John Fuller
Chief Executive Officer
The Green House
Beechwood Business Park North
Inverness, Scotland IV2 3BL
011 44-1463-667-347
(Name, address and telephone number of agent for service)
Copies to:
Richard A. Friedman, Esq. .
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
Tel: (212) 930-9700
Fax: (212) 930-9725
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, 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(d) under
the Securities Act, check the following box and list the Securities Act
registration 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. |_|
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share(1) Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value 2,467,791 $ 0.25 $ 616,947.75 $ 72.61
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value(2) 473,538 $ 0.25 $ 118,384.50 $ 13.93
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value(3) 9,422,816 $ 0.25 $ 2,355,704 $ 277.26
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value(4) 50,000,000 $ 0.25 $ 12,500,000 $ 1,471.25
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par value(5) 278,818 $ 0.25 $ 69,704.50 $ 8.20
- ---------------------------------------------------------------------------------------------------------------
Total 62,642,964 $ 0.25 $ 15,660,740 $ 1,843.27
- ---------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. The average of the
high and low price per share of the Registrant's Common Stock on the Over the
Counter Bulletin Board as of September 12, 2005 was $0.25 per share.
(2) Represents shares issuable upon exercise of warrants.
(3) Represents shares issuable upon conversion of secured convertible
debentures.
(4) Represents shares issuable upon sales under the Standby Equity Distribution
Agreement. Includes a good faith estimate of the shares underlying the Standby
Equity Distribution Agreement to account for market fluctuations.
(5) Represents shares issuable upon conversion of convertible preferred stock.
The registrant hereby amends this registration statement on such date or date(s)
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
The information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
Subject to Completion, Dated September, 14, 2005
IN VERITAS MEDICAL DIAGNOSTICS, INC.
62,642,964 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
62,642,964 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions.
The total number of shares sold herewith includes the following shares owned by
or to be issued to Cornell Capital Partners LP: (i) up to 79,365,079 shares of
common stock issuable under the Standby Equity Distribution Agreement with
Cornell Capital Partners LP and (ii) 472,000 shares issued to Cornell as a
commitment fee in connection with the signing of the Standby Equity Distribution
Agreement. We are including 28,000 shares issued to Monitor Capital, Inc. as a
placement agent fee under the Standby Equity Distribution Agreement.
In addition, the total number of shares sold herewith includes the following
shares owned by or to be issued to Montgomery Equity Partners Ltd. (Montgomery
Equity Partners Ltd. is an affiliated fund of Cornell Capital Partners LP): (i)
up to 5,208,333 shares issuable upon conversion of convertible debentures and
(ii) 350,000 shares issuable upon the exercise of warrants. We are not selling
any shares of common stock in this offering and therefore will not receive any
proceeds from this offering. We will, however, receive proceeds from the sale of
up to 50,000,000 shares of common stock under the Standby Equity Distribution
Agreement with Cornell, and from the exercise by Montgomery of warrants to
purchase 350,000 shares of common stock. All costs associated with this
registration will be borne by us.
The total number of shares sold herewith includes the following shares: (i)
805,000 shares of our common stock issued to Sichenzia Ross Friedman Ference LLP
in connection with legal services rendered, (ii) 3,864,483 shares issuable upon
conversion of convertible debentures issued to accredited investors who
participated in our April 2005 private placement in exchange for the securities
the accredited investors received pursuant to the April 2005 private placement,
(iii) 1,162,791 shares of common stock issued to Nite Capital, LP, pursuant to a
Subscription Agreement dated as of December 22, 2004, and (iv) 278,818 shares of
common stock issuable upon conversion of convertible preferred stock and 123,538
shares underlying warrants issued to Westor Capital Group, Inc. pursuant to our
April 2005 private placement.
Our common stock currently trades on the Over the Counter Bulletin Board ("OTC
Bulletin Board") under the symbol "IVME.OB."
On September 12, 2005, the last reported sale price for our common stock on the
OTC Bulletin Board was $0.25 per share.
The securities offered in this prospectus involve a high degree of risk. See
"Risk Factors" beginning on page _ of this prospectus to read about factors you
should consider before buying shares of our common stock.
Cornell Capital Partners LP is an "underwriter" within the meaning of the
Securities Act of 1933 in connection with the sale of our common stock under the
Standby Equity Distribution Agreement. Under the terms of that agreement, that
entity, from time to time at our discretion, will purchase our shares at 97% of
the market price of our common stock at the time of purchase.
With the exception of Cornell Capital Partners LP, which is an "underwriter"
within the meaning of the Securities Act of 1933, no other underwriter or person
has been engaged to facilitate the sale of shares of common stock in this
offering.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by In
Veritas Medical Diagnostics, Inc. with the Securities and Exchange Commission.
The selling stockholders may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
The date of this Prospectus is _________, 2005
TABLE OF CONTENTS
Page
Prospectus Summary......................................................... 1
Risk Factors............................................................... 3
Forward Looking Statements................................................. 8
Use of Proceeds............................................................ 9
Management's Discussion and Analysis or Plan of Operation.................. 8
Business................................................................... 12
Description of Property.................................................... 26
Legal Proceedings.......................................................... 26
Directors and Executive Officers........................................... 26
Executive Compensation..................................................... 27
Market for Common Equity and Related
Stockholder Matters........................................................ 29
Security Ownership of Certain Beneficial Owners
and Management............................................................. 29
Selling Shareholders....................................................... 31
Certain Relationships and Related Transactions............................. 33
Description of Securities.................................................. 33
Plan of Distribution....................................................... 34
Legal Matters.............................................................. 36
Experts.................................................................... 36
Where You Can Find More Information........................................ 36
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................................. 37
Index to Financial Statements.............................................. F-1
You may only rely on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. In Veritas Medical
Diagnostics, Inc. is referred to throughout this prospectus as "In Veritas,"
"we" or "us."
General
In Veritas Medical Diagnostics, Inc. is a development-stage enterprise. We are
developing medical diagnostic products for personal and professional use.
Several of the products for which we are developing practical applications are
based on technology that utilizes the Hall Effect, a physical phenomena that
measures the electrical activity as it relates to magnetic fields, which was
discovered more than a hundred years ago. We are also developing products that
utilize signal processing for the late-term pregnancy market.
We currently have two operating subsidiaries, IVMD(UK) Ltd. ("IVMD") and Jopejo
Ltd. ("Jopejo"), both of which are incorporated under the laws of England and
Wales and based in Inverness, Scotland. IVMD(UK) has a platform of patents from
which to exploit unique commercial applications. Jopejo is a biotech research
company utilizing similar development techniques.
The fundamental premise of our business plan is the transfer of measurement
technology, the principles of which are known and established in the world of
physical science, into medical devices with global near-patient applications.
This is done through the creation of novel, patented methods and apparatus for
which IVMD is the sole owner of the intellectual property. One application,
forecast to generate royalty revenues from 2005 onwards, is in the final phase
of development with route-to-market secured through a major distributor.
We have limited assets and limited revenues, and at April 30, 2005, had an
accumulated deficit from inception of $6,179,728. For the years ended July 31,
2004 and 2003, we incurred net losses of $1,016,972 and $1,080,619,
respectively. As a result, our auditors, in their report on our financial
statement for the fiscal year ended July 31, 2004, have expressed substantial
doubt about our ability to continue as a going concern.
Our principal executive office is located at The Green House, Beechwood Business
Park North, Inverness, Scotland IV2 3BL and our telephone number at that
location is 011 44-1463-667-347.
This Offering
Shares offered by Selling
Stockholders................. Up to 62,642,964 shares, including 9,422,816
shares issuable upon conversion of secured
debentures; up to 50,000,000 shares issuable
under the Standby Equity Distribution Agreement;
and 473,538 issuable upon exercise of warrants*
Common Stock to be outstanding
after the offering........... 80,864,846
Use of Proceeds.............. We will not receive any proceeds from the sale
of the common stock hereunder. We will receive
proceeds from the sale of our common stock
pursuant to the Standby Equity Distribution
Agreement. See "Use of Proceeds" for a complete
description.
Risk Factors.................. The purchase of our common stock involves a high
degree of risk. You should carefully review and
consider "Risk Factors" beginning on page _
Symbol........................ IVME.OB
* Based on the current issued and outstanding number of shares of 80,391,308
(without giving effect to 25,685,000 shares that were issued and deposited into
escrow as security for our obligations under debentures issued to Cornell
Capital Partners LLP) as of September 9, 2005, and assuming issuance of all
shares registered herewith, the number of shares offered herewith represents
approximately 77% of the total issued and outstanding shares of common stock.
1
RECENT DEVELOPMENTS
Standby Equity Distribution Agreement
-------------------------------------
On September 7, 2005, we entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners LP providing for the sale and issuance to Cornell
of up to $10,000,000 of Common Stock over a period of up to 24 months after the
signing of the Distribution Agreement. Under the Distribution Agreement, the
Company may sell to Cornell up to $500,000 in shares of its Common Stock once
every five trading days at a price of 97% of the lowest closing bid price (as
reported by Bloomberg L.P.), of the Common Stock on the principal market where
the Common Stock is traded for the five consecutive trading days following a
notice by the Company to Cornell of its intention to sell shares. The Company
will also pay a 5% commitment fee upon each sale of shares under the
Distribution Agreement. Cornell has agreed not to short any of the shares of
Common Stock.
The Company has agreed to file a registration statement registering the Common
Stock issuable upon sales under the Distribution Agreement and no sale will be
made to Cornell unless and until such registration statement has been declared
effective.
In connection with the Distribution Agreement, the Company has issued to Cornell
472,000 shares of Common Stock as a commitment fee. It also issued to Monitor
Capital, Inc., a registered broker dealer, 28,000 shares of Common Stock as
compensation for its services as the exclusive placement agent for the sale of
the Common Stock under the Distribution Agreement.
18% Secured Convertible Debentures
-----------------------------------
Also on September 7, 2005, the Company entered into a Securities Purchase
Agreement with Montgomery Equity Partners Ltd., an affiliated fund of Cornell,
providing for the sale by the Company to Montgomery of its 18% secured
convertible debentures in the aggregate principal amount of $750,000, of which
$300,000 was funded on September 13, 2005; $200,000 shall be funded two business
days prior to the Company's completion of its audited financial statements for
the fiscal year ended July 31, 2005, and; $250,000 shall be funded within five
business days of the date the Registration Statement (as defined below) is
declared effective by the SEC. Under the Purchase Agreement, the Company also
issued to Montgomery three-year warrants to purchase 350,000 shares of Common
Stock at $0.001 per share.
In addition to the foregoing, the Company entered into a Securities Purchase
Agreement (the "Accredited Investor Purchase Agreement") with the investors in
its April 2005 financing pursuant to which such persons agreed to exchange the
securities that they purchased in such financing for an aggregate of $556,500
principal amount of Debentures. Specifically, such persons agreed to exchange an
aggregate of 863,845 units, as well as a warrant to purchase an additional Unit
for an aggregate of $556,500 principal amount of Debentures. Each Unit consisted
of one share of 5% convertible preferred stock of the Company, $.001 par value
per share, and one warrant to purchase one share of the Company's common stock.
The Debentures mature on the first anniversary of the date of issuance and bear
interest at the annual rate of 18% in cash. The Company is required to make
monthly interest payments commencing on October 7, 2005, and to make monthly
principal payments commencing on March 7, 2006.
Holders may convert, at any time, the principal amount outstanding under the
Debentures into shares of Common Stock, at a conversion price per share equal to
$0.144, subject to adjustment. Upon three-business day advance written notice,
the Company may redeem the Debentures, in whole or in part. In the event that
the closing bid price of the Common Stock on the date that the Company provides
advance written notice of redemption or on the date redemption is made exceeds
the conversion price then in effect, the redemption will be calculated at 112%
of the Debentures face value.
In connection with the Purchase Agreement and the Accredited Investor Purchase
Agreement, the Company also entered into registration rights agreements
providing for the filing of a registration statement with the Securities and
Exchange Commission registering the Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants. The Company is obligated to file the
Registration Statement no later than 30 days from the date of closing and to use
its best efforts to cause the Registration Statement to be declared effective no
later than 90 days after filing and to insure that the registration statement
remains in effect until all of the shares of common stock issuable upon
2
conversion of the Debentures and exercise of the Warrants have been sold. In the
event of a default of its obligations under the Registration Rights Agreements,
including its agreement to file the Registration Statement with the Securities
and Exchange Commission no later than 30 days from the date of closing, or if
the Registration Statement is not declared effective within 90 days of filing,
it is required pay to Montgomery and the Accredited Investors, as liquidated
damages, for each month that the registration statement has not been filed or
declared effective, as the case may be, either a cash amount or shares of our
common stock equal to 2% of the liquidated value of the Debentures.
The Company's obligations under the Purchase Agreement and the Accredited
Investor Purchase Agreement are secured by substantially all of the Company's
assets. In addition, the Accredited Investors entered into an Intercreditor
Agreement with Montgomery whereby Montgomery shall be a secured party pursuant
to the UCC-1 filed on behalf of Montgomery and shall be superior to the
Accredited Investors as if Montgomery's UCC-1 was filed before any and all of
the Accredited Investor's liens. As further security for its obligations under
the Purchase Agreement and the Accredited Investor Purchase Agreement, the
Company has deposited into escrow 25,685,000 shares of Common Stock.
RISK FACTORS
An investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to the
following risks and uncertainties. Our actual results could differ materially
from those anticipated by our forward-looking statements as a result of the risk
factors below. See "Forward-Looking Statements."
Risks Related to Our Business
We have not generated any revenues and may never achieve profitability
We are a development stage company and, to date, have not generated any
revenues. From inception through April 30, 2005, we had an accumulated deficit
of $6,179,728. For the years ended July 31, 2004 and 2003, we incurred net
losses of $1,016,972 and $1,080,619, respectively. We cannot assure you that we
can achieve or sustain profitability in the future. Our operations are subject
to the risks and competition inherent in the establishment of a business
enterprise. There can be no assurance that future operations will be profitable.
Revenues and profits, if any, will depend upon various factors, including
whether our product development can be completed, and if it will achieve market
acceptance. We may not achieve our business objectives and the failure to
achieve such goals would have an adverse impact on us. These matters raise
substantial doubt about our ability to continue as a going concern.
Our auditors have included a going concern qualification in their opinion which
may make it more difficult for us to raise capital
Our auditors have qualified their opinion on our financial statements because of
concerns about our ability to continue as a going concern. These concerns arise
from the fact that we have not generated sufficient cash flows to meet our
obligations and sustain our operations. If we are unable to continue as a going
concern, you could lose your entire investment in us.
We will need significant additional capital, which we may be unable to obtain.
Our capital requirements in connection with our development activities and
transition to commercial operations have been and will continue to be
significant. We have depended upon the proceeds of sales of our securities to
private investors to cover our operating losses. We will require substantial
additional funds to continue research, development and testing of our
technologies and products, to obtain intellectual property protection relating
to our technologies when appropriate, and to manufacture and market our
products. We anticipate that the funds being raised by this Offering will only
be sufficient to fund our operations for the next 24 months and, thereafter if
we do not generate adequate cash flow from operations and licensing we will need
to raise additional funds. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, if at all. The inability to
obtain additional capital may reduce our ability to continue to conduct business
operations. If we are unable to obtain additional financing, we will likely be
required to curtail our research and development plans. Any additional equity
financing may involve substantial dilution to our then existing shareholders.
We are a development stage company and may be unable to develop or license
commercially feasible products.
3
We are a development stage company and have not generated any significant
revenues from commercial operations. Although we have developed commercial
models of Evomouse and functional demonstration models for our fetal heart
monitor and prothrombin blood-clotting monitor, we have not, as yet,
manufactured any fully-engineered prototype models for commercial demonstration.
We may not be able to produce effectively functioning prototype models or final
products in commercial quantities at acceptable costs, or, if produced, we may
not be able to successfully market the products, directly or in conjunction with
third parties.
Our future revenues are dependent on establishing licenses, joint venture or
distribution arrangements with established companies.
Our ability to generate revenue from the sale of our products will be dependent,
among other things, upon our ability to enter into licenses, joint venture or
distribution arrangements with established businesses with existing sales and
marketing infrastructures. Although we have entered into agreements with the
Unipath division of Inverness Medical Innovations, and are negotiating with
several other companies, we have only generated revenues of $1,420,830 of
development and grant funding from these companies and government initiatives.
There can be no assurance that we will be able to generate revenues or profits
under any such agreements, if and when formalized. In addition, given our early
stage of development and limited capital resources, the terms demanded by any
prospective licensee or joint venture partner may not be attractive to us or
otherwise enable us to achieve our strategic objectives and goals.
Our products may not gain market acceptance.
The products we are currently developing utilize new technologies. As with any
new technologies, in order for us to be successful, our technologies must gain
market acceptance. Since we design our products to exploit markets that
presently utilize or are serviced by products from competing technologies,
meaningful commercial markets may not develop for our products.
We have limited manufacturing and marketing experience.
Achieving marketing acceptance for our technologies and proposed products will
require substantial marketing efforts and expenditure of significant funds to
educate key original equipment manufacturers, or OEMs, as to the distinctive
characteristics and anticipated benefits of our products and technologies. We
currently have limited manufacturing and marketing experience and limited
financial, personnel and other resources to undertake the extensive marketing
activities that are necessary to market our products and technologies.
The development of our products and technology is uncertain.
Our development efforts are subject to unanticipated delays, expenses or
technical or other problems, as well as the possible insufficiency of funding to
complete development. Our success will depend upon our products and technologies
meeting acceptable cost and performance criteria, and upon their timely
introduction into the marketplace. All of our proposed products and technologies
may never be successfully developed, and even if developed, they may not
satisfactorily perform the functions for which they are designed. Additionally,
these products may not meet applicable price or performance objectives.
Unanticipated technical or other problems may accrue which would result in
increased costs or material delays in their development or commercialization.
Our products may contain defects.
Our products may contain deficiencies that become apparent subsequent to
widespread commercial use. Remedying such errors could delay our plans and cause
us to incur additional costs which would have a material adverse effect on our
financial position.
We depend on third party product design changes.
Our success will depend upon our ability to make our products compatible with
the products of third-party manufacturers. In addition, we will depend on
potential customers redesigning or otherwise modifying their products to fully
utilize our products and technologies. Our failure to make our products and
technology compatible with products of third-party manufacturers or the failure
of potential customers to make necessary modifications to or redesign their
products to accommodate our products could have a material adverse effect on our
ability to sell or license our technologies and products.
We are operating in a highly competitive market.
The development and marketing of medical products and devices is extremely
competitive. In many cases we will compete with entrenched multi-national
corporations, such as Johnson & Johnson, Roche and others, all of whom have
similar products already being manufactured and sold. Competitors range from
development stage companies to major domestic and international companies, most
of which have substantially greater financial, technical, marketing and human
4
resource capabilities than we have, as well as established positions in markets,
name brand recognition, and established ties with OEMs. These or other companies
may succeed in developing products or technologies that are more effective than
those being developed by us or which would render our products and technology
obsolete or non-competitive in the marketplace.
Our patents and proprietary rights are difficult to protect.
Our ability to compete effectively will depend in part on our ability to
maintain the proprietary nature of our technology and manufacturing processes
through a combination of patent and trade secret protection, non-disclosure
agreements and other arrangements. We have completed a substantial amount of
invention disclosure documentation. Thus far, we have: one patent granted; we
have allowed one patent to lapse in a non core area;, we have nine patents
pending and; we have one patent in draft. We intend to continue to file patent
applications covering our products when and where appropriate. Such filings will
be costly and time consuming. Patents may not issue from applications and any
issued patents may not provide adequate protection for our products or
processes. Our competitors may independently patent technologies that are
substantially equivalent or superior to our technology. In addition,
competitors' products may infringe upon our patents and the cost of protecting
our rights relative to such infringement may be prohibitive thereby undermining
our ability to protect products effectively.
Foreign countries may not provide adequate patent protection.
Patent applications filed in certain foreign countries are subject to laws,
rules and procedures which differ from those of the United States and the United
Kingdom. Foreign patent applications filed by us related to United States or
United Kingdom patents may not be issued. Furthermore, some foreign countries
provide significantly less patent protection than the United States or the
United Kingdom. We could incur substantial costs in defending patent
infringement suits brought by others and in prosecuting patent infringement
suits against third party infringers.
We depend on our key personnel.
The development and marketing of our technology will be dependent upon the
skills and efforts of a small group of management and technical personnel.
Losing the services of any of our key personnel could have a material adverse
effect on our operations. Furthermore, recruiting and retaining qualified
technical personnel to perform research, development and technical support work
in the future will be critical to our success. We may not be able to continue to
recruit and retain skilled and experienced personnel.
We may not be able to manage growth and expansion effectively.
Rapid growth of our business may significantly strain our management,
operational and technical resources. If we are successful in obtaining rapid
market penetration of our products, we will be required to manufacture and
deliver large volumes of quality products to our customers on a timely basis at
a reasonable cost. Our strategy is that we will NOT manufacture but create
partnerships with manufacturers. This could potentially strain our operational,
management and financial systems and controls.
Our confidentiality agreements may not adequately protect our unpatented
proprietary information.
We rely on confidentiality agreements to protect our unpatented proprietary
information, know-how and trade secrets. Our competitors may either
independently develop the same or similar information or obtain access to our
proprietary information. In addition, we may not prevail if we assert challenges
to intellectual property rights against third parties. In this regard, our
employees are required to enter into agreements providing for confidentiality,
the assignment of rights to inventions made by them while employed by us, as
well as for non-competition and non-solicitation during their employment term
and one year thereafter. Our employees may not comply with the terms of these
agreements.
We may become subject to risks inherent in international operations including
currency exchange rate fluctuations and tariff regulations.
To the extent we in the future sell or license our products or technologies
outside the United Kingdom, we will be subject to the risks associated with
fluctuations in currency exchange rates. We may also be subject to tariff
regulations and requirements for export licenses, particularly with respect to
the export of certain technologies (which licenses may on occasion be delayed or
difficult to obtain), unexpected changes in regulatory requirements, longer
accounts receivable requirements, difficulties in managing international
operations, potentially adverse tax consequences, restrictions on repatriation
of earnings and the burdens of complying with a wide variety of foreign laws.
5
We maintain modest insurance coverage and therefore we could incur losses as a
result of an uninsured loss.
We maintain theft and casualty insurance. In addition, we maintain key man
insurance on the following two employess in the amount of $1,000,000 each:John
Fuller, our Chief Executive Officer, and Brian Cameron, our Chief Operating
Officer. We carry liability insurance on our Prediction of Labour Onset trials
of up to $5,000,000, and standard United Kingdom employee liability insurance
that is compulsory for all United Kingdom companies.
Risks relating to the Standby Equity Distribution Agreement:
There are a large number of shares underlying our periodic equity investment
agreement that are being registered in this prospectus and the sale of these
shares may depress the market price of our common stock.
The issuance and sale of shares upon delivery of an advance by Cornell Capital
Partners LP pursuant to the Standby Equity Distribution Agreement in the amount
up to $10,000,000 is likely to result in substantial dilution to the interests
of other stockholders. As of September 9, 2005, we had 80,391,308 shares of
common stock issued and outstanding. We are registering 61,742,959shares of
common stock pursuant to this registration statement, of which up to 50,000,000
shares are reserved for issuance pursuant to our agreement with Cornell. As of
September 9, 2005, the closing price of our common stock was $0.29. There is no
upper limit on the number of shares that we may be required to issue under the
agreement with Cornell.
The continuously adjustable price feature of our periodic equity investment
agreement could require us to issue a substantially greater number of shares,
which will cause dilution to our existing stockholders. The number of shares we
will be required to issue upon receipt of an advance pursuant to our agreement
with Cornell will increase if the market price of our stock decreases. The
following is an example of the amount of shares of our common stock issuable in
connection with an advance of $500,000 under the Cornell agreement, based on
market prices assumed to be 25%, 50% and 75% below the closing bid prices on
September 8, 2005 of $0.23:
- --------------------------------------------------------------------------------------------------
% BELOW MARKET PRICE PER SHARE WITH 3% DISCOUNT NUMBER OF SHARES PERCENTAGE
- --------------------------------------------------------------------------------------------------
25% $0.1725 $0.167 2,994,011 %3.7
- --------------------------------------------------------------------------------------------------
50% $0.115 $0.112 4,464,285 %5.5
- --------------------------------------------------------------------------------------------------
75% $0.0575 $0.055 9,090,909 %11.3
- --------------------------------------------------------------------------------------------------
*Based upon 80,391,308 shares of common stock outstanding as of September 9,
2005.
As illustrated, the number of shares of common stock issuable in connection with
an advance under the Cornell agreement will increase if the market price of our
stock declines, which will cause dilution to our existing stockholders.
The large number of shares issuable under the Cornell agreement may result in a
change of control
As there is no limit on the number of shares that may be issued under the
agreement, these issuances may result in Cornell controlling us. It may be able
to exert substantial influence over all matters submitted to a vote of the
shareholders, including the election and removal of directors, amendments to our
articles of incorporation and by-laws, and the approval of a merger,
consolidation or sale of all or substantially all of our assets. In addition,
this concentration of ownership could inhibit the management of our business and
affairs and have the effect of delaying, deferring or preventing a change in
control or impeding a merger, consolidation, takeover or other business
combination which our shareholder, may view favorably.
The lower the stock price, the greater the number of shares issuable under the
Cornell agreement
The number of shares that Cornell will receive under its agreement with us is
determined by the market price of our common stock prevailing at the time of
each sale. The lower the market price, the greater the number of shares issuable
under the agreement. Upon issuance of the shares, to the extent that Cornell
will attempt to sell the shares into the market, these sales may further reduce
the market price of our common stock. This in turn will increase the number of
shares issuable under the agreement. This may lead to an escalation of lower
market prices and ever greater numbers of shares to be issued. A larger number
6
of shares issuable at a discount to a continuously declining stock price will
expose our shareholders to greater dilution and a reduction of the value of
their investment.
The sale of our stock under the Cornell agreement could encourage short sales by
third parties, which could contribute to the future decline of our stock price
and materially dilute existing stockholders' equity and voting rights.
The agreement with Cornell has the potential to cause significant downward
pressure on the price of our common stock. This is particularly the case if the
shares being placed into the market exceed the market's ability to absorb the
increased number of shares of stock or if we have not performed in such a manner
to show that the equity funds raised will be used by us to grow. Such an event
could place further downward pressure on the price of our common stock. Under
the terms of our agreement with Cornell, we may request regular drawdowns. Even
if we use the proceeds under the agreement to grow our revenues and profits or
invest in assets, which are materially beneficial to us, the opportunity exists
for short sellers and others to contribute to the future decline of our stock
price. If there are significant short sales of our stock, the price decline that
would result from this activity will cause the share price to decline more so,
which, in turn, may cause long holders of the stock to sell their shares thereby
contributing to sales of stock in the market. If there is an imbalance on the
sell side of the market for the stock, our stock price will decline. If this
occurs, the number of shares of our common stock that is issuable pursuant to
the Cornell agreement will increase, which will materially dilute existing
stockholders' equity and voting rights.
We may not be able to access sufficient funds under the Cornell agreement when
needed.
We are dependent on external financing to fund our operations. Our financing
needs will to some extent be provided from the agreement with Cornell. No
assurances can be given that such financing will be available in sufficient
amounts or at all when needed, in part, because we are limited to a maximum draw
down of $500,000 per advance. In addition, the Cornell agreement limits the
number of shares of our common stock that Cornell may own pursuant to an advance
to 9.9% of our outstanding common stock. As a result, Cornell may never complete
the $10,000,000 investment contemplated under the agreement.
Cornell Capital Partners may sell shares of our common stock after we deliver an
advance notice during the pricing period, which could cause our stock price to
decline.
Cornell Capital Partners is deemed to beneficially own the shares of common
stock corresponding to a particular advance on the date that we deliver an
advance notice to Cornell Capital Partners, which is prior to the date the stock
is delivered to Cornell Capital Partners. Cornell Capital Partners may sell such
shares any time after we deliver an advance notice. Accordingly, Cornell Capital
Partners may sell such shares during the pricing period. Such sales may cause
our stock price to decline and if so would result in a lower stock price during
the pricing period, which would result in us having to issue a larger number of
shares of common stock to Cornell in respect of the advance.
The following risks relate principally to our common stock and its market value:
There is a limited market for our common stock which may make it more difficult
for you to dispose of your stock
Our common stock is quoted on the OTC Bulletin Board under the symbol "IVME.OB."
There is a limited trading market for our common stock. Accordingly, there can
be no assurance as to the liquidity of any markets that may develop for our
common stock, the ability of holders of our common stock to sell our common
stock, or the prices at which holders may be able to sell our common stock.
Our stock price may be volatile
The market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
o technological innovations or new products and services by us or our
competitors;
o additions or departures of key personnel;
o sales of our common stock
o our ability to integrate operations, technology, products and services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments;
o economic and other external factors; and
o period-to-period fluctuations in our financial results.
7
Because we have a limited operating history with no revenues to date, you may
consider any one of these factors to be material. Our stock price may fluctuate
widely as a result of any of the above listed factors.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
We have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common stock
We have never paid cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. The payment of dividends on our
common stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.
Our common stock is deemed to be penny stock with a limited trading market
Our common stock is currently listed for trading on the OTC Bulletin Board which
is generally considered to be a less efficient market than markets such as
NASDAQ or other national exchanges, and which may cause difficulty in conducting
trades and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than $5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
"penny stock rules," investors will find it more difficult to dispose of our
securities. Further, for companies whose securities are traded in the OTC
Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii) to
obtain coverage for significant news events because major wire services, such as
the Dow Jones News Service, generally do not publish press releases about such
companies, and (iii) to obtain needed capital.
FORWARD-LOOKING STATEMENTS
Our representatives and we may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a) volatility or decline of our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement its business plans;
(e) inadequate capital to continue business;
(f) changes in demand for our products and services;
8
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside parties;
(i) insufficient revenues to cover operating costs.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by Cornell Capital Partners LP, Montgomery Equity
Partners Ltd., and the other Selling Stockholders. We will receive proceeds from
the sale of shares of our common stock to Cornell under the Standby Equity
Distribution Agreement. The purchase price of the shares purchased under that
agreement will be equal to 97% of the lowest bid price for the five trading days
following the day that we notify Cornell that we intend shares to it. We may
also receive proceeds from the exercise of the warrants.
For illustrative purposes, we have set forth below our intended use of proceeds
for the range of net proceeds indicated below to be received under the Standby
Equity Distribution Agreement assuming a sale of 10%, 25%, 50% and 100% of the
shares issuable under that agreement. We have the ability to draw down the full
$10,000,000 pursuant to the agreement, however we may draw down less than that
amount. The table assumes estimated offering expenses of $55,000, plus an amount
equal to 5% of the gross proceeds of each advance payable to Cornell as a fee.
10% 25% 50% 100%
---------- ---------- ---------- -----------
Gross Proceeds $1,000,000 $2,500,000 $5,000,000 $10,000,000
Net Proceeds after offering
expenses and fees $ 895,000 $2,320,000 $4,695,000 $ 9,445,000
Use of proceeds:
General Working Capital $ 895,000 $2,320,000 $4,695,000 $ 9,445,000
========== ========== ========== ===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our condensed
financial statements and notes to those statements. In addition to historical
information, the following discussion and other parts of this quarterly report
contain forward-looking information that involves risks and uncertainties.
Overview
In Veritas Medical Diagnostics, Inc. (formerly In Vivo Medical Diagnostics, Inc.
and Sports Information and Publishing Corp.) is engaged in the development of
lateral applications of novel measurement techniques in medical devices with
`near-patient' (i.e. point of care) testing applications.
We have limited assets and limited revenues and at April 30, 2005, had an
accumulated deficit from inception of $6,179,728. As a result, our auditors, in
their report on our financial statement for the fiscal year ended July 31, 2004,
have expressed substantial doubt about our ability to continue as a going
concern.
Results Of Operations
Results Of Operations For The Fiscal Year Ended July 31, 2004, Compared To
Fiscal Year Ended July 31, 2003
Revenues
During the year ended July 31, 2004 we had sales of $760,516. During the year
ended July 31, 2003, we had sales of $286,499. The increased revenues were
primarily derived from the development contract and license agreement for our
prothrombin blood clotting measuring device with Inverness Medical Innovations,
Inc ("IMI").
Research & Development Expenses
For the year ended July 31, 2004, research and development costs were $561,686,
an increase from $383,224 for the year ended July 31, 2003. The increase in 2004
resulted from the development of our prothrombin blood clotting measuring device
pursuant to our agreement with IMI.
Depreciation Expenses
Depreciation expenses for the year ended July 31, 2004 increased to $21,892 from
$21,129 for the year ended July 31, 2003. This change is insignificant,
9
reflecting the fact that investment in fixed assets has not altered materially
from year to year.
General & Administrative Expenses
General and administrative expenses for the year ended July 31, 2004 increased
to $1,193,087 from $954,861 for the year ended July 31, 2003. The increase in
2004 is due to our increased operations, as well as increased legal fees
associated with our patents and the share exchange transaction.
Net Income (Loss)
Our net loss for the year ended July 31, 2004 was $1,016,972, as compared to a
net loss of $1,080,619 for the year ended July 31, 2003. This relatively small
reduction in loss is due to increased sales offset in part by increased
expenditure on research and development and, to a lesser extent, general and
administrative expenses.
Results of Operations for the Three-Month Period Ended April 30, 2005 Compared
to the Same Period ended April 30, 2004
Revenues
During the three months ended April 30, 2005 we had sales of $351,202. During
the three months ended April 30, 2004, we had sales of $246,930. The increased
revenues were primarily derived from the development contract and license
agreement for our prothrombin blood clotting measuring device with IMI.
Depreciation Expenses
Depreciation expenses for the three months ended April 30, 2005 decreased to
$6,228 from $9,567 for the three months ended April 30, 2004.
General & Administrative Expenses
General and administrative expenses for the three months ended April 30, 2005
increased to $694,247 from $385,780 for the three months ended April 30, 2004.
The increase in 2005 is due to our increased operations, as well as increased
legal fees associated with our patents and the share exchange transaction.
Net Income (Loss)
The net loss for the three months ended April 30, 2005 was $387,990, as compared
to a net loss of $148,726 for the three months ended April 30, 2004. This change
resulted primarily from an increase in business activity associated with product
development.
Results of Operations for the Nine Month Period Ended April 30, 2005 Compared to
Same Period ended April 30, 2004
Revenues
During the nine months ended April 30, 2005 we had sales of $911,104. During the
nine months ended April 30, 2004, we had sales of $473,182. The increased
revenues were primarily derived from the development contract and license
agreement for our prothrombin blood clotting measuring device with IMI.
Research & Development Expenses
For the nine months ended April 30, 2005, research and development costs were
$500,582, an increase from $0 for the nine months ended April 30, 2004. The
increase resulted from the development of our prothrombin blood clotting
measuring device pursuant to our agreement with IMI.
Depreciation Expenses
Depreciation expenses for the nine months ended April 30, 2005 decreased to
$15,771 from $21,117 for the nine months ended April 30, 2004.
General & Administrative Expenses
General and administrative expenses for the nine months ended April 30, 2005
increased to $1,981,042 from $1,304,038 for the nine months ended April 30,
2004. The increase in 2005 is due to our increased operations, as well as
increased legal fees associated with our patents and the share exchange
transaction.
Net Income (Loss)
The net loss for the nine months ended April 30, 2005 was $1,723,946, as
compared to a net loss of $853,892 for the nine months ended April 30, 2004.
This change resulted primarily from increases in business activity associated
with product development.
10
Liquidity and Capital Resources
As of April 30, 2005, we had cash of $170,464. Our current liabilities as of
April 30, 2005 aggregated $3,077,887. In order to implement our plan of
operation and commercialize our products, we intend to secure development
contracts with commercial partners committed to launching products into global
markets. We may also seek outside debt and equity financing to fund our
continuing operations, to the extent that such funding is available under
reasonable terms and conditions. We have not yet sought any commitments for such
financing and no assurance can be given that additional financing will be
available, or if available, will be on acceptable terms.
Recent Financing
On April 15, 2005, we completed the sale of 863,845 units (the "Units"), each
Unit consisting of one share of 5% convertible preferred stock of the Company,
$.001 par value per share (the "Preferred Stock"), and one warrant to purchase
one share of the Company's common stock (the "Warrants"), to accredited
investors pursuant for an aggregate purchase price of approximately $561,500.
The aggregate purchase price consisted of the sale of $401,500 of Units for cash
and the sale of $160,000 of Units for the forgiveness of debt. In addition, each
purchaser of a Unit received a warrant to purchase an additional Unit (the "Unit
Warrants"). The aforementioned securities were sold in reliance upon the
exemption afforded by the provisions of Regulation D, as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
In connection with the offering, we entered into a Registration Rights Agreement
with the purchasers and the placement agent pursuant to which we are obligated
to file a registration statement on Form SB-2 (or if Form SB-2 is not then
available to us, on such form of registration statement that is available to
effect the registration of the Common Shares) within 30 days after the closing
of the offering. We must register at least the number of shares of our Common
Stock equal to the Common Shares plus the number of shares necessary to permit
the exercise in full of the Warrants. If we do not file the registration
statements with the SEC within 30 days after the closing of the offering, we are
required to make pro rata payments to the Purchasers, as liquidated damages and
not as a penalty, in an amount equal to 2.0% of the aggregate amount invested by
each purchaser for each 30 day period or pro rata for any portion thereof
following the date by which such registration statement should have been filed.
To date, we have not filed such registration statement.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as of April 30, 2005 or as of
the date of this report.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based
Payment (SFAS 123R) establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of Position
93-6, Employers' Accounting for Employee Stock Ownership Plans. The Company is
required to adopt SFAS 123R effective January 1, 2006. The standard provides for
a prospective application. Under this method, the Company will begin recognizing
compensation cost for equity based compensation for all new or modified grants
after the date of adoption. In addition, the Company will recognize the unvested
portion of the grant date fair value of awards issued prior to the adoption
abased on the fair values previously calculated for disclosure purposes. At
December 31, 2004, the Company had no unvested options.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument this is within its scope
as a liability. Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments entered into after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of nonpublic entities. For nonpublic entities, mandatorily financial
11
instruments are subject to SFAS No. 150 for the first period beginning after
December 15, 2003. Adoption of SFAS No. 150 will require us to report any
cumulative redeemable preferred stock and any cumulative Class C redeemable
preferred stock outstanding at the time of adoption as a liability.
BUSINESS
General Overview
In Veritas Medical Diagnostics, Inc. (formerly In Vivo Medical Diagnostics, Inc.
and Sports Information and Publishing Corp.) (the "Company") is engaged in the
development of lateral applications of novel measurement techniques in medical
devices with `near-patient' (i.e. point of care) testing applications.
History
The Company was originally incorporated under the laws of Colorado on November
7, 2003 under the name Sports Information Publishing Corp. ("SIPC") for the
purpose of engaging in sports prognostication.
On July 30, 2004, the security holders of Hall Effect Medical Products, Inc.
consummated the transactions contemplated by a share exchange agreement (the
"Share Exchange Agreement"), dated as of June 30, 2004, by and among Sports
Information and Publishing Corp. , Michael D. Tanner, HEMP Trustees Limited, as
the corporate trustee of the HEMP Employment Benefit Trust, John Fuller, Brian
Cameron, Westek Limited, and the security holders of Hall Effect Medical
Products, Inc. As a result of the exchange, Hall Effect Medical Products, Inc.
became our wholly owned subsidiary ("In Vivo DE").
Thereafter, the parties to the Share Exchange agreed to amend the terms of the
agreement to correct certain information regarding (i) the number of shares
issued in connection with the transactions contemplated by the agreement, and
(ii) the capitalization of the Company both before and after the transactions
contemplated by the agreement.
Pursuant to the Share Exchange, as amended, the Company:
o issued to the former holders of 8,000,000 shares of In Vivo DE preferred
stock, an aggregate of 34,343,662 shares of our 4% voting redeemable convertible
preferred stock (the "4% Preferred Stock");
o issued to the former holders of shares of In Vivo DE common stock, an
aggregate of 38,636,453 shares of our common stock;
o issued 1,636,233 additional shares of our common stock to holders of $467,495
of promissory notes ($450,000 of which was converted by July 31, 2004), issued
by In Vivo DE's wholly owned subsidiaries, Hall Effect Technologies Ltd. and
Jopejo Ltd., in exchange for the cancellation of such notes; and
o agreed to cause the resignation of all current members of our board of
directors and appoint new directors as designated by certain shareholders or
affiliates of In Vivo DE.
Each full share of the Company's 4% Preferred Stock is convertible at any time
after October 31, 2005, at the option of the holder, into one full share of our
common stock. The shares of 4% Preferred Stock vote, together with our
outstanding common stock on an "as converted" basis, at any regular or special
meeting of our stockholders called for the purpose of electing directors of our
company or to vote on any other matter requiring shareholder approval under
Colorado corporate law.
Effective April 8, 2005, the Company changed its name from In Vivo Medical
Diagnostics, Inc. to In Veritas Medical Diagnostics, Inc.
Our Subsidiaries
- ----------------
We have two wholly owned subsidiaries, IVMD(UK) Ltd. ("IVMD(UK)") and Jopejo
Ltd. ("Jopejo"), both of which are incorporated under the laws of England and
Wales and based in Inverness, Scotland.
IVMD(UK), formerly Hall Effect Technologies Ltd ("HET") built a platform of
patents from which to exploit unique commercial applications. HET's operations
were, historically, funded in part from development contracts and government
grants, with a majority of funding provided by Westek Ltd. The controlling
interest of Jopejo Ltd., a biotech research company utilizing similar
development techniques, was purchased by Abacus Trust Company Limited and the
operations of the companies merged to achieve development savings.
The fundamental premise is in the transfer of measurement technology, the
principles of which are known and established in the world of physical science,
into medical devices with global near-patient applications. This is done through
12
the creation of novel, patented methods and apparatus for which IVMD is the sole
owner of the intellectual property. One application, forecast to generate
royalty revenues from 2005 onwards, is in the final phase of development with
route-to-market secured through a major distributor.
Products and Services
- ---------------------
We currently have applied for eleven patents (see table below), from granted to
pending, covering the generic application of our products and technology. We are
currently working on a number of additional patents for submission during the
next year. We have allowed two additional patents to lapse because we believe
that they are no longer core to our business and have no commercial value for
us. We have engineered prototypes on three distinct products:
o a prothrombin device for measuring the clotting or coagulation time of blood
in patients at risk of heart disease and stroke - a critical measurement for a
condition affecting millions worldwide
o a suite of products for fetal heart monitoring and predicting the onset of
labor several weeks in advance of the commencement of labor pains
o a device to establish proof of principle, and a prototype to demonstrate a low
cost and non-harmful alternative to conventional X-ray imaging
We have also established the concept and are developing proof of principle for
other low-cost and safe magnetic detection systems for additional applications,
including:
o a minimally-invasive, rapid and accurate system for detection of compounds
within blood
o a non-invasive glucose monitoring system for diabetics which can be merely
clipped to a patient's ear lobe (or other area with blood rich tissue) and,
without taking blood from the patient, will measure levels of glucose in the
blood;
o a rapid, non-invasive monitoring device for osteoporosis
o a surgical instrument positioning system.
The initial commercial product was a computer input device based on our patented
technology, known as the "Evomouse," which was developed to the point of sale.
Although the initial response in the computer peripheral press was very
encouraging, we determined that this device is non-core to the future of our
business. Accordingly, we discontinued production and are seeking to sell or
license rights to the "Evomouse." We have recently entered into an agreement
with UTEK, and American corporation, for the potential sale or licensing of this
technology.
Services
- --------
We have built a successful reputation for delivering rapid prototype and
production development programs. Using skilled managers with experience
transferable from other industrial sectors, we can take our concept applications
to prototype and even production release stage, in timescales vastly shorter
than conventional project management would suggest.
Commercial Arrangements
- -----------------------
We entered into a development contract and license agreement for our prothrombin
blood clotting measuring device with Inverness Medical Innovations, Inc (IMA -
Amex) ("IMI"), located in Boston, MA. The development contract contributed over
$2 million, over an 18-month period, and culminates in the delivery of the
initial batch of units for market launch during the last quarter of calendar
year 2005.
Thereafter, under our agreement with IMI, we will grant an exclusive, worldwide
license to IMI for the use of our technology to produce and market a prothrombin
blood clotting measuring device for which we will receive a royalty equal to 2%
of all net sales of such device.
In September 2001, we entered into a letter of intent with Rosti (UK) Ltd., a
subsidiary of AP Moller, which is a high quality plastics and electronics
supplier to the medical industry, located in Copenhagen, Denmark, for research
into the exploitation of additional commercial product applications of our
monitoring systems with their customer base, which includes Sony Ericsson,
Nokia, Aventis, GlaxoSmithKline and Maersk Medical.
In addition, our glucose monitoring technology has been examined by Novo Nordisk
(Denmark), the world's largest supplier of insulin for diabetics, which has
13
expressed that it will enter into a commercial agreement with us when we are
able to demonstrate proof of principle in blood.
Product Descriptions
- --------------------
The table set forth below briefly describes our key products, their applications
and advantages over current technology and products.
- ------------------------------ ---------------------- ------------------------ ------------------------
Technology Product Key Applications/ Advantage
Market
- ------------------------------ ---------------------- ------------------------ ------------------------
Blood analyte Prothrombin blood Minimally-invasive, Small, cheap device
measurement clotting measuring accurate and safe, with rapid measurement
device characteristic using world leading
measuring device for blood sample size
heart attack and
stroke sufferers
- ------------------------------ ---------------------- ------------------------ ------------------------
Fetal heart rate Consumer and Reliable at-home and Small, external
monitor professional medical professional-medical device. Reliable
fetal well being heart rate monitor for detection and
monitor unborn babies continuous signal
display. Ease of use.
Current professional
medical devices are
unreliable. No device
capable of untrained
use exists. Device
can be produced at
significantly less cost
IN DEVELOPMENT than current in-market
devices.
- ------------------------------ ---------------------- ------------------------ ------------------------
- ------------------------------ ---------------------- ------------------------ ------------------------
Technology Product Key Applications/ Advantage
Market
- ------------------------------ ---------------------- ------------------------ ------------------------
Labor predictor Predictor of labor Accurate prediction of High negative and
onset onset of labor from 6 positive predictive
weeks out. Consumer success. Ease of use.
device for maternity No competition exists
planning either in professional
In hospital, medical or consumer
professional care for markets
mothers identified
at-risk for pre-term
delivery.
- ------------------------------ ---------------------- ------------------------ ------------------------
Blood analyte Biomarker monitor Accurate measurement Highly sensitive, very
measurement using very low blood low cost in comparison to
Volume of a number of any competitive system.
Biomarkers including Multiple measurements
Heart attack, HIV, with one blood sample
Cholesterol and cancer
IN RESEARCH
- ------------------------------ ---------------------- ------------------------ ------------------------
Blood analyte Blood glucose monitor Non-invasive, accurate Small, inexpensive
measurement and safe, glucose (and device with rapid
other) concentration
continuous bulk
IN RESEARCH measuring device
measurement
- ------------------------------ ---------------------- ------------------------ ------------------------
14
Medical imaging Digital scanning Non-invasive, safe, Small and portable,
machine high quality cheap, continuous
IN RESEARCH alternative to 2D display. No ionizing
X-ray scanning radiation.
- ------------------------------ ---------------------- ------------------------ ------------------------
Bone density Osteoporosis detection Non-invasive instant No ionizing
monitor and monitoring device display of bone radiation. Cheap and
IN RESEARCH mineral density for accurate
osteoporosis patients
- ------------------------------ ---------------------- ------------------------ ------------------------
Internal Surgery In- theatre detection Safe and accurate 3D Alternative to low
system positioning of power X-rays, use with
IN RESEARCH instruments and probes tomography
during surgery
- ------------------------------ ---------------------- ------------------------ ------------------------
The advantages of our technology can be summarized as follows:
o our devices represent the transfer of known technology from physics to
medicine;
o our technology can measure non-invasively or with very low analyte/sample
size;
o the magnetic fields applied to human use are benign and safe;
o our devices can be produced and sold at a much lower cost than most
competitive products;
o our devices give 'next generation' technical superiority by:
o operating from direct current to high alternating current frequencies;
o measuring very low levels of displacement; and
o working with low level magnetic fields
Marketing Strategy
- ------------------
Our strategy is to maximize the novel use of transferable techniques, exploit
our core skills to build a solid intellectual property platform and optimize our
exit timing for each appropriate application of the technology to maximize
shareholder value.
For each product or group of products we have sought partners who can:
o help us identify the market and commercial opportunity;
o contribute to the research and development program; and
o be the ultimate manufacturer and/or distributor of the end product.
Recent Achievements
- --------------------
Since June 2001, our management team has achieved the following:
o Focused development of our technology to create value around a portfolio of
linked biomedical products, with enormous potential global market applications.
o Demonstrated the ability to develop a new, novel product from concept to
manufacturing in China, with the establishment of marketing and distribution
channels.
o Created a core skills base suited to the science and fast track
commercialization of these projects.
o Created a network of specialists to allow rapid, low overhead delivery of
solutions.
o Focused research programs delivering proof of principle on the biomedical
applications of the Hall Effect.
15
o Established a licensing and distribution agreement, and initiated letters of
intent and negotiations with major biomedical companies leading to up to 16
separate product opportunities.
o Two of our eleven core patents have been granted and the remaining nine are
pending. We have recently allowed our Evomouse patents to lapse to concentrate
on funding our core patent strategy We are currently working on additional
patent applications and filings using the Hall Effect (discussed below) and
other transferable technologies to niche exploitation areas.
o Secured capital investment from the UK government via the Inverness and Nairn
Enterprise Regional Development Board which has taken equity and guaranteed a
program to provide partial funding for three major development programs.
o Started two PhD. Research programs at Strathclyde University in Glasgow,
Scotland to further our research in non-invasive analyte measurement. These are
due for review in October this year
Scientific Platform
- -------------------
The Hall Effect and Magnetic Systems
We have unique expertise with the Hall Effect as applied to medical
applications. The Hall Effect is a physical principle that was discovered in
1875, but whose applications were not fully utilized until the introduction of
modern high sensitivity and custom-made semiconductors and contemporary computer
processing power.
The definition of the Hall Effect is the generation of an electric potential
perpendicular to both an electric current flowing along a conducting material
and an external magnetic field applied at right angles to the plane containing
the current and Hall field.
We have pioneered the use of Hall Effect devices in highly sensitive
proportional measurement, exploiting their ability to measure to extremely high
levels of accuracy in many environments. We have combined this basic technology
with magnetic system design and digital signal processing to create non-invasive
measurement systems which can characterize compounds and measure bulk and
concentration at a molecular level.
Advanced Electronics and Signal Management
In developing these very accurate measuring devices, we have built substantial
knowledge and intellectual property around the acquisition and processing of low
and ultra-low level electrical signals, with particular attention to techniques
for noise cancellation, compensatory processes for extraneous signals and
temperature effects. In particular, these techniques have significant use in
fetal monitoring applications where low-level electrical signals acquired from
the patient can be effectively processed, enabling novel and valuable diagnosis.
These advantages combine to produce opportunities for the measurement of medical
conditions either never before measured or in so effective a way that
near-patient monitoring previously greatly demanded but technically impossible,
can now be a cost-effective reality.
Intellectual Property
We believe that our science and capability is unique. In view of the low level
of published research and patent activity around these measurement principles,
to our knowledge, no other company or group has attempted to use these
techniques for these levels of measurement to develop product applications. Our
intellectual property is based upon our ability:
o to work at an appropriate physical level to specify magnetic systems
o to develop high sensitivity Hall Effect devices using Molecular Beam Epitaxy
(manufacturing) techniques;
o to use the Hall Effect in high precision proportional measurement
applications;
o to provide advanced signal processing and control techniques to extract low
level signals in biological systems; and
o to establish techniques for measuring low-level effects with high levels of
precision.
In all cases, we own the intellectual property associated with our products and
applications. In addition to our issued patents and pending patent applications,
we are in the process of filing for several additional patents at both a core
principle and application levels.
16
Our eleven core patents and patent applications consist of the following:
Patents Pending Granted
- --------------------------- ---------------------------------- -----------
Blood Coagulation (Unipath) China, European Patent, Japan, US
Ref: 23827.GB
- --------------------------- ---------------------------------- -----------
Blood Monitor (Q-Meter) China, European Patent, Japan, US
Ref: 1 (4)
- --------------------------- ---------------------------------- -----------
Blood Monitor China, European Patent, Japan, US
(Susceptibility)
Ref: 1 (5)
- --------------------------- ---------------------------------- -----------
Heart Monitor China, European Patent, Japan, US
Ref: FP3061
- --------------------------- ---------------------------------- -----------
Immunoassay China, European Patent, Japan, US
Ref: P/25260
- --------------------------- ---------------------------------- -----------
Labor Prediction European Patent, Japan United
Ref: FP2708 Kingdom, US
- --------------------------- ---------------------------------- -----------
Magnetic Separation First Filing
Priority Date:
19/06/2004 GB
- --------------------------- ---------------------------------- -----------
Medical electrode China, European Patent, Japan, US
Ref: P3129
- --------------------------- ---------------------------------- -----------
Immuoassay - measurement of First Filing
Presence and concentration
Of compounds in fluids
Supercedes Magnetic
Seperation
- --------------------------- ---------------------------------- -----------
Scanner China, European Patent, Japan, US
Ref: 1 (3)
Surgical Positioning China, European Patent
Ref: 1 (2)
- --------------------------- ---------------------------------- -----------
* European Patent
Path from Research to Products
Most advanced in development is the prothrombin time measuring device, with our
goal to deliver a finished product under our commercial development license with
IMI in 2005.
Our fetal monitoring applications are technologically the second most advanced
in our medical device portfolio as we enter the second phase of clinical trials.
To support the direction of our product development in line with our strategy of
keeping the application focused on the end user, we have already conducted
market research in clinics in both the US and the UK. These have substantiated
the end product portfolio and given critical insights into the potential issues
related to the ultimate marketing of the products
Next in line products will be those from the minimally invasive immunoassay
suite. It is likely that the first Biomarkers to be measured would be in the
area of DVT ( deep vein thrombosis ) or heart attack / stroke markers.
Although a significant number of other product opportunities are under
consideration for magnetic susceptibility and dielectric dissipative measurement
systems (and we believe substantially more are undoubtedly yet to be
considered), the focus of our ongoing development research has been to establish
a core platform with specific emphasis on non-invasive measurement of the
glucose content of blood.
Initial Commercialization Strategy
The prothrombin blood clotting time measurement device and the fetal monitoring
devices utilize much of the core science and technology that applies to the
applications in research.
The nature of the commercial contracts for these two products is quite
different. For the prothrombin time measurement device we are essentially
providing a front-end measuring system for a product that will be independently
developed, produced and marketed by the Unipath division of IMI.
17
In the case of the fetal monitoring devices, we have produced semi-engineered
prototypes for clinical trials Our commercial strategy for these devices is to
have the devices produced and assembled for us in China and contract with
partners that can assist us in marketing and distributing the products. We
intend to rely on our distribution partner's experience and contacts with the
end-users on issues of product features, functions and performance criteria. We
are also in discussions with a second commercial partner who would take the
product into the US, Europe and other world markets. These arrangements only
cover the consumer range of products and further partnerships are being sought
for professional medical devices.
Products
Prothrombin Blood Coagulation Time Measuring Device
The prothrombin time (PT) is one of the most important laboratory measures to
determine the functionality of the blood coagulation system. It is used in
patient care to diagnose diseases of coagulation, assess the risk of bleeding in
patients undergoing operative procedures, monitor patients being treated with
oral anticoagulant (coumadin) therapy, and evaluate liver function. The PT is
performed by measuring the clotting time of platelet-poor plasma after the
addition of calcium and thromboplastin, a combination of tissue factor and
phospholipid.
Both of the techniques in development, magnetic susceptibility and dielectric
dissipation, can more easily be applied to measuring in-vitro rather than
in-vivo analytes. The principles of measurement remain the same. For this
specific application however, we are developing the magnetic susceptibility
method as we have ascertained that this gives us the most accurate and
repeatable measurement of clotting time and also the best grounds for a suite of
unchallengeable patents.
As in the current practice in diabetic glucose monitoring, we extract a small
drop of blood from a finger and place it on a strip. The prime advantages in
using our PT measurement system over current devices are twofold: (a) cost, and
(b) the fact that our device only requires less than 3 microliters of blood,
significantly less invasive than the 20 microliters of blood required by the
only comparable systems. This makes it more likely to be used frequently and
hence reduce the downstream cost of care for patients.
Market for PT Monitors
During the last few years PT monitors have been increasingly proposed as a
substitute for conventional laboratory systems to control oral anticoagulant
treatment. The distinct advantage is that they can be used for patient
self-testing. Their use in combination with computer programs designed to adjust
the dosage is predicted to open a new era in oral anticoagulant monitoring and
all parties involved will benefit from such a revolution.
Physicians in charge (specialists and general practitioners) will be able to
handle the increasing numbers of patients on oral anticoagulants. Laboratory
workers now engaged in lengthy routines will now be available for other tasks.
Health services groups and organizations may save a considerable amount of
economic resources now spent in the management of patients on oral
anticoagulants. Patients themselves will benefit by spending less time attending
overcrowded waiting rooms.
An estimated 17 million people worldwide die of cardiovascular diseases every
year, particularly heart attacks and strokes (Source: WHO). The total European
market revenues in 2004 is estimated to be 150 million euro and is expected to
increase to 375 million euro in 2009 with marked increases in point of care
testing and decreases in laboratory testing and sample size forecast (Source:
Frost & Sullivan)
The current benchmark PT monitor is the CoaguChek system marketed by Roche. Our
patents in the PT monitors include both the configuration of the measurement
apparatus and the detail of the strip design. The principal advantages of our PT
Monitor over the CoaguChek system is shown in the table below.
Feature CoaguChek IVMD
- ------------------ ------------------------------ ------------------------------
Pain of use Inhibitive Micro-lance - `pin-prick'
- ------------------ ------------------------------ ------------------------------
Blood volume 20 microliters <3 microliters
- ------------------ ------------------------------ ------------------------------
Ease of use Complex & error prone process
- ------------------ ------------------------------ ------------------------------
Size of device Desk top Hand-held; mobile phone
- ------------------ ------------------------------ ------------------------------
18
Cost of device $1,295 nominal
- ------------------ ------------------------------ ------------------------------
Cost of strip $4.83 nominal
- ------------------ ------------------------------ ------------------------------
Power consumption Multi, hi-capacity batteries Pen-torch style, low-capacity
- ------------------ ------------------------------ ------------------------------
Fetal Monitoring Devices
We are currently completing development of two interlinked fetal monitoring
devices - fetal heart monitoring and the prediction of labor onset (POLO) - has
had two phases of clinical trials conducted in Leeds, England.
Fetal heart rate is the most reliable measure of fetal well-being and is an
important part of antenatal and intrapartum care. Currently physicians and
midwives use auscultation - merely listening through a trumpet - or small
ultrasound devices that detect the fetal heart through the Doppler effect. Both
methods are unreliable and do not give accurate diagnostic capability. Labor
onset (palpation of tightenings and contractions) is currently estimated through
observation of uterine activity by the mother, the general practitioner or
midwife. Again there is little predictive accuracy in these methods and, while
there are interventions to manage prematurity, Their application follows no key
rules and is often subjective.
There are a number of diagnostic, specialist, hospital-based systems in
development but these are costly, expert-centered and not highly successful in
negative and positive prediction of labor onset.
There are no methods available or in development for home, unskilled use by
mothers-to-be for listening to their developing baby's heartbeat or predicting
the onset of their labor.
Through developing a practical application from a recently published piece of
science regarding myometrial activity, we have created devices capable of
extracting low-level electrical signals from the uterus.
These are acquired from electrodes placed on the surface of the abdomen and, by
using in-house developed algorithms can demonstrate birth onset windows from two
weeks in advance. In addition, the fetal heart rate can be extracted from the
resulting algorithms and an instant display of fetal well being given.
The second stage of clinical trials which has been completed has proven that the
device can generate a 7 to 14 day initial warning of labour onset, followed by a
3 to 6 day final indication. This was achieved in normal spontaneous births.
This is in line with market requirements obtained during market research clinics
Market for Fetal Monitoring Devices
There are 600,000 births in the UK each year, 4,000,000 in the US and an
estimated 4,000,000 in the countries of the rest of the world in which we have
patents granted or pending, excluding China. In consideration of the market
size, socio-demographics play a key role in estimating the potential for
'over-the-counter' device sales while health care 'cost-of-quality' plays an
important factor in professional medical devices - particularly with respect to
the care of the 15% of mothers who are currently considered 'at risk' for
premature delivery. These factors have been taken into account when developing
the market research clinics we have held in the UK and US. We have not yet
studied detailed market socio-demographics to determine the size of the market
for our products in China.
Our Suite of Fetal Monitoring Products
A suite of products are envisioned with linked styling and progressively
increasing levels of diagnostic and data storage capability to cater to both `at
home' and maternity ward use.
A further element in the product suite is the inclusion of disposable contact
pads which are used with the predictor and professional medical products. These
are uniquely keyed to the machines and provide an important revenue generator.
Ultimately this product will enable a significant advance in near patient and
remote care through software which is easily downloadable and transmissible
using conventional communications media.
In Research
Minimally invasive Biomarker Analysis products - Immunoassay
- ------------------------------------------------------------
19
These products use advanced magnetic techniques to look for biomarkers in blood
samples. Generally these are in very low volume, and require high sensitivity to
accurately provide diagnosis. By a process of magnetically "tagging" these
biomarkers, their measurement can be substantially amplified to provide a
sensitive, Point of Care, diagnostic tool.
The market for Immunoassay
The In Vitro Diagnostics market in the USA was worth on its own $11.9billion in
2002 and this represents 35-40% of world market. These are mainly laboratory
tests as there are few Point of Care devices available. The market is served by
30 key companies but is dominated by the larger suppliers Eg Roche Holding, J&J,
Abbott Labs, Beckman Coulter, Becton Dickinson, Bayer, Dade Behring
Within this market, the Immunoassay segment is estimated at c60% with 80% of
sales to top 10 manufacturers.
Market growth estimates are based around 10-15% pa to 2009 in four major
segments :
- Influenza antigen
- Prostate-specific antigen
- Hepatitis C virus antigen
- Myocardial marker
By creating a fast, sensitive, low cost immunoassay device the rapid
trauma/paramedic diagnosis of heart conditions alone would allow earlier
interventions and significantly lower downstream healthcare costs with improved
patient outcomes.
Non-Invasive Blood Analyte Measurement Products
Two methodologies are in development which can, either in isolation or in
combination, identify and measure analytes within a fluid or suspension.
The first technique, `magnetic susceptibility', subjects the sample, in-vivo or
in-vitro, to a known magnetic field. As all substances, whether para or
diamagnetic, are susceptible to the field by virtue of the ions and electrons
within the molecule, they are displaced by varying amounts. By introducing our
developed magnetic systems and circuitry, this displacement can be measured
using sensitive, but conventional, Hall Effect devices and appropriate signal
analysis software (again unique to HET).
The second technique, `dielectric dissipation', quantifies the dielectric
properties and in particular, the loss factors of the subject analyte at the
resonance frequency of the molecule. By determining the energy loss, or quality
factor, of the analyte its concentration in fluid can be determined. Where the
resonant frequency of different analytes is very similar a known magnetic field
can be introduced to displace the molecules and differentiate their resonant
frequencies.
Our work in this area has focused on the non-invasive, continuous bulk
measurement of the glucose content of blood.
The Market for Glucose Measuring Devices
Worldwide annual sales of self-monitoring glucose products for diabetics were
estimated to have totaled $5 billion in 2003 and are forecast to grow
approximately 10% compounded annually (Source: Abbott Laboratories). Worldwide
there are estimated to be currently 175.0 million diabetics, forecast to rise to
366 million by 2030 as diagnosis improves and lifestyles become more sedentary
(Source: WHO). Primary diabetes care costs are a significant factor but indirect
costs are a more substantial burden to healthcare services as diabetes is one of
the most prevalent causes of blindness, kidney disease, nerve disease and
amputations, heart disease and stroke.
A typical diabetic in the developed world consumes between $320 and $1,120 of
resource and materials per annum. Management of the condition may require a
sample of blood to be drawn several times every day - an often painful process.
Currently, the supply of glucose testing equipment is dominated by Johnson and
Johnson, Roche Diagnostics, Abbott Medicines and Bayer Diagnostics with combined
sales of 87% of disposable strips. The US market reached $2.6 billion in 2002
with an estimated compound annual growth rate (2002-2005) of 13.1%. Therefore it
is key to improve glucose meter technologies to encourage frequent testing.
20
All the major players, and some smaller technology companies, are developing
technologies to measure non-or minimally-invasive. Minimally invasive methods
are based on either a correlation of interstitial fluid glucose content or an
implant able glucose biosensor. Non-invasive methods use linear
absorption/transmission spectra of near infrared light or the magneto optical
rotator effect. Some are close to market launch but all are costly, sizeable
machines and none measure bulk readings or continuously.
Our Glucose Blood Monitoring product is being designed to be a pocket calculator
sized device with a small clip to attach to the ear lobe or finger to obtain a
reading. The advantages are that it will be safe, truly non-invasive and
accurately monitor and provide continuous, bulk trends in real time. It can be
produced very cheaply and provide substantial cost savings and health benefits
to users over time.
We believe that it will be capable of being offered to healthcare purchasers, in
consideration of the benefits to health authorities, for a wholesale price of
$200.
We believe that the market potential for this product is huge, as reflected in
the statistics set forth below:
No of 25 year Memo: Memo: Target use Target sales
diagnosed predicted Self Self within volume by
diabetics growth monitoring monitoring diabetic year 5
(`000) (%) market size market population at (`000)*
($m) forecast
year 5
growth (%)
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
UK 1,440 27 154.4 16.0 1 in 15 96
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
USA 10,300 47 1001.6 13.8 1 in 15 687
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
W. Europe 7,100 35 982.4 16.0 1 in 25 355
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
Other Regions** 30,400 32 639.2 1 in 100 304
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
India 22,900 150 1 in 200 115
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
China 18,600 102 1 in 250 75
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
Memo: World Total 154,400 94 2777.6 $6.4 billion
by year 5
- ------------------ ---------------- --------------- ---------------- ---------------- ---------------- ---------------
* Assumes that the product will have a 5 year life cycle and that sales will
peak at the target level
** Countries outside of Europe and the US where patent cover is pending or
granted
Other Potential Products
In addition to Glucose blood monitoring, our intellectual property covers the
use of the technology for the measure and monitoring of any blood analyte -
either one which occurs naturally or is introduced (i.e., through a drug or
carrier). Typical examples of minimally or non-invasive applications are:
o Oxygen - continuous oximetry
o Estrogen - fertility measurement
o Protein markers - for gene evaluation / modification programs
o Drugs
o Alcohol
21
Medical Imaging
Currently simple, two-dimensional imaging is carried out in hospitals and dental
practices using conventional X-ray techniques. This relies on the use of harmful
ionizing radiation and operators, and patients, must take great care to avoid
damaging overexposure.
The magnetic susceptibilities of bone and blood rich tissue differ significantly
and therefore when part of a body is placed between a magnetic source and an
array of Hall devices differential measurements can be taken to create an image
with very high resolution. If a TFT screen, a device similar to a lap-top
computer, is utilized with pixel dedicated Hall Effect chips then a small
portable, and even flexible, device can be created. This creates opportunities
for new and existing markets for low cost, high quality imaging.
In the UK the 355 hospital trusts have anything from a single unit in a cottage
hospital to 15-20 X-ray rooms in a large hospital. Increasingly hospitals are
using digitally mastered images to hold and network patient files. Diagnostic
imaging sales are on the increase both in the UK and the US with x-rays being
the largest growth sector.
US figures are shown in the table below.
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
1999 $ million % Market Share 2004 $ million % Market Share AAGR %
1999 2004 1999-2004
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
X- ray and 1923.5 47.3 2794.5 52.1 7.8
digital X-ray
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
CT and ultrasound 1707.2 2091.1 4.1
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Nuclear medicine 401.7 474.4 3.4
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total 4033.4 5360.0 5.9
- ------------------- ----------------- ----------------- ----------------- ----------------- -----------------
The target for this product is a variant of the 2-dimensional imaging, X-ray
market currently dominated by Philips, Seimens and Toshiba. This device will be
substantially cheaper with no harmful effects, require less user skill and be
more compact to the point that a portable unit is planned for use in-situ for
trauma cases. In dentistry, where different manufacturers compete, it will be
attractive on cost and function as well as being intrinsically safer and more
user friendly and will be a direct replacement for the current intra- and
pan-oral devices.
Bone Mineral Densitometry
Osteoporosis affects one in three women and one in fifteen men in the western
world. As a health care issue it is becoming more prevalent as lifestyles become
more sedentary and diet less varied. In addition the de-mineralization of bone
in young children is becoming an issue of increasing concern in the western
world, as diets are becoming less mineral rich - particularly in calcium. There
are further complications in the scanning of children for bone mineral
deficiency as current processes require the child to lie perfectly still for a
number of minutes.
22
In conjunction with a commercial partner, we are researching a variant of the
medical imaging technology which also utilizes the dielectric dissipative
measuring technique to detect and quantify more accurately and more
conveniently, the onset and early stages of the disease. We have filed patents
in this area for the application of our technology.
Two product streams are envisioned. The first is a hospital use device of a size
capable of performing whole body scans. The second is a hand-held device, which
could scan a finger or vertebrae, and give accurate and rapid readouts of bone
mineral levels. Both devices would give an instant reading against a
patient-trend benchmark.
While we have yet to formally conduct a market review we estimate the market
value for over-the-counter devices alone to grow to in excess of $800 million*
per year by 2007. A full study will be launched when the concept demonstrator
stage is reached.
Internal Surgery
This project is a spin-off from our positional work. Using sensitive Hall Effect
devices in a magnetic field accurate internal positioning of surgical probes,
instruments and other internal medical devices can be achieved. Current practice
uses low power X-rays and computer tomography however this carries the
disadvantage of using ionizing radiation. This is of particular value in keyhole
surgery and the treatment of certain cancers and where magnetic markers can be
used to identify locations within the body. Ideally this technology can be
combined with force feedback techniques. Patents have been filed and the
development program specified.
Product Summary - Technologies and Applications Currently in Development
The following definitions set forth the current stage of development of our
technology, in terms of the products we have proven as to concept, functionally
demonstrated, produced prototypes, or are in actual volume production.
Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
- ----------------------- --------------------- ------------------- ---------------------- --------------------
Concept Proving Functional Semi - engineered Fully - engineered Volume Production
demonstration prototypes prototypes
- ----------------------- --------------------- ------------------- ---------------------- --------------------
Bench and laboratory Bench simulator Batch production As final production For sale to market
to substantiate which can to finished version used for
hypothesis demonstrate design using some field trials in
capabilities production market
materials and
techniques
- ----------------------- --------------------- ------------------- ---------------------- --------------------
3 and 4 may run Tooling will start
concurrently depending on in advance of...
confidence levels in
materials and production
techniques
- ----------------------- --------------------- ------------------- ---------------------- --------------------
0+ 6 months 0+ 10 months 0+ 16 months 0+20 months 0+24 months
- ----------------------- --------------------- ------------------- ---------------------- --------------------
Capability:
- ----------------------- --------------------- ------------------- ---------------------- --------------------
IVMD - current IMDV + resource Small consortium Larger consortium Current market
Current market Current market player player
player
- ----------------------- --------------------- ------------------- ---------------------- --------------------
The current product development status of our technology may be summarized as
follows:
23
Technology Product Key Applications Development Stage
- ---------------------------- -------------------------- -------------------------------- --------------------
1. Blood analyte Fast, sensitive low cost Cardiac, HIV, Drug diagnosis 2
Biomarker measurement and measurement
2. Blood glucose monitor Non-invasive, accurate Routine measurement of glucose 1
Point of care For self management
Of glucose
1
- ---------------------------- -------------------------- -------------------------------- --------------------
3. BAM (minimally invasive) Point of care blood
Minimally - invasive, safe 3 analysis accurate
monitoring of
clinical conditions such as
Coagulation time
- ---------------------------- -------------------------- -------------------------------- --------------------
4. Medical imaging Professional medical Non-invasive, safe, high - 3
scanner quality alternative to 2D X-
Portable imaging device ray scanning
Dental imaging device
- ---------------------------- -------------------------- -------------------------------- --------------------
5. Medical imaging Bone densitometry Professional medical Non-invasive 2
and safe 1 densitometer measurement of onset and
OTC variant for home use status of osteoporosis
(esp. for female use)
- ---------------------------- -------------------------- -------------------------------- --------------------
6. Surgical Positioning Internal surgery Instrument
position Safe and 1 accurate 3D 1 monitor
positioning of instruments
- ---------------------------- -------------------------- -------------------------------- --------------------
7. Fetal heart rate monitor Fetal heart monitor Reliable at- home and 3
professional medical heart
rate monitor for unborn babies
- ---------------------------- -------------------------- -------------------------------- --------------------
8. Labor predictor Labor predictor-OTC Accurate prediction of onset 3
Labor predictor- of labor from 6 weeks out
professional medical
- ---------------------------- -------------------------- -------------------------------- --------------------
PRODUCT DESIGN, PROTECTION, MANUFACTURING AND PRODUCTION
We have established the following relationships to enable us to develop, produce
and protect our product applications and technologies to create our operational
platform:
o Chinese manufacturing - HET is active in manufacturing and assembling products
via a number of manufacturers in China, particularly Hen Young Manufacturing in
the Don Guan province.
o Patent/IPR management - HET uses Wilson Gun McCaw and Novagraaf to construct
and manage its patent process. Patent files are held on the central database
`Netspat'.
o Medius, a specialist agency for the patent/licensing process in the biomedical
field will provide expert patent audit and positioning of our ideas within
patent niches.
24
o Double Helix is responsible for product positioning through in-market
research.
o Kinneir Dufort ("KD") and JAB Design ("JAB") have been engaged to deliver
product design and basic engineering from Phase I of product development. KD
specializes in biomedical products and has a significant track record with blue
chip companies. JAB is a specialist in small electronic device packaging and
prototype and production design and sourcing.
o Rosti is a specialized plastics and electronics manufacturing and assembly
company which is part of the Danish AP M0ller group. It has supply contracts
with blue chip companies, including Siemens, Ericsson, Phillips, Nokia,
GlaxoSmithKline, Johnson & Johnson, Novo Nordisk, and other companies. Through
working proposals entered into between In Veritas and Rosti, Rosti provides us
with access to a high quality global manufacturing base and a high level of
potential licensing partners.
REVENUE GENERATION AND COMMERCIAL OPPORTUNITIES
New Product Development
- -----------------------
Our new product development focus has been driven by specific contracts for
products which have a clear route to market. Research has been prioritized by a
combination of feasibility and market opportunity based on market research
commissioned by us.
Applied Research
- ----------------
Our plan is to build a pipeline of products from applications currently in
development. This will be matched to a set of commercial partners committed to
launch products into global markets. Our technology yields a multitude of
product applications for specific medical conditions. Further market research
and specialist medical input will translate these research programs into
end-user specific projects.
Lateral Synergies
- -----------------
The nature of near-patient digital monitoring creates a further and significant
commercial opportunity for electronic data transfer and remote clinical
diagnosis and intervention. All our patent applications consider the use of
wireless data transmission for such use.
Corporate Growth
- ----------------
By making the current competitive measuring technologies obsolete, our novel
applications facilitate revolutionary approaches to the medical diagnostic
processes in which they are applied, which opens opportunities for an effective
acquisition strategy targeted at some appropriately sized but potentially less
profitable companies who may have established manufacturing and distribution
systems.
Timing of Commercialization
- ---------------------------
The approximate potential introduction of our products is shown below. Since all
products use a similar platform technology the exact order of introduction will
depend on the order in which we secure development contracts with commercial
partners.
Patents Concept Functional Prototypes Clinical Production/ Commercial
Held Proven Demo trials Revenues Partner
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
Prothrombin blood Y Y Y Y Y 2005 Y
coagulation timing device
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
Fetal Heart Monitoring/ Y Y Y Y Y 2006 D
POLO consumer
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
Fetal Heart Monitoring/ Y Y Y 2004 Y 2006 D
POLO professional medical
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
Non-invasive blood glucose Y Y 2005 2006 2006 2007 2006
monitoring
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
R2 - MID Y Y 2004 2005 2005 2006 2005
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
R3 - Other Y/N N 2005 2006 2006 2007 2005/6
- ------------------------------- --------- ----------- ------------ ------------- ---------- ------------- ---------------
Government Regulation
We are subject to government laws and regulations governing health, safety,
working conditions, employee relations, wrongful termination, wages, taxes and
other matters applicable to businesses in general.
25
Employees
We currently employ 9 full time staff members, including directors, laboratory
personnel and admininstrative personnel. In addition, 3 of our directors are
employed on a part time basis pursuant to consultancy agreements. All other
staffing requirements are filled by consultants and outsourcing as required.
Seasonality
We do not anticipate that our business will be substantially affected by
seasonality.
DESCRIPTION OF PROPERTY
Our research and executive offices are located at The Green House, Beechwood
Business Park North, Inverness, Scotland IV2 3BL in 1,128 square feet of leased
space under a lease with an unaffiliated third party, expiring on April 25,
2006, and with an annual rent of approximately $33,600.
LEGAL PROCEEDINGS
We are not currently party to any legal proceedings required to be disclosed
herein.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table sets forth current information regarding our executive
officers, senior managers and directors:
Name Age Positions
John Fuller................. 44 President, Chief Executive Officer,
Director
Martin Thorp................ 53 Chief Financial Officer and Director
Brian Cameron............... 46 Chief Operating Officer and Director
Graham Cooper............... 55 Chairman
John Fuller has been our President, Chief Executive Officer and a director since
July 2001. Mr. Fuller has a considerable track record in bringing conventional
and new technology products to market in class leading product lead times. Mr.
Fuller started HET, as its Chief Executive Officer, in July 1999, and was
responsible for the acquisition of Jopejo in December 2001, and subsequent
growth of the company. From September 1997 to November 1999, was Managing
Director of Highland Distillers, located in Scotland, a $400 million revenue
public company in the premium spirits sector. From June 1993 to August 1997 he
served as Executive Vice President of Mayflower Corporation, located in Detroit,
Michigan, a multinational company in the motor industry. Mr. Fuller received his
B.S. in Mechanical Engineering from Southampton University and a Masters of
Business Administration from Warwick University.
Martin Thorp has been our Chief Financial Officer and a Director since April
2005. From 2002 through 2005, Mr. Thorp had been involved in various
entrepreneurial activities including, the establishment of Biz-Bud Ltd., a
private company which provides outsourcing solutions for the small and mid-sized
enterprises ("SMEs") across the entire business support spectrum; developing a
consulting capability for SMEs; acting as a consultant to an international
corporate finance and strategic advisory boutique; serving as strategic advisory
non-executive board member of Grant Thornton; and serving in various short term
consulting and interim management positions. From 1996 to 2002, Mr. Thorp served
as Global Managing Partner, Corporate Finance for Arthur Andersen, London and
New York. Mr. Thorp graduated with first class honors from the University of
Kent at Canterbury (UK) in Accounting and Business Finance. Mr. Thorp is a
Fellow of the Institute of Chartered Accountants in England and Wales and a
member of the Securities Institute (in the UK).
26
Brian Cameron has been our Chief Operating Officer since December 2003. Mr.
Cameron joined HET and Jopejo, as a consultant in March 2001, prior to which he
set up his own consulting business with customers such as BMW Gmbh and Snap On
Tools. Mr. Cameron spent two and a half years on the board of Highland
Distillers from March 1998 to July 2000. From November 1995 to February 1998 he
was a managing director of BMH Ltd., a subsidiary of BMW-Rover, where he was
engaged in licensing and branding, supplier and customer partnership building
and change management. From August 1992 to November 1995 Mr. Cameron served as
logistics director of Rover Group, a $3.5 billion revenue automotive company.
Mr. Cameron is a Fellow of the Chartered Management Institute with a background
in successful turn-around and business growth.
Graham Cooper has been our Chairman of the Board since January 2000. For the
past five years, Mr. Cooper Graham has been the principal stockholder of Westek,
a computer trading company located in Manchester, England, with a turnover of
approximately $192 million. Westek has been the primary financing source to HET
and is a business "angel" to other technology development stage companies.
Audit Committee
We do not have a separately designated standing audit committee.
Code of Ethics
We have adopted our Code of Ethics and Business Conduct for Officers, Directors
and Employees that applies to all of our officers, directors and employees. The
Code of Ethics was filed with the Annual Report on Form 10-KSB dated February 3,
2005.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total compensation
that we have paid or that has accrued on behalf of our Chief Executive Officer
and President and other executive officers with annual compensation exceeding
$100,000 during fiscal 2005, 2004 and 2003.
Executive Compensation Table
Long-Term
Compensation
-----------------------------------------
Annual Compensation Awards Payouts
------------------------------------- ---------------------------- ------------
Other Securities
Annual Restricted Under-lying All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) Payouts ($) sation ($)
- ----------------------------- -------- ----------- ----------- ------------- ------------- ------------ ------------ -----------
2005 270,000 -0- -0- -0- 4,829,577 -0- -0-
John Fuller, 2004 235,881 -0- -0- -0- 4,829,577 -0- -0-
Chief Executive Officer 2003 204,732 -0- -0- -0- -0- -0- -0-
2005 270,000 -0- -0- -0- 4,829,577 -0- -0-
Brian Cameron, 2004 160,342 -0- -0- -0- 4,829,577 -0- -0-
Chief Operating Officer 2003 -0- -0- -0- -0- -0- -0- -0-
* In accordance with the rules and regulations of the Securities and Exchange
Commission, this table omits columns pertaining to compensation that was not
awarded.
Employment Agreements
John Fuller. Pursuant to the terms of an Employment Agreement dated May 26,
2004, we appointed Mr. Fuller as our Chief Executive Officer until November 30,
2006, continuing for successive one-year terms unless otherwise terminated. We
agreed to pay Mr. Fuller (pound)130,000 for the first six months and
(pound)150,000 per year thereafter. Mr. Fuller shall be eligible to receive a
maximum of 4,829,577 options, one-third of which are exercisable on the first
anniversary of the agreement. He is also eligible to receive a cash-control and
profit performance-based bonus ranging from 10% to 100% of his base salary.
27
Brian Cameron. Pursuant to the terms of an Employment Agreement dated May 26,
2004, we appointed Mr. Cameron as our Chief Operating Officer for a period of
three years, continuing for successive one-year terms unless otherwise
terminated. We agreed to pay Mr. Cameron (pound)130,000 for the first six months
and (pound)150,000 per year thereafter. Mr. Cameron shall be eligible to receive
a maximum of 4,829,577 options, one-third of which is exercisable on the first
anniversary of the agreement. He is also eligible to receive a cash-control and
profit performance-based bonus ranging from 10% to 100% of his base salary.
All of our other directors are employed under consultancy agreements.
Option/SAR Grants
Option/SAR Grants in Last Fiscal Year
Individual Grants
- ------- --------------------------------- ------------------------------------- ----------------- ---------------
(a) (b) (c) (d) (e)
- ------- --------------------------------- ------------------------------------- ----------------- ---------------
Name Number of Securities Underlying % of Total Options/SARs Granted to Exercise or Base Expiration
Options/SARs Granted (#) Employees in Fiscal Year Price ($/Sh) Date
CEO 50,000 7.6% 0.55 1/6/15
- ------- --------------------------------- ------------------------------------- ----------------- ---------------
28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock has been quoted on the OTC Bulletin Board under the symbol
"IVME.OB". Prior to our name change from In Vivo Medical Diagnostics, Inc. to In
Veritas Medical Diagnostics, Inc., our common stock was quoted on the OTC
Bulletin Board under the symbol "IVVO.OB". Prior to that we traded under the
name Sports Information & Publishing Corporation and were quoted under the
symbol "SIPC.OB". Prior to July 14, 2004, there was no established trading
market for our common stock. The following table shows the reported high and low
closing bid quotations per share for our common stock based on information
provided by the OTC Bulletin Board. Particularly since our common stock is
traded infrequently, such over-the-counter market quotations reflect
inter-dealer prices, without markup, markdown or commissions and may not
necessarily represent actual transactions or a liquid trading market.
Quarter Ended High Low
------------------ --------- ---------
October 31, 2003 -- --
------------------ --------- ---------
January 31, 2004 -- --
------------------ --------- ---------
April 30, 2004 -- --
------------------ --------- ---------
July 31, 2004 3.17 1.60
------------------ --------- ---------
October 31, 2004 3.20 1.80
------------------ --------- ---------
January 31, 2005 2.25 0.92
------------------ --------- ---------
April 30, 2005 1.27 0.63
------------------ --------- ---------
July 31, 2005 0.81 0.34
As of September 8, 2005, we had 80,391,308 shares of common stock issued and
outstanding. Our transfer agent is Corporate Stock Transfer, Denver, Colorado,
(303) 282-4800.
Number of Stockholders
As of August 31, 2005, there were approximately 119 holders of record of our
common stock.
Dividend Policy
Historically, we have not paid any dividends to the holders of our common stock
and we do not expect to pay any such dividends in the foreseeable future as we
expect to retain our future earnings for use in the operation and expansion of
our business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates beneficial ownership of our common stock as of
September 8, 2005 by each person or entity known by us to beneficially own more
than 5% of the outstanding shares of our common stock; each of our executive
officers and directors; and all of our executive officers and directors as a
group. Unless otherwise indicated, the address of each beneficial owner listed
below is c/o The Green House, Beechwood Business Park North, Inverness, Scotland
IV2 3BL.
29
Name of Beneficial Owner Number of Shares Class of Stock Percentage Outstanding (1)
Beneficially Owned
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Abacus Trust Company Limited (2) 19,328,381 Preferred Stock 24.1%
Unit 2, Taurus Park
Europa Boulevard
Warrington WA5 7YT
England
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Rodney Philip Jackson 6,392,695 Preferred Stock 8.0%
The Green House
Beechwood Business Park North
Inverness, Scotland IV2 3BL
- ------------------------------------- ------------------------------ ---------------------- --------------------------
HEMP Trustees Limited 12,879,073 Common Stock 16.0%
10 Foster Lane
London, England
EC2V 6HR
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Rubin Family Irrevocable Stock 4,674,541 Common Stock 5.8%
Trust (3)
25 Highland Boulevard
Dix Hills, New York 11730
- ------------------------------------- ------------------------------ ---------------------- --------------------------
John Fuller (4) 8,147,345 Common Stock 10.1%
Easter Shian, Glen Quaich
Amulree, Perthshire
PH8 0DB
Scotland
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Brian Cameron (5) 8,123,195 Common Stock 10.0%
Campbell Cairns, Craigellachie
Aberlour, Banffshire
Scotland
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Graham Cooper 0 Common Stock *
Rock Cottage
Finsthwaite
Cumbria
United Kingdom
LA12 8BH
- ------------------------------------- ------------------------------ ---------------------- --------------------------
Martin E. Thorp (6) 0 Common Stock *
7 Howard Bldg.
London
United Kingdom
SW8 4NN
- ------------------------------------- ------------------------------ ---------------------- --------------------------
All directors and executive 16,270,540 20.2%
officers as a group (5 persons)
- ------------------------------------- ------------------------------ ---------------------- --------------------------
* less than 1%
(1) Applicable percentage ownership is based on 80,391,308 shares of common
stock outstanding as of September 9, 2005. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock that are currently exercisable or exercisable within 60 days of
September 9, 2005 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Consists of shares of 4% voting preferred stock, convertible on or after
October 31, 2005 into 19,328,381 shares of common stock. Abacus Trust Company
Limited is acting as trustee for the Westek Limited Employee Trust. Graham
Cooper, Chairman of our Board of Directors, and Bernard Turner, Chief Financial
Officer are beneficiaries of the Westek Limited Employee Trust.
30
(3) Excludes an aggregate of 2,785,310 shares of common stock owned by Andrew
Rubin, Lynda Rubin and Lisa Diaz, the children of Robert M. Rubin and by the
grandchild of Robert M. Rubin, the settlor of the Rubin Family Irrevocable Stock
Trust. Mr. Rubin disclaims beneficial interest in the shares owned by the Rubin
Family Irrevocable Stock Trust or by his children and grandchild.
(4) Consists of (i) 6,439,437 shares held by the Hall Effect Medical Products
Employee Benefit Trust as to which Mr. Fuller holds options to purchase (ii)
98,050 shares issued to Mr. Fuller in consideration of his cancellation of
certain obligations owed to him by HET and Jopejo, and (iii) 1,609,859 shares
underlying options issued pursuant to Mr. Fuller's employment agreement which
are currently exercisable.
(5) Consists of (i) 6,439,436 shares held by the Hall Effect Medical Products
Employee Benefit Trust as to which Mr. Cameron holds options to purchase, and
(ii) 73,899 shares issued to Mr. Cameron in consideration of his cancellation of
certain obligations owed to him by HET and Jopejo, and (iii) 1,609,859 shares
underlying options issued pursuant to Mr. Cameron's employment agreement which
are currently exercisable.
(6) This does not include (i) 50,000 shares underlying options which are not
exercisable within 60 days of September 14, 2005.
SELLING SHAREHOLDERS
The following table presents information regarding the selling shareholders.
Shares to be Acquired Shares Beneficially
Shares Beneficially Owned Under the Standby Equity Owned After
Prior to Offering Distribution Agreement the Offering(2)
------------------------- --------------------------- --------------------
Selling Stockholder Number Percent(1) Number Percent(1) Number Percent(1)
- ------------------- ------ ---------- ------ ---------- ------ ----------
Cornell Capital Partners LP.(3) 472,000 * 50,000,000 % -0- --
Montgomery Equity 5,558,333 6.5 -0-
Partners Ltd.(4)(5)
Monitor Capital Inc.(6)(7) 28,000 * -0-
Nite Capital L.P.(8) 1,162,791 1.4 -0- -- -0- --
Westor Capital Group Inc.(9)(10) 402,356 * -0- -- -0- --
Whalehaven Capital Fund Ltd.(11) 1,399,306 1.6 -0- -- -0- --
Rubin Family Irrevocable 104,166 * -0- -- -0- --
Stock Trust (12)
Triumph Research Partners LLC(13) 972,222 1.1 -0- -- -0- --
Longview Fund LP (14) 1,388,889 1.6 -0- -- -0- --
Sichenzia Ross Friedman 805,000 * -0- -- -0- --
Ference LLP(15)
*less than 1%.
(1) Applicable percentage ownership is based on 80,391,308 shares of common
stock outstanding as of September 9, 2005. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock that are currently exercisable or exercisable within 60 days of
September 9, 2005 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
31
(2) Assumes that all securities registered will be sold and that all shares of
common stock underlying the Standby Equity Distribution Agreement, Convertible
Debentures and warrants will be issued.
(3) Includes 472,000 shares of common stock issued to Cornell as a commitment
fee in connection with the signing of the Standby Equity Distribution Agreement.
(4) Montgomery Equity Partners Ltd. is an affiliated fund of Cornell Capital
Partners LP.
(5) Includes up to 5,208,333 shares issuable upon conversion of secured
convertible debentures and 350,000 shares issuable upon exercise of warrants.
(6) Monitor Capital, Inc. is a registered broker dealer.
(7) Includes 28,000 shares of common stock issued as compensation for its
services as the exclusive placement agent for the sale of the Common Stock under
the Standby Equity Distribution Agreement.
(8) Represents 1,162,791 shares of common stock issued to Nite Capital, LP,
pursuant to a Subscription Agreement dated as of December 22, 2004.
(9) Includes (i) 278,818 shares of common stock issuable upon conversion of
Series B Convertible Preferred Stock (ii) 61,769 shares issuable upon exercise
of warrants and (iii) 61,769 shares issuable upon exercise of unit warrants.
(10) Westor Capital Group, Inc. is a registered broker dealer.
(10) Represents shares issuable upon conversion of secured convertible
debentures.
(11) Represents shares issuable upon conversion of secured convertible
debentures.
(12) Represents shares issuable upon conversion of secured convertible
debentures.
(13) Represents shares issuable upon conversion of secured convertible
debentures.
(14) Represents 805,000 shares of common stock issued as compensation for legal
services.
The following is a description of the selling shareholders relationship to us
and how each the selling shareholder acquired the shares to be sold in this
offering:
32
On September 7, 2005, we entered into a Standby Equity Distribution Agreement
(the "Cornell Agreement") with Cornell Capital Partners LP, a private equity
fund, providing for the sale and issuance to Cornell of up to $10,000,000 of our
common stock over a period of up to 24 months after the effective date of the
registration statement of which this prospectus forms a part. Under the
agreement, we may sell to Cornell up to $500,000 in shares of our common stock
once every five trading days at a price of 97% of the lowest closing bid price
of our common stock for the five consecutive trading days following our notice
to Cornell of our intention to sell shares under the agreement. Monitor Capital,
Inc., a registered broker-dealer, will act as the exclusive placement agent for
the shares to be issued under our agreement with Cornell.
Under the Standby Equity Distribution Agreement, we also issued to Cornell
472,000 shares of our common stock.
In connection with the Cornell agreement, on September 7, 2005, we entered into
a Securities Purchase Agreement with Montgomery Equity Partners Ltd., an
affiliated fund of Cornell, providing for the sale to Montgomery of our 18%
secured convertible debentures in the aggregate principal amount of $750,000, of
which $300,000 was funded on September 13, 2005; $200,000 shall be funded two
business days prior to the completion of our audited financial statements for
the fiscal year ended July 31, 2005, and; $250,000 shall be funded within five
business days of the date the Registration Statement is declared effective by
the SEC. Under the Purchase Agreement, we also issued to Montgomery three-year
warrants to purchase 350,000 shares of Common Stock at $0.001 per share. Holders
of the debentures may convert, at any time, the principal amount outstanding
under the debentures into shares of common stock, at a conversion price per
share equal to $0.144. Upon three-business day advance written notice, we may
redeem the debentures, in whole or part. In the event that we exercise our right
of redemption, a 12% redemption premium shall apply.
On April 15, 2005, we completed the sale of 863,845 units (the "Units"), each
Unit consisting of one share of 5% convertible preferred stock of the Company,
$.001 par value per share (the "Preferred Stock"), and one warrant to purchase
one share of the Company's common stock (the "Warrants"), to accredited
investors pursuant for an aggregate purchase price of approximately $561,500.
The following Selling Shareholders have agreed to exchange the securities
received pursuant to the April 2005 private placement for convertible
debentures: Whalehaven Capital Fund Ltd; Rubin Family Irrevocable Stock Trust;
Triumph Research Partners LLC; Longview Fund LP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeded or exceeds $60,000 and in which
any director, executive officer, holder of more than 5% of our common stock or
any member of the immediate family of any of the foregoing persons had or will
have a direct or indirect material interest.
DESCRIPTION OF SECURITIES
The following description of our capital stock and provisions of our articles of
incorporation and bylaws, each as amended, is only a summary. You should also
refer to the copies of our articles of incorporation and bylaws which are
included as exhibits to our Report on 10-KSB for the fiscal year ended July 31,
2004. Our authorized capital stock consists of 500,000,000 shares of common
stock, no par value, and 50,000,000 shares of preferred stock $0.01 par value
per share. As of September 9, 2005, there are 80,391,308 shares of common stock
issued and outstanding and no shares of preferred stock issued and outstanding.
Common Stock
Holders of our common stock are entitled to one vote for each share held on all
matters submitted to a vote of our stockholders. Holders of our common stock are
entitled to receive dividends ratably, if any, as may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of our common stock are entitled to
receive ratably our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock. Holders of our common stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of holders of
shares of any series of preferred stock which we may designate and issue in the
future without further stockholder approval.
33
Preferred Stock
Our board of directors is authorized without further stockholder approval, to
issue from time to time up to a total of 50,000,000 shares of preferred stock in
one or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
term of redemption, redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of these series without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of our
management without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others.
Currently, there are 34,343,662 and 61,769 shares of Series A and Series B
Preferred Stock, respectively, issued and outstanding.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Corporate Stock
Transfer, located at 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado
80209.
PLAN OF DISTRIBUTION
The selling stockholder, or its pledgees, donees, transferees, or any of its
successors in interest selling shares received from the named selling
stockholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be a selling
stockholder) may sell the common stock offered by this prospectus from time to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholder may sell the common stock by one or more of
the following methods, without limitation:
o Block trades in which the broker or dealer so engaged will attempt to sell the
common stock as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o An exchange distribution in accordance with the rules of any stock exchange on
which the common stock is listed;
o Ordinary brokerage transactions and transactions in which the broker solicits
purchases;
o Privately negotiated transactions;
o In connection with short sales of company shares;
o Through the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
o By pledge to secure debts of other obligations;
o In connection with the writing of non-traded and exchange-traded call options,
in hedge transactions and in settlement of other transactions in standardized or
over-the-counter options;
o Purchases by a broker-dealer as principal and resale by the broker-dealer for
its account; or
o In a combination of any of the above.
These transactions may include crosses, which are transactions in which the same
broker acts as an agent on both sides of the trade. The selling stockholders may
also transfer the common stock by gift. We do not know of any arrangements by
the selling stockholders for the sale of any of the common stock.
34
The selling stockholders may engage brokers and dealers, and any brokers or
dealers may arrange for other brokers or dealers to participate in effecting
sales of the common stock. These brokers or dealers may act as principals, or as
an agent of a selling stockholder. Broker-dealers may agree with a selling
stockholder to sell a specified number of the stocks at a stipulated price per
share. If the broker-dealer is unable to sell common stock acting as agent for a
selling stockholder, it may purchase as principal any unsold shares at the
stipulated price. Broker-dealers who acquire common stock as principals may
thereafter resell the shares from time to time in transactions in any stock
exchange or automated interdealer quotation system on which the common stock is
then listed, at prices and on terms then prevailing at the time of sale, at
prices related to the then-current market price or in negotiated transactions.
Broker-dealers may use block transactions and sales to and through
broker-dealers, including transactions of the nature described above. The
selling stockholders may also sell the common stock in accordance with Rule 144
or Rule 144A under the Securities Act, rather than pursuant to this prospectus.
In order to comply with the securities laws of some states, if applicable, the
shares of common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledgees, secured parties or person to whom the shares have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for that selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell the
shares short, and, in those instances, this prospectus may be delivered in
connection with the short sales and the shares offered under this prospectus may
be used to cover short sales.
To the extent required under the Securities Act, the aggregate amount of selling
stockholders' shares being offered and the terms of the offering, the names of
any agents, brokers, dealers or underwriters, any applicable commission and
other material facts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or a post-effective amendment to the
registration statement of which this prospectus is a part, as appropriate. Any
underwriters, dealers, brokers or agents participating in the distribution of
the common stock may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a selling stockholder and/or purchasers of
selling stockholders' shares, for whom they may act (which compensation as to a
particular broker-dealer might be less than or in excess of customary
commissions). Neither we nor any selling stockholder can presently estimate the
amount of any such compensation.
The selling stockholders and any underwriters, brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers or affiliates of registered
broker-dealers may be underwriters under the Securities Act. We will not pay any
compensation or give any discounts or commissions to any underwriter in
connection with the securities being offered by this prospectus. Cornell Capital
Partners LP is an "underwriter' as defined under the Securities Act with respect
to the sale of the shares of common stock issuable under the Standby Equity
Distribution Agreement.
A selling stockholder may enter into hedging transactions with broker-dealers
and the broker-dealers may engage in short sales of the common stock in the
course of hedging the positions they assume with that selling stockholder,
including, without limitation, in connection with distributions of the common
stock by those broker-dealers. A selling stockholder may enter into option or
other transactions with broker-dealers, who may then resell or otherwise
transfer those common stock. A selling stockholder may also loan or pledge the
common stock offered hereby to a broker-dealer and the broker-dealer may sell
the common stock offered by this prospectus so loaned or upon a default may sell
or otherwise transfer the pledged common stock offered by this prospectus.
35
The selling stockholders and other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under the Exchange Act, including
Regulation M. This regulation may limit the timing of purchases and sales of any
of the common stock by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. Regulation M may restrict the ability of any person engaged in the
distribution of the common stock to engage in market-making activities with
respect to the particular common stock being distributed for a period of up to
five business days before the distribution. These restrictions may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common stock.
We have agreed to indemnify the selling stockholder and any brokers, dealers and
agents who may be deemed to be underwriters, if any, of the common stock offered
by this prospectus, against specified liabilities, including liabilities under
the Securities Act. The selling stockholder has agreed to indemnify us against
specified liabilities.
The issued and outsanding common stock, as well as the common stock to be issued
offered by this prospectus was originally, or will be, issued to the selling
stockholders pursuant to an exemption from the registration requirements of the
Securities Act, as amended. We agreed to register the common stock issued or to
be issued to the selling stockholders under the Securities Act, and to keep the
registration statement of which this prospectus is a part effective until all of
the securities registered under this registration statement have been sold. We
have agreed to pay all expenses incident to the registration of the common stock
held by the selling stockholders in connection with this offering, but all
selling expenses related to the securities registered shall be borne by the
individual holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf.
We cannot assure you that the selling stockholders will sell all or any portion
of the common stock offered by this prospectus. In addition, we cannot assure
you that a selling stockholder will not transfer the shares of our common stock
by other means not described in this prospectus.
In the event Cornell Capital Partners holds more than 9.9% of our
then-outstanding common stock, we will be unable to obtain a cash advance under
the Standby Equity Distribution Agreement. A possibility exists that Cornell
Capital Partners may own more than 9.9% of our outstanding common stock at a
time when we would otherwise plan to request an advance under the Standby Equity
Distribution Agreement. In that event, if we are unable to obtain additional
external funding, we could be forced to curtail or cease our operations.
LEGAL MATTERS
The validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York.
EXPERTS
The July 31, 2004 and 2003 financial statements included in the Prospectus have
been audited by Cordovano and Honeck, LLP, a limited liability partnership of
certified public accountants to the extent and for the periods set forth in
their report appearing elsewhere herein and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We filed with the SEC a registration statement on Form SB-2 under the Securities
Act for the common stock to be sold in this offering. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedules that were filed with the registration statement. For further
information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer
you to the full text of the contract or other document filed as an exhibit to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, NW, Washington, DC 20549. Copies of all or
any part of the registration statement may be obtained from the SEC upon payment
of the prescribed fee. Information regarding the operation of the public
reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the site is http://www.sec.gov.
36
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Under Section 7-109-102 of the Colorado Business Corporations Act (the "Colorado
Act") a corporation may indemnify a person made a party to a proceeding because
the person is or was a director, against liability incurred in the proceeding.
Indemnification permitted under this section in connection with a proceeding by
or in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
Indemnification is only possible under this section 7-109-102, however, if: (a)
the person conducted him/herself in good faith; and (b) the person reasonably
believed: (i) in the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and (ii) in all other cases, that his or her conduct was at least not opposed to
the corporation's best interests; and (c) in the case of any criminal
proceeding, the person had no reasonable cause to believe his or her conduct was
unlawful.
It should be noted, however, that under Section 7-109-102(4), a corporation may
not indemnify a director: (i) in connection with a proceeding by or in the right
of the corporation in which the director is adjudged liable to the corporation;
or (ii) in connection with any other proceeding in which a director is adjudged
liable on the basis that he or she derived improper personal benefit.
Under Section 7-109-103 a director is entitled to mandatory indemnification,
when he/she is wholly successful in the defense of any proceeding to which the
person was a party because the person is or was a director, against reasonable
expenses incurred in connection to the proceeding.
Under Section 7-109-105, unless restricted by a corporation's Articles of
Incorporation, a director who is or was a party to a proceeding may apply for
indemnification to a court of competent jurisdiction. The court, upon receipt of
the application, may order indemnification after giving any notice the court
considers necessary. The court, however, is limited to awarding the reasonable
expenses incurred in connection with the proceeding and reasonable expenses
incurred to obtain court-ordered indemnification.
Under Section 7-109-107, unless restricted by the corporation's Articles of
Incorporation, an officer of a corporation is also entitled to mandatory
indemnification and to apply for court-ordered indemnification to the same
extent as a director.
A corporation may also indemnify an officer, employee, fiduciary or agent of the
corporation to the same extent as a director.
Under Section 7-109-108 a corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary or
agent of the corporation against liability asserted against or incurred by the
person in that capacity, whether or not the corporation would have the power to
indemnify such person against the same liability under other sections of the
Colorado Act.
Our officers and directors are accountable to our shareholders as fiduciaries,
which means such officers and directors are required to exercise good faith and
integrity in handling our affairs. A shareholder may be able to institute legal
action on behalf of himself and all other similarly situated shareholders to
recover damages where we have failed or refused to observe the law. Shareholders
37
may, subject to applicable rules of civil procedure, be able to bring a class
action or derivative suit to enforce their rights, including rights under
certain federal and state securities laws and regulations. Shareholders who have
suffered losses in connection with the purchase or sale of their interest in us
due to a breach of a fiduciary duty by one of our officers or directors in
connection with such sale or purchase including, but not limited to, the
misapplication by any such officer or director of the proceeds from the sale of
any securities, may be able to recover such losses from us. We and our
affiliates may not be liable to its shareholders for errors in judgment or other
acts or omissions not amounting to intentional acts.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense or any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
We have no agreements with any of its directors or executive officers providing
for indemnification of any such persons with respect to liability arising out of
their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a director or
executive officers as to which indemnification is being sought.
38
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formally In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Index To Financials
Page
----------------
Report of Independent Registered Public Accounting Firm.................................................F-2
Consolidated Balance Sheet at April 30, 2005 (unaudited) and July 31, 2004..............................F-3
Consolidated Statements of Operations for the nine and three months ended
April 30, 2005 (unaudited) and 2004 (unaudited), for the years
ended July 31, 2004 and 2003, and for the period
from March 26, 1997 (Inception) through April 30, 2005 (unaudited).................................F-4
Consolidated Statements of Accumulated Other Comprehensive Loss
for the nine months ended April 30, 2005 (unaudited) and 2004 (unaudited),
for the years ended July 31, 2004 and 2003 and for the period from
March 26, 1997 (Inception) through April 30, 2005 (unaudited)......................................F-5
Statement of Changes in Shareholders' Deficit for the period from
March 26, 1997 (Inception) through April 30, 2005 (unaudited)......................................F-6
Consolidated Statements of Cash Flows for the nine months ended
April 30, 2005 (unaudited) and 2004 (unaudited), for the years
ended July 31, 2004 and 2003 and for the period
from March 26, 1997 (Inception) through April 30, 2005 (unaudited).................................F-8
Notes to Consolidated Financial Statements..............................................................F-9
Report of Independent Registered Public Accounting Firm
The Board of Directors
In Veritas Medical Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheet of In Veritas
Medical Diagnostics, Inc. (a Colorado corporation) (formerly In Vivo Medical
Diagnostics, Inc.) as of July 31, 2004, and the related consolidated statements
of operations, shareholders' deficit, and cash flows for each of the years in
the two-year period ended July 31, 2004, and for the period from March 26, 1997
(inception) through July 31, 2004. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of In Veritas Medical
Diagnostics, Inc. as of July 31, 2004, and the results of their operations and
their cash flows for each of the years in the two-year period ended July 31,
2004, and for the period from March 26, 1997 (inception) through July 31, 2004,
in conformity with accounting principles generally accepted in the United
States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred losses since inception and has a net
capital deficit at July 31, 2004. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Notes 2 and 9 to the consolidated financial statements, an error
resulting in understating of reported net income in the amount of $281,783 was
discovered by management in February 2005. In addition, an error in recording a
gain of $2,030,298 was discovered by management in July 2005. Accordingly, the
consolidated financial statements have been re-stated to correct the error.
/s/ Cordovano and Honeck, LLP
- -----------------------------
Cordovano and Honeck, LLP
Denver, Colorado
January 25, 2005, except as to Notes 1, 3, 4, 5, and 6,
which is July 28, 2005 and Notes 2 and 9,
which is September 13, 2005
F-2
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formally In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Balance Sheet
April 30, 2005 July 31, 2004
(Unaudited) (Restated)
--------- -----------
Assets
Current assets:
Cash................................................................................ $ 170,464 $ 46,191
Accounts receivable................................................................. 15,538 250,445
Prepaid expenses and other.......................................................... 59,278 23,576
--------- -----------
Total current assets..................................................... 245,279 320,212
Property and equipment, net............................................................. 79,833 42,781
Other assets:
Deferred offering costs............................................................. 6,000 6,000
--------- -----------
$ 331,112 $ 368,993
========= ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable.................................................................... $770,163 $ 431,402
Accrued liabilities ................................................................ 14,198 172,934
Notes payable....................................................................... 387,495 137,495
Indebtedness to related parties..................................................... 111,521 88,495
--------- -----------
Total current liabilities................................................ 1,283,377 830,326
Long-term debt:
Notes payable, related party (net of discount)...................................... 1,794,510 1,541,058
--------- -----------
Total liabilities........................................................ 3,077,887 2,371,384
--------- -----------
Shareholders' deficit:
Series A Preferred stock, $.001 par value. Authorized 50,000,000 shares,
issued and outstanding 34,343,662 shares.......................................... 34,344 34,344
Series B 5% Convertible Preferred stock, $.001 par value. Authorized
3,348,615 units, issued and outstanding 863,845 units............................. 864 --
Common stock, $.001 par value. Authorized 100,000,000 shares,
issued and outstanding 51,677,332 shares.......................................... 51,677 50,822
Additional paid-in capital.......................................................... 4,139,699 3,012,360
Deficit accumulated during the development stage....................................(6,179,728) (4,455,782)
Accumulated other comprehensive..................................................... (793,631) (644,135
--------- -----------
Total shareholders' deficit..............................................(2,746,776) (2,002,391
--------- -----------
$ 331,113 $ 368,993
========= ===========
See accompanying notes to financial statements
F-3
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formally In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Statements of Operations
March 26,
1997
Nine Months Ended Three Months Ended Years Ended (Inception)
April 30, April 30, July 31, Through
-------------------------- --------------------- -------------------------- April 30,
2005 2004 2005 2004 2004 2005
(Unaudited) (Unaudited) (Unaudited)(Unaudited) As Restated 2003 (Unaudited)
------------- ------------ ---------- ---------- ------------- ------------ ------------
Net sales and gross revenues:
Net sales.............................. $ 911,104 $ 473,182 $ 351,202 $246,930 $760,516 $286,499 $2,331,934
Cost of sales.......................... 4,617 1,919 38 307 823 7,904 242,134
------------ ------------ ----------- ---------- ------------- ------------ ------------
--
Gross profit............... 906,487 471,263 351,164 246,623 759,693 278,595 2,089,800
------------ ------------ ----------- ---------- ------------- ------------ ------------
Operating expenses:
Research and development............... 500,582 -- -- -- 561,686 383,224 1,933,346
Depreciation........................... 5,771 21,117 6,228 9,567 21,892 21,129 125,274
General and administrative............. 1,981,042 1,304,038 694,247 385,780 1,193,087 954,861 6,759,689
------------ ------------ ----------- ---------- ------------- ------------ ------------
--
2,497,395 1,325,155 700,475 395,347 1,776,665 1,359,214 8,818,309
------------ ------------ ----------- ---------- ------------- ------------ ------------
--
Loss before other income............. (1,590,908) (853,892) (349,311) (148,724) (1,016,972) (1,080,619) (6,728,509)
--
--
Gain from extinguishments of debt...... (17,000) -- -- -- -- -- 664,819
Interest expense....................... (116,038) -- (38,679) (2) -- -- (116,038)
------------ ------------ ----------- ---------- ------------- ------------ ------------
--
Loss before income taxes............. (1,723,946) (853,892) (387,990) (148,726) (1,016,972) (1,080,619) (6,179,728)
--
Income tax provision................... -- -- -- -- -- -- --
------------ ------------ ----------- ---------- ------------- ------------ ------------
--
Net loss................... (1,723,946) $ (853,892) (387,990) $(148,726) $ (1,016,972) $(1,080,619) $(6,179,728)
============ ============ =========== ========== ============= ============ ============
Net loss available to common shareholders.. (1,740,024) (392,855)
Basic and diluted loss per share........... (0.03) $ (0.17) $ (0.01) $ (0.03) $ (0.09) $ (0.10)
============ ============ ========== ========== ============= ============
Weighted average common shares outstanding. 50,991,236 5,020,000 51,627,332 5,020,000 11,864,058 10,912,080
============ ============ ========== ========== ============= ============
See accompanying notes to financial statements
F-4
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formally In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Consolidated Statements of Accumulated Other Comprehensive Loss
March 26, 1997
(Inception)
Nine Months Ended Years Ended Through
April 30, July 31, April 30,
---------------------------- ---------------------------------
2005 2004 2004 2003 2005
(Unaudited) (Unaudited) As Restated As Restated (Unaudited)
-------------- ------------- ---------------- ---------------- ---------------
Net loss................................... $ (1,723,946) $ (853,892) $ (1,016,972) (1,080,619) $ (6,179,728)
Other comprehensive loss, net of tax:
Foreign currency translation........... (149,496) -- (339,570) (185,391) (793,631)
-------------- ------------- ---------------- ---------------- ---------------
Comprehensive loss.......... $ (1,873,442) $ (853,892) $ (1,356,542) (1,266,010) $ (6,973,359)
============== ============= ================ ================ ===============
See accompanying notes to financial statements
F-5
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Consolidated Statement of Changes in Shareholders' Deficit
*** SPLIT TABLE - SEE BELOW ***
Preferred Stock Common Stock
Shares Par Value Shares Par Value
----------- ----------- ----------- -----------
Balance, March 26, 1997 ..................... -- $ -- -- $ --
October 2000, sale of stock, ($0.0035/share) * 4,366,377 4,366 -- --
December 2001, sale of stock, ($0.0035/share) * 6,545,703 6,546 -- --
October 2001, sale of stock, ($0.0202/share) * 23,431,582 23,432 -- --
Foreign currency
translation adjustment ................... -- -- -- --
Net loss .................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, July 31, 2001 ...................... 34,343,662 34,344 -- --
Foreign currency
translation adjustment ................... -- -- -- --
Net loss .................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, July 31, 2002 ..................... 34,343,662 34,344 -- --
Foreign currency
translation adjustment ................... -- -- -- --
Net loss .................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, July 31, 2003 ...................... 34,343,662 34,344 -- --
Merger with HEMP (Note 8) ................... -- -- * 38,397,164 38,397
July 2004, merger with SIPC ................. -- -- * 10,550,000 10,550
July 2004, issuance of common
stock for bridge loans, ($0.2750/share) .. -- -- * 1,636,233 1,636
July 2004, issuance of common
stock for services, ($0.4093/share) ...... -- -- 239,289 239
Foreign currency
translation adjustment ................... -- -- -- --
Reclassification of gain from debt
forgiveness by Westek (Notes 2 and 9)..... -- -- -- --
Net loss .................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, July 31, 2004 ...................... 34,343,662 $ 34,344 50,822,686 $ 50,822
Issuance of common stock
for making bridge loan (unaudited)......... -- -- 60,096 60
Issuance of common stock
in exchange for services (unaudited)....... -- -- 794,550 795
Sale of 5% convertible
Preferred B shares (unaudited)............. 640,768 641 -- --
Exchange of 5% convertible preferred shares
for note payable (unaudited)............... 233,076 223 -- --
Net loss (unaudited).......................... -- -- -- --
Other comprehensive loss (unaudited)..........
----------- ----------- ----------- -----------
Balance, April 30, 2005 (unaudited)........... 35,217,506 $ 35,208 51,677,332 $ 51,677
See accompanying notes to financial statements
F-6
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Consolidated Statement of Changes in Shareholders' Deficit
*** SPLIT TABLE - SEE ABOVE ***
Deficit
Accumulated Accumulated
Additional During Other
paid-in Development Comprehensive
capital Stage Income Total
Restated Restated Restated
----------- ----------- ----------- -----------
Balance, March 26, 1997 ..................... $ -- $ -- $ -- $ --
October 2000, sale of stock, ($0.0035/share) 10,874 -- -- 15,240
December 2001, sale of stock, ($0.0035/share) 16,301 -- -- 22,847
October 2001, sale of stock, ($0.0202/share) 448,906 -- -- 472,338
Foreign currency
translation adjustment ................... -- -- 21,203 21,203
Net loss .................................... -- (1,350,829) -- (1,350,829)
----------- ----------- ----------- -----------
Balance, July 31, 2001 ...................... 476,081 (1,350,829) 21,203 819,201
Foreign currency
translation adjustment ................... -- -- (140,377) (140,377)
Net loss .................................... -- (1,007,362) -- (1,007,362)
----------- ----------- ----------- -----------
Balance, July 31, 2002 ..................... 476,081 (2,358,191) (119,174) (1,996,940)
Foreign currency
translation adjustment ................... -- -- (185,391) (185,391)
Net loss .................................... -- (1,080,619) -- (1,080,619)
----------- ----------- ----------- -----------
Balance, July 31, 2003 ...................... 476,081 (3,438,810) (304,565) 3,232,950
Merger with HEMP (Note 8) ................... (29,397) -- -- 9,000
July 2004, merger with SIPC ................. (10,688) -- -- (138)
July 2004, issuance of common
stock for bridge loans, ($0.2750/share) .. 448,364 -- -- 450,000
July 2004, issuance of common
stock for services, ($0.4093/share) ...... 97,702 -- -- 97,941
Foreign currency
translation adjustment ................... -- -- (339,570) (339,570)
Reclassifction of gain from dept
forgiveness by Westek (Notes 2 and 9)..... 2,030,298 -- -- 2,030,298
Net loss .................................... -- (1,016,972) -- (1,016,972)
----------- ----------- ----------- -----------
Balance, July 31, 2004 ...................... $ 3,012,360 $(4,455,782) $ (644,135) $(2,002,391)
----------- ----------- ----------- -----------
Issuance of common stock
for making bridge loan (unaudited)......... 76,100 -- -- 76,160
Issuance of common stock
in exchange for services (unaudited)....... 490,605 -- -- 491,400
Sale of 5% convertible
Preferred B shares (unaudited)............. 415,858 -- -- 416,499
Exchange of 5% convertible preferred shares
for note payable (unaudited)............... 144,776 -- -- 144,999
Net loss (unaudited).......................... -- (1,723,946) -- (1,723,946)
Other comprehensive loss (unaudited).......... (149,496) (149,496)
----------- ----------- ----------- -----------
Balance, April 30, 2005 (unaudited)........... $4,139,699 $(6,179,728) $(793,631) $ (2,746,775)
* Restated
F-7
See accompanying notes to financial statements
IN VERITAS MEDICAL DIAGNOSTICS, INC.
(formally In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
Nine Months Ended Years Ended March 26, 1997
April 30, July 31, (Inception)
-------------------------------- -------------------------------- Through
2005 2004 2004 April 30, 2005
(Unaudited) (Unaudited) (Restated) 2003 (Unaudited)
-------------------------------- -------------- -------------- --------------
Cash flows from operating activities:
Net loss $ (1,723,946) $ (853,892) $ (1,016,972) $ (1,080,619) $ (6,179,728)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 15,771 21,117 21,754 21,129 122,941
Imputed interest 96,995 -- 96,995
Stock issued for interest expense -- -- --
Stock-based compensation 567,560 -- 567,560
Gain on debt forgiveness -- -- -- -- (681,819)
Changes in operating assets and liabilities: --
Receivables 246,747 61,898 (58,018) (192,426) (3,698)
Prepaid expenses and other current assets (23,576) -- (23,576)
Accounts payable (201,180) 772,297 125,509 88,176 230,222
Accrued expenses 102,000 (86,902) 172,934
Other 62,590 (52,519) (6,001)
-------------------------------- -------------- -------------- --------------
Net cash used in --
operating activities (998,053) 1,420 (786,713) (1,303,161) (5,704,170)
-------------------------------- -------------- -------------- --------------
--
Cash flows from investing activities: --
Acquisition of equipment (50,800) (6,758) (25,387) (15,138) (185,366)
-------------------------------- -------------- -------------- --------------
Net cash used in --
investing activities (50,800) (6,758) (25,387) (15,138) (185,366)
-------------------------------- -------------- -------------- --------------
--
Cash flows from financing activities: --
Advances from affiliates -- -- 416,394 1,527,862 4,420,158
Repayments of advances from affiliates -- -- (160,623) (214,431) (728,426)
Advances from related parties 58,201 -- -- -- 146,696
Proceeds from issuance of preferred stock 303,500 -- -- -- 813,925
Proceeds from issuance of common stock 559,746 -- 559,746
Proceeds from issuance of notes payable 250,000 -- 587,495 -- 837,495
-------------------------------- -------------- -------------- --------------
Net cash provided by --
financing activities 1,171,447 -- 843,266 1,313,431 6,049,594
-------------------------------- -------------- -------------- --------------
--
Effect on cash from foreign currency translation 1,679 -- 1,393 691 10,405
--
Net change in cash and --
cash equivalents 124,273 (5,338) 32,559 (4,177) 170,463
Cash and cash equivalents:
Beginning of period 46,191 10,978 13,632 17,809 --
-------------------------------- -------------- -------------- --------------
End of period 170,464 5,640 $ 46,191 $ 13,632 $ 170,464
=============== =============== ============== ============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ -- $ -- $ -- $ -- $ --
=============== =============== ============== ============== ==============
Interest $ -- $ 59 $ -- $ -- $ 59
=============== =============== ============== ============== ==============
Non-cash financing activities:
Conversion of note payable to common stock $ 450,000 $ -- $ 450,000
================================ =============== ============== ==============
F-8
See accompanying notes to financial statements
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Background
Effective July 31, 2004, Hall Effect Medical Products, Inc. ("HEMP"), a Delaware
corporation, merged with Sports Information Publishing Corp. ("SIPC"), which was
incorporated under the laws of Colorado on November 7, 2003. Subsequent to the
merger SIPC changed its name to In Vivo Medical Diagnostics, Inc. and later to
In Veritas Medical Diagnostics, Inc. ("IVMD" "we" "us" or "our").
SIPC was originally incorporated for the purpose of engaging in the sports
industry. In 2002, SIPC filed a Form SB-2 registration statement with the
Securities and Exchange Commission relating to the registration of up to
1,000,000 previously issued shares of common stock at a price of $0.15 per
share. The SEC declared the offering effective in August 2003.
Shares of our common stock trade in the Over the Counter market. There was no
active trading market for our stock during the periods presented. (Average daily
trading volume for the last three months was 320 shares). In addition, the
quoted price of our stock was not reliable due to volatility. As a result,
management has relied on the value of consideration received when reporting
non-monetary transactions in the accompanying financial statements.
We are a development-stage enterprise. We are developing medical diagnostic
products for personal and professional use. Several of our products are based on
technology that utilizes the Hall Effect, discovered more than a hundred years
ago, for which we are developing practical applications. We are also developing
products that utilize signal processing for the late-term pregnancy market.
Prior to the merger, we were funded by a private UK company, Westek Limited and
Abacus Trust Company Limited was our majority shareholder.
Principles of consolidation
Our consolidated financial statements include our accounts and the accounts of
our two wholly owned foreign subsidiaries; IVMD UK Limited ("IVMD") and Jopejo
Limited ("Jopejo"), both UK companies. The assets and liabilities of our foreign
subsidiaries have been translated at the exchange rate in effect at July 31,
2004 with the related translation adjustments reported as a separate component
of shareholders' deficit. Operating statement accounts have been translated at
the average exchange rate in effect during the period presented. All significant
intercompany transactions have been eliminated.
Change in fiscal year-end
We elected to change our year-end from September 30 to July 31. The financial
statements presented herein cover the year ended July 31, 2004 and 2003 for
Jopejo and the ten months ended July 31, 2004 and the year ended September 30,
2003 for IVMD UK. There are no material intervening events and the change in the
fiscal year of IVMD UK did not have a material effect on the consolidated group.
The use of different closing dates in 2003 was necessitated by the respective
different year-ends of the subsidiaries.
Basis of presentation
Our research is conducted in Inverness, Scotland through our subsidiaries; IVMD
UK Limited and Jopejo Limited. Development-stage activities consist of raising
capital, obtaining financing, medical products research and development and
administrative matters. We plan to continue to raise capital through stock sales
and debt issuances to fund our development. Historical financial statements for
the periods prior to the acquisition represent primarily the operations of IVMD
UK Limited and Jopejo Limited.
F-9
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Inherent in our development-stage enterprise are various risks and
uncertainties, including our limited operating history, historical operating
losses, dependence upon strategic alliances, and market acceptance of the Hall
Effect technology. Our ability to generate revenues from the sale of our
products will be dependent upon our ability to enter into licenses, joint
ventures or distribution agreements with established businesses with existing
sales and marketing structures. Our future success will be dependent upon our
ability to develop and provide new medical devices that meet customers changing
requirements, including the effective use of the Hall Effect technology, to
continue to enhance our current products under development, and to influence and
respond to emerging industry standards and other technological changes on a
timely and cost-effective basis.
We have incurred losses since inception and we have a net capital deficit at
July 31, 2004. These factors, among others, raise substantial doubt about our
ability to continue as a going concern. In 2004, we have merged with a public
shell company. This merger provides us with limited access to the capital
markets. We plan to raise capital through public or private stock offerings to
finance our development activities and ultimately, to achieve profitability.
However, there is no assurance that we will be successful in our efforts to
raise capital or to become a profitable company.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid securities with original maturities of three
months or less when acquired to be cash equivalents. There were no cash
equivalents at July 31, 2004.
Accounts Receivable
We consider all trade receivables fully collectible.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years. Property and equipment under capital
leases are stated at the present value of minimum lease payments and are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets. Leasehold improvements are amortized
using the straight-line method over the estimated useful lives of the assets or
the term of the lease, whichever is shorter.
Deferred Offering Costs
Costs incurred in connection with our proposed common stock offering have been
deferred in the accompanying financial statements and will offset the proceeds
from the offering or written off against earnings, if the offering is
unsuccessful. We have deferred $6,000 in connection with our proposed common
stock offering.
Income Taxes
We account for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
F-10
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Revenue Recognition
Our revenue has been generated through development and grant funding from
Unipath Limited. We recognize such revenue based on the terms of our agreement
with Unipath.
Revenue from hardware sales is recognized upon shipment of the products.
Financial Instruments and Concentration of Credit Risk
At July 31, 2004, the fair value of our financial instruments approximate their
carrying value based on their terms and interest rates. Substantially all of our
trade receivables were from one customer as of July 31, 2004.
Stock based Compensation
We account for stock-based compensation arrangements in accordance with
Statement of financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. We have
elected to continue to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure provisions of SFAS No. 123.
Foreign Currency Translation
Our assets and liabilities, which have the British pound as its functional
currency, are translated into United States dollars at the foreign currency
exchange rate in effect at the applicable reporting date, and the statements of
operations are translated at the average rates in effect during the applicable
period. The resulting cumulative translation adjustment is recorded as a
separate component of other comprehensive income.
Research and Development Costs
Research and development costs are expensed as incurred.
Earnings (Loss) per Share
Basic net income or loss per share is computed by dividing the net income or
loss available to common shareholders (the numerator) for the period by the
weighted average number of common shares outstanding (the denominator) during
the period. The computation of diluted earnings is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
At July 30, 2004, there was no variance between basic and diluted loss per share
as there were no potentially dilutive common shares outstanding.
Note 2: Related Party Transactions
- -----------------------------------
We purchased goods and services from related parties totalling $383,303 and
$242,200 during the year ended July 31, 2004 and 2003, respectively. As of July
31, 2004, $88,495 is due to related parties. As of April 30, 2005, $111,521
(unaudited) is due to related parties.
F-11
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
We received advances from Westek Limited totalling $416,394 and we repaid Westek
Limited a total of $160,623 during the year ended July 31, 2004. We received
advances from Westek Limited totalling $1,527,862 and we repaid Westek Limited a
total of $214,431 during the year ended July 31, 2003.
As of June 2004, we owed Westek $3,830,298. In July 2004, Westek converted
$1,800,000 of the debt to a noninterest-bearing promissory note. We recorded the
$2,030,298 gain on debt forgiveness as a capital contribution. The promissory
note is payable in full by September 30, 2006. The promissory note is also
subject to mandatory prepayments of principal prior to September 30, 2006 in
accordance with the terms of the share Purchase Agreement described in Note 1.
As of July 31, 2004, we are indebted to Westek in the amount of $1,541,058, net
of a discount of $258,942. As of April 30, 2005, we are indebted to Westek in
the amount of $1,794,510 (unaudited), net of a discount of $5,490 (unaudited).
We paid affiliated management fees totalling $37,399 and $38,796 for the years
ended July 31, 2004 and 2003, respectively.
Note 3: Earnings (Loss) per Common Share
- ----------------------------------------
"Basic" earnings (loss) per common share equals net income (loss) divided by
weighted average common shares outstanding during the period. "Diluted" earnings
per common share equals net income divided by the sum of weighted average common
shares outstanding during the period, adjusted for the effects of potentially
dilutive securities. Our basic and diluted per share amounts are the same since
we are in a loss position and the assumed exercise of stock options and warrants
and conversion of convertible notes would be anti-dilutive. The number of shares
subject to convertible preferred stock that could dilute earnings per share in
future periods was 35,207,506 (unaudited) at April 30, 2005.
Note 4: Stock-Based Compensation
- --------------------------------
In accordance with Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment of FASB Statement No. 123" (SFAS 148) and Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), the Company's pro forma option expense is computed using the Black-Scholes
option pricing model.
We issued common stock in exchange for legal services during the quarter to
which this quarterly report applies. We valued the services based on the quoted
market price of our common stock on the date of issuance.
Note 5: Property and Equipment
- -------------------------------
Major classes of property and equipment are listed below:
F-12
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
April 30, 2005
(Unaudited) July 31, 2004
------------------ -----------------
Furniture and fixtures $ 28,794 $ 28,764
Office equipment 111,952 65,678
Plant and equipment 24,906 18,387
------------------ -----------------
165,652 112,829
Less: accumulated depreciation 85,819 70,048
------------------ -----------------
$ 79,833 $ 42,781
================== =================
Depreciation expense was $21,754 and $21,129 for the years ended July 31 2004
and 2003, respectively. Depreciation expense was $15,771 (unaudited) for the
nine months ended April 30, 2005.
Note 6: Notes Payable
- ----------------------
Notes payable as of July 31, 2004 consisted of bridge loans repayable from the
proposed common stock offering described in Note 1 to the accompanying financial
statements. The notes were made July 30, 2004, are unsecured and are due,
including related interest, upon the completion of the common stock offering
described in Note 1. On December 22, 2004, we issued an 8 percent $250,000
promissory note and 60,096 shares of our restricted common stock to an unrelated
third-party in exchange for $250,000. Principal and accrued interest on the note
are payable upon maturity. While the note matures on June 22, 2005, we must make
a partial prepayment of $175,000 of the principal amount and a pro-rata share of
accrued interest if we enter into any financing aggregating $1 million. The
amount of partial prepayment of principal and accrued interest increases on a
pro-rata share if we enter into any financing exceeding $1 million. We accounted
for the issuance of the 60,096 shares of our common stock as pre-paid financing
costs. The financing costs were valued and booked based on the quoted market
price of our common stock on date of the transaction.
April 30, 2005
(unaudited) July 30, 2004
------------------ ------------------
Inverness & Nairn, 6 percent, including interest $ 88,245 $ 88,245
Steven Haggerty, 6 percent, including interest 10,000 10,000
Kenneth Dalglish, 6 percent, including interest 10,000 10,000
Joe Frmae, 6 percent, including interest 10,000 10,000
Helen Goody, 6 percent, including interest 9,250 9,250
James Bell, 6 percent, including interest 10,000 10,000
Nite Capital LP, 8 percent, including interest 250,000 -
------------------ ------------------
$ 387,495 $ 137,495
================== ==================
Note 7: 4% Convertible Preferred Stock
- ---------------------------------------
As of July 31, 2004, our authorized capital included 50,000,000 shares of Series
A Preferred Stock of which 34,343,662 are outstanding and designated as 4%
voting redeemable convertible preferred stock. Such shares pay an annual
dividend of 4% and are convertible at any time at the option of the holder into
F-13
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Common Stock at the rate of one share Common Stock for each outstanding share of
Series A Preferred Stock commencing October 30, 2005, provided the Common Stock
have traded at a price of $3.00 per share for at least 30 consecutive trading
days, and at any time after January 30, 2006. Holders of Series A Preferred
Stock have priority over all of the shares of In Veritas Medical Diagnostics,
Inc. on liquidation or sale at the rate of $1.00 per share. Holders are entitled
to vote on all matters as to which Common Stock shareholders are entitled to
vote.
The aggregate and per-share amounts of arrearages in cumulative preferred
dividends on the Series A Preferred Shares through April 30, 2005, are $4,865
and $0.01, respectively.
Note 8: 5% Convertible Preferred Stock (Unaudited)
- --------------------------------------------------
On April 15, 2005, we completed the sale of 863,845 units (the "Units"), each
Unit consisting of one share of Series B 5% Convertible Preferred Stock, one
warrant to purchase one share of the Company's common stock ("Stock Warrants"),
and one warrant to purchase an additional unit ("Unit Warrants"). Such shares
pay an annual dividend of 5% and are convertible at any time at the option of
the holder into Common Stock at the rate of one share Common Stock for each
outstanding share of Series B Preferred Stock commencing April 15, 2005. The
Stock Warrants are exercisable from April 15, 2005 until April 15, 2008 at an
exercise price of $1.50 per share, subject to adjustment. The Unit Warrants are
exercisable for a period of 180 days from the effective date of the registration
statement at an exercise price of $0.65 per unit, subject to adjustment. All
preferential amounts to be paid to the holders of Series B Preferred Stock shall
be paid on a pari-passu basis with any preferential amounts to be paid to the
holders of our Series A Preferred Stock, and prior to the common stock.
The aggregate and per-share amounts of arrearages in cumulative preferred
dividends on the Series B Preferred Shares through April 30, 2005, are $4,865
and $0.01, respectively.
Note 9: Common Stock
- ---------------------
We are authorized to issue 100,000,000 shares of common stock. We issued the
following shares of common stock for services during the year ended July 31,
2004:
Number Fair Value
of Shares of Shares
Employee/Consultant Issued Issued
Brian Cameron 73,899 $ 30,247
KDA Limited 17,390 7,118
John Fuller 98,050 40,132
Patricia Connelly 37,000 15,144
Robert Knowles 12,950 5,300
---------------- ----------------
239,289 $ 97,941
================ ================
We valued the shares of common stock based on the value of the services.
We issued the following shares of common stock for debt during the year ended
July 31, 2004:
F-14
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Number Fair Value
of Shares of Shares
Note Holder Issued Issued
Max Finkle 35,000 $ 10,000
David Pacher 17,500 5,000
Eugene Hall 17,500 5,000
Benjamin Wilson 17,500 5,000
Spelman Research 35,000 10,000
Fiserv Securities 52,500 15,000
Lynn Tanner 140,000 40,000
Robert Rubin 227,500 65,000
Charles Warshaw Family Trust 350,000 100,000
First Global Services Corp 35,000 10,000
First Global Services Corp 52,500 15,000
Mark Bolanger 175,000 50,000
Inverness & Nairn Enterprise 247,625 70,750
Steven Haggerty 35,000 10,000
Kenneth Dalglish 35,000 10,000
Joe Frame 35,000 10,000
Helen Goody 32,375 9,250
James Bell 35,000 10,000
---------------- ----------------
1,575,000 $ 450,000
================ ================
We valued the shares of common stock based on the amount of debt converted.
Note 10: Income Taxes
- ----------------------
A reconciliation of U.K. statutory income tax rate to the effective rate follows
for the years ended July 31, 2004 and 2003:
Years Ended
July 30,
----------------------------------
2004 2003
---------------- ----------------
U.K. statutory federal
rate 19.00% 30.00%
Net operating loss for which no tax
benefit is currently available -19.00% -30.00%
---------------- ----------------
0.00% 0.00%
================ ================
At July 31, 2004, deferred U. K. income taxes were $-0-. U.K. pretax income was
$734,544 and a loss of $1,080,619, respectively, for the years ended July 31,
2004 and 2003, respectively.
F-15
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
At July 31, 2004, we had a net operating loss carryfoward of approximately
$4,221,336, which was fully allowed for in the valuation allowance of $802,054.
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The change in the valuation allowance for the ten months
ended July 31, 2004 was $10,919.
At July 31, 2003, we had a net operating loss carryfoward of approximately
$4,278,806, which was fully allowed for in the valuation allowance of $812,973.
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery.
Note 11: Acquisitions
- ----------------------
July 22, 2004
On July 22, 2004, Jopejo Limited and IVMD UK, Inc. and HEMP entered into a share
purchase agreement whereby HEMP purchased 100 percent of the issued and
outstanding preferred and ordinary shares of both Jopejo Limited and IVMD UK
Limited (formerly Hall Effect Technologies Limited) for 8,000,000 shares of
convertible Series A preferred stock, $0.001 par value. HEMP also agreed to
become a co-obligor of approximately $1.8 million in debt obligations to Westek.
As part of the acquisition, HEMP issued 3,000,000 shares of common stock to HEMP
TL, an employee benefit plan valued at $3,000 by the Board of Directors and an
additional 6,000,000 shares of common stock to certain individuals for services
valued at $6,000 by the Board of Directors.
As a result of these transactions, Jopejo limited and IVMD UK, Inc. became
wholly owned subsidiaries of HEMP.
July 30, 2004
On July 30, 2004, HEMP exchanged 100 percent of its outstanding shares of common
stock for 38,397,164 shares of the common stock and 100 percent of its
outstanding shares of preferred stock for 34,363,662 shares of preferred stock
of SIPC. This acquisition has been treated as a recapitalization of HEMP, a
Delaware corporation, with SIPC the legal surviving entity. Since SIPC has,
prior to the recapitalization, minimal assets (consisting primarily of cash and
trade payables) and no operations, the recapitalization has been accounted for
as the sale of 10,550,000 shares of HEMP common stock for the net assets of
SIPC. Costs of the transaction have been charged to the period.
Note 12: Correction of an Error in Previously Issued Financial Statements
The Company restated its financial statements for the year ended July 31, 2004
to correct errors identified in the Company's financial statements and reflect
certain corresponding changes described below. There was a decrease of
$2,506,820 on cash provided by operating activities, no net effect on cash used
in investing activities, and an increase of $2,506,820 on cash provided by
financing activities as a result of the restated financial statements on
February 23, 2005.
As described in Note 2, Westek made several advances to the Company over the
years. Errors resulting from a misapplication of generally accepted accounting
principles were made recording the advances affecting accounts payable, accrued
liabilities payable and indebtedness to related parties. All indebtedness to
related parties was originally reported as a current liability. Correction of
the clerical errors resulted in a decrease in accounts payable, an increase in
accrued liabilities payable, a decrease in indebtedness to related parties, and
an increase in the extinguishment of debt as restated February 23, 2005.
Indebtedness to related parties was reclassified into current and long term
liabilities. The Westek advances were originally reflected as a loan. This
restatement reclassifies those advances as capital contributions.
F-16
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
The February 23, 2005 restatement and this restatement also correct the
presentation of the Consolidated Statement of Changes in Shareholders' Deficit
resulting from the merger described in Note 8. The Series A Preferred Shares
were retroactively restated for the equivalent number of shares received in the
July 22, 2004 recapitalization. There was no net effect in par value or
additional paid in capital of the preferred shares, but there was a retroactive
net effect in the total changes in shareholder's deficit. The issuance of common
stock for debt was described more accurately as issuance of common stock for
bridge loans. Not all bridge lenders accepted stock at year end and additional
paid in capital was adjusted to correctly reflect the amount of common stock
issued for bridge loans. Likewise, a clerical error was made relating to the
issuance of common stock for services, resulting in a decrease in additional
paid in capital. This amendment increases additional paid in capital by advances
made by Westek and presents the per share price of stock issuances.
The following table shows the effect of the restatements on the Balance Sheet
from the February 23, 2005 and this restatement:
As As
Reported Restated
--------------- ---------------
Current Liabilities:
Accounts Payable....................................................... $ 451,347 $ 431,402
Accrued liabilities payable............................................ $ 148,313 $ 172,934
Notes payable.......................................................... $ 137,495 $ 137,495
Indebtedness to related parties........................................ $ 1,884,287 $ 88,495
----------- -----------
Total current liabilities......................................... $ 2,621,442 $ 830,326
Long Term Debt:
Notes Payable, related party........................................... $ - $ 1,541,058
----------- -----------
Total liabilities.................................................. $ 2,621,442 $ 2,371,384
Shareholders' deficit:
Additional paid in capital............................................. $ 1,013,786 $ 3,012,360
Deficit accumulated during the development stage....................... $(2,707,267) $(4,455,782)
----------- -----------
Total shareholders' deficit................................................. $(2,252,450) $(2,002,391)
F-17
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
The following table shows the effect of the restatements on the Statement of
Operations from the February 23, 2005 and this restatement:
As As
Reported Restated
----------- -----------
General and administrative.................................................. $ 1,190,086 $ 1,193,087
----------- -----------
Loss before other income............................................... $(1,013,971) $(1,016,972)
Gain from extinguishments of debt........................................... $ 1,748,515 $ -
----------- -----------
Net income (loss)...................................................... $ 734,544 $(1,016,972)
Basic and diluted income (loss) per share................................... $ 0.06 $ (0.09)
=========== ===========
Weighted average common shares outstanding.................................. 11,864,058 11,864,058
=========== ===========
The following table shows the effect of the restatement and revision on the
Consolidated Statement of Changes in Shareholder's Deficit:
As As As
Reported Restated Revised
---------------- ---------------- ----------------
Balance at July 31, 2001:
Preferred stock, par value............. $ 10,912 $ 34,344 $ 34,344
Additional paid in capital............. $ 27,175 $ 1,950,164 $ 476,081
Total.................................. $ (1,291,539) $ 654,882 $ (819,201)
Balance at July 31, 2002:
Preferred stock, par value............. $ 10,912 $ 34,344 $ 34,344
Additional paid in capital............. $ 27,175 $ 2,737,177 $ 476,081
Total.................................. $ (2,439,278) $ 294,155 $ (1,966,940)
Net loss, July 31, 2003................ $ (1,080,639) $ (1,080,619) $ (1,080,619)
Balance at July 31, 2003:
Preferred stock, par value............. $ 10,912 $ 34,344 $ 34,344
Additional paid in capital............. $ 27,175 $ 4,050,608 $ 476,081
Total.................................. $ (3,705,308) $ 341,576 $ 3,232,950
Preferred stock, par value............. $ 34,344 $ 34,344 $ 34,344
Additional paid in capital............. $ 1,013,786 $ 3,012,360 $ 3,012,360
Total.................................. $ (2,252,450) $ (2,002,391) $ (2,002,391)
The restatement dated July 28, 2005, reclassified advances made by Westek
(discussed in Note 2) as additional paid in capital. Those advances were
recorded in the periods the advances were made. This revision records those
advances in the year ended July 31, 2004.
F-18
In Veritas Medical Diagnostics, Inc.
(formerly In Vivo Medical Diagnostics, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 13: Subsequent Events
- --------------------------
On June 22, 2005, NITE Capital, L.P., converted their $250,000 promissory note
into 1,162,791 shares of our common stock.
On July 7, 2005, we issued 120,000 shares of common stock to consultants for
services.
On September 7, 2005, we entered into a $10,000,000 Standby Equity Distribution
Agreement (the "Distribution Agreement ") with Cornell Capital Partners LP
("Cornell".) Under the terms of the Distribution Agreement, we may sell to
Cornell up to $500,000 worth of our shares of common stock every five trading
days at a price of 97 percent of the lowest closing bid price. We will pay a
five percent commitment fee, however, upon each sale of shares under the
Distribution Agreement. We also issued 472,000 shares of common stock to Cornell
as a commitment fee and we issued 28,000 shares to Monitor Capital, Inc., a
registered broker dealer, as compensation for its services.
On September 7, 2005, we entered into a Securities Purchase Agreement ("Purchase
Agreement") with Montgomery Equity Partners, ("Montgomery") an affiliated fund
of Cornell, for 18 percent secured convertible debentures in the aggregate
principal amount of $750,000; $300,000 was funded on July 7, 2005; $200,000 is
to be funded two business days prior to completion of audited financial
statements for fiscal year ended July 31, 2005; and $250,000 is to be funded
within five business days of the date the Registration Statement on Form SB-2 is
declared effective by the SEC. We also issued to Montgomery three-year warrants
to purchase 350,000 shares of common stock at $0.001 per share.
In accordance with the terms of our April 2005 financing, certain investors have
agreed to exchange 863,845 five percent convertible preferred units, including
warrants to purchase common stock and additional units, for an aggregate of
$556,500 in Debentures. The Debentures mature on the first anniversary of the
date of issuance and bear interest at the annual rate of 18 percent. We are
required to make monthly interest payments commencing on October 7, 2005 and to
make monthly principal payments commencing on March 7, 2006. Holders may
convert, at any time, the principal amount outstanding under the Debentures into
shares of Common Stock at a conversion price of $0.153 per share, subject to
adjustment.
Upon three days' notice, we may redeem the Debentures in whole or in part. In
the event the closing bid price of the common stock on the date redemption is
made exceeds the conversion price then in effect, the redemption will be
calculated at 112 percent of the Debentures' face value.
Our obligations under the two secured purchase agreements are collateralized by
substantially all of our assets. The Accredited Investors entered into an
Intercreditor Agreement with Montgomery agreeing that Montgomery's secured
interest is superior to the Accredited Investors. As further security under the
two purchase agreements, we have deposited into escrow 25,685,000 shares of
common stock.
F-19
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
LIMITATION OF LIABILITY: INDEMNIFICATION
Under Section 7-109-102 of the Colorado Business Corporations Act (the "Colorado
Act") a corporation may indemnify a person made a party to a proceeding because
the person is or was a director, against liability incurred in the proceeding.
Indemnification permitted under this section in connection with a proceeding by
or in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
Indemnification is only possible under this section 7-109-102, however, if: (a)
the person conducted him/herself in good faith; and (b) the person reasonably
believed: (i) in the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and (ii) in all other cases, that his or her conduct was at least not opposed to
the corporation's best interests; and (c) in the case of any criminal
proceeding, the person had no reasonable cause to believe his or her conduct was
unlawful. However, under Section 7-109-102(4), a corporation may not indemnify a
director: (i) in connection with a proceeding by or in the right of the
corporation in which the director is adjudged liable to the corporation; or (ii)
in connection with any other proceeding in which a director is adjudged liable
on the basis that he or she derived improper personal benefit.
Under Section 7-109-103 a director is entitled to mandatory indemnification,
when he/she is wholly successful in the defense of any proceeding to which the
person was a party because the person is or was a director, against reasonable
expenses incurred in connection to the proceeding.
Under Section 7-109-105, unless restricted by a corporation's Articles of
Incorporation, a director who is or was a party to a proceeding may apply for
indemnification to a court of competent jurisdiction. The court, upon receipt of
the application, may order indemnification after giving any notice the court
considers necessary. The court, however, is limited to awarding the reasonable
expenses incurred in connection with the proceeding and reasonable expenses
incurred to obtain court-ordered indemnification.
Under Section 7-109-107, unless restricted by the corporation's Articles of
Incorporation, an officer of a corporation is also entitled to mandatory
indemnification and to apply for court-ordered indemnification to the same
extent as a director. A corporation may also indemnify an officer, employee,
fiduciary or agent of the corporation to the same extent as a director.
Under Section 7-109-108 a corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary or
agent of the corporation against liability asserted against or incurred by the
person in that capacity, whether or not the corporation would have the power to
indemnify such person against the same liability under other sections of the
Colorado Act.
Our officers and directors are accountable to our shareholders as fiduciaries,
which means such officers and directors are required to exercise good faith and
integrity in handling our affairs. A shareholder may be able to institute legal
action on behalf of him and all other similarly situated shareholders to recover
damages where we have failed or refused to observe the law. Shareholders may,
subject to applicable rules of civil procedure, be able to bring a class action
or derivative suit to enforce their rights, including rights under certain
federal and state securities laws and regulations. Shareholders who have
suffered losses in connection with the purchase or sale of our securities due to
a breach of a fiduciary duty by our officers or directors in connection with
such sale or purchase including, but not limited to, the misapplication by any
such officer or director of the proceeds from the sale of any securities, may be
able to recover such losses from us. We and our affiliates may not be liable to
shareholders for errors in judgment or other acts or omissions not amounting to
intentional acts.
Our Articles of Incorporation provide for indemnification as permitted by the
Colorado Act in all material respects.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that in
the opinion of the Securities Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
our director, officer, or controlling person in the successful defense of any
40
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses payable by
In Veritas Medical Diagnostics, Inc. in connection with the offering described
in this registration statement. All of the amounts shown are estimates except
the Securities and Exchange Commission registration fee:
Securities and Exchange Commission Registration Fee $1,843.27
Accounting Fees and Expenses $ 15,000*
Legal Fees and Expenses $ 40,000*
Miscellaneous $ 156.73
----------
Total $ 57,000
==========
- ----------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 15, 2005, we completed the sale of 863,845 units (the "Units"), each
Unit consisting of one share of 5% convertible preferred stock of the Company,
$.001 par value per share (the "Preferred Stock"), and one warrant to purchase
one share of the Company's common stock (the "Warrants"), to accredited
investors pursuant for an aggregate purchase price of approximately $561,500. a
warrant to purchase an additional Unit (the "Unit Warrants"). The aforementioned
securities were sold in reliance upon the exemption afforded by the provisions
of Regulation D, as promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In December 2004, we entered into a Subscription Agreement with an accredited
investor, NITE Capital, L.P. (the "Investor"), pursuant to which the Investor
purchased an aggregate principal amount of $250,000 in a 8% promissory note, and
60,096 shares of our common stock, par value $.001 per share.
* All of the above offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Great American Family Parks or
executive officers of Great American Family Parks, and transfer was restricted
by Great American Family Parks in accordance with the requirements of the
Securities Act of 1933. In addition to representations by the above-referenced
persons, we have made independent determinations that all of the
above-referenced persons were accredited or sophisticated investors, and that
they were capable of analyzing the merits and risks of their investment, and
that they understood the speculative nature of their investment. Furthermore,
all of the above-referenced persons were provided with access to our Securities
and Exchange Commission filings.
41
ITEM 27. EXHIBITS
Exhibit Description
- ------- -----------
3.1 Articles of Incorporation (as incorporated by reference to Form SB-2,
filed with the Securities and Exchange Commission on January 24, 2002).
3.2 Certificate of Amendment to Articles of Incorporation, dated as of July
22, 2004 (as incorporated by reference to the Annual Report on Form
10-K, filed with the Securities and Exchange Commission on February 3,
2005).
3.3 Certificate of Amendment of Articles of Incorporation, dated as of
September 20, 2004 (as incorporated by reference to the Annual Report on
Form 10-KSB/A, filed with the Securities and Exchange Commission on
March 18, 2005).
3.4 Certificate of Amendment to Amendment of Articles of Incorporation,
dated as of March 24, 2005.
3.5 By-Laws (as incorporated by reference to Form SB-2, filed with the
Securities and Exchange Commission on January 24, 2002).
4.1 Secured Convertible Debenture issued to Montgomery dated September 7,
2005 (as incorporated by reference to the Company's Current Report on
Form 8-K, filed with the Securities and Exchange Commission on September
13, 2005).
4.2 Warrant issued to Montgomery dated September 7, 2005 (as incorporated by
reference to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 13, 2005).
4.3 Form of Convertible Debenture dated September 7, 2005 (as incorporated
by reference to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 13, 2005).
5.1 Opinion of Sichenzia Ross Friedman Ference LLP*
10.1 Subscription Agreement, dated December 22, 2004 by and among In Vivo
Medical Diagnostics, Inc. and NITE Capital, L.P. (as incorporated by
reference to Form 8-K, filed with the Securities and Exchange Commission
on December 29, 2004).
10.2 Registration Rights Agreement, dated December 22, 2004 by and among In
Vivo Medical Diagnostics, Inc. and NITE Capital, L.P. (as incorporated
by reference to Form 8-K, filed with the Securities and Exchange
Commission on December 29, 2004).
10.3 Form of 8% Promissory Note issued to NITE Capital, L.P. (as incorporated
by reference to Form 8-K, filed with the Securities and Exchange
Commission on December 29, 2004).
10.4 Certificate of the Powers, Designations, Preferences and Rights of the
Series B Preferred Stock (As incorporated by reference to Form Form 8-K
filed with the Securities and Exchange Commission on April 21, 2005).
10.5 Form of Subscription Agreement - April 2005 private placement (As
incorporated by reference to Form Form 8-K filed with the Securities and
Exchange Commission on April 21, 2005).
10.6 Form of Common Stock Purchase Warrant - April 2005 private placement (As
incorporated by reference to Form Form 8-K filed with the Securities and
Exchange Commission on April 21, 2005).
10.7 Form of Unit Warrant - April 2005 private placement (As incorporated by
reference to Form Form 8-K filed with the Securities and Exchange
Commission on April 21, 2005).
10.8 Form of Registration Rights Agreement - April 2005 private placement (As
incorporated by reference to Form Form 8-K filed with the Securities and
Exchange Commission on April 21, 2005).
10.9 Investor Registration Rights Agreement dated September 7, 2005 by and
between the Company and Montgomery (as incorporated by reference to the
Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 13, 2005).
42
10.10 Pledge and Escrow Agreement dated September 7, 2005 by and among the
Company, Montgomery and David Gonzalez as escrow agent (as incorporated
by reference to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 13, 2005).
10.11 Securities Purchase Agreement dated September 7, 2005 by and between the
Company and Montgomery (as incorporated by reference to the Company's
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on September 13, 2005).
10.12 Security Agreement dated September 7, 2005 by and between the Company
and Montgomery (as incorporated by reference to the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
September 13, 2005).
10.13 Standby Equity Distribution Agreement dated September 7, 2005 by and
between the Company and Cornell (as incorporated by reference to the
Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 13, 2005).
10.14 Registration Rights Agreement dated September 7, 2005 by and between the
and Cornell (as incorporated by reference to the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
September 13, 2005).
10.15 Placement Agent Agreement dated September 7, 2005 by and between the
Company and Monitor Capital, Inc. (as incorporated by reference to the
Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 13, 2005).
10.16 Intercreditor Agreement dated September 7, 2005 by and among the
Company, Montgomery and the investors identified in Schedule I thereto
(as incorporated by reference to the Company's Current Report on Form
8-K, filed with the Securities and Exchange Commission on September 13,
2005).
10.17 Investor Registration Rights Agreement dated September 7, 2005 by and
between the Company and the investors identified thereto (as
incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on September 13,
2005).
10.18 Securities Purchase Agreement dated September 7, 2005 by and between the
Company and the investors identified thereto (as incorporated by
reference to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on September 13, 2005).
10.19 Security Agreement dated September 7, 2005 by and between the Company \
and the investors identified thereto (as incorporated by reference to
the Company's Current Report on Form 8-K, filed with the Securities and
Exchange Commission on September 13, 2005).
23.1 Consent of Sichenzia Ross Friedman Ference LLP (included in exhibit 5.1)
23.2 Consent of Cordovano and Honeck, LLP.*
* Filed herewith
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to:
43
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information 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 prospects
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) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on this 14th day of September, 2005.
IN VERITAS MEDICAL DIAGNOSTICS, INC.
By: /s/ John Fuller
- -------------------------------------
John Fuller
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Martin Thorp
- -------------------------------------
Martin Thorp
Chief Financial Officer
(Principal Financial and Accounting
Officer)
45
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints John Fuller his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that attorney-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John Fuller Chief Executive Officer, President, September 14, 2005
- --------------------------- and Director
John Fuller (Principal Executive Officer)
/s/ Martin Thorp Chief Financial Officer and Director September 14, 2005
- -------------------------- (Principal Financial and Accounting
Martin Thorp Officer)
/s/ Brian Cameron Chief Operating Officer and Director September 14, 2005
- --------------------------
Brian Cameron
/s/ Graham Cooper Chairman of the Board September 14, 2005
- --------------------------
Graham Cooper
46