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EX-31.2 - RAPTOR RESOURCES HOLDINGS INC. | v178925_ex31-2.htm |
EX-32.2 - RAPTOR RESOURCES HOLDINGS INC. | v178925_ex32-2.htm |
EX-32.1 - RAPTOR RESOURCES HOLDINGS INC. | v178925_ex32-1.htm |
EX-31.1 - RAPTOR RESOURCES HOLDINGS INC. | v178925_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[Mark
One]
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the Fiscal Year Ended December 31, 2009
OR
¨
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
File No. 000-53585
LANTIS
LASER INC.
(Exact
name of registrant as specified in its charter)
Nevada
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65-0813656
|
|
(State
of jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
|
11
Stonebridge Court
Denville,
New Jersey
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07834
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (203) 300-7622
Securities
Registered Pursuant to Section 12(b) of the Act.
Common
Stock, par value $0.001 per share
|
N/A
|
|
(Title
of each class)
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(Name
of exchange on which
registered)
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if registrant is not required to file reports pursuant to Rule 13
or Section 15(d) of the Act. Yes ¨ No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ¨ No x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
|
¨
|
|
Accelerated filer
|
¨
|
||
Non-accelerated
filer
|
¨ (Do
not check if a smaller reporting company)
|
|
Smaller reporting company
|
x
|
As of
March 26, 2010, the aggregate market value of all voting and non-voting common
equity held by non-affiliates was $2,784,531.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
As of
March 8, 2010, 100,201,572 shares of common stock, $0.001 par value per share,
were issued and outstanding.
Documents
Incorporated by Reference: None
LANTIS
LASER, INC.
10-K
ANNUAL REPORT
For
the Fiscal Year Ended December 31, 2009
TABLE OF
CONTENTS
Page
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PART I
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Item 1.
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Business
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2
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Item 1A.
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Risk
Factors
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9
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Item 2.
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Properties
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16
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Item 3.
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Legal
Proceedings
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17
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Item 4.
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Submission of Matters to a
Vote of Securities Holders
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17
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PART
II
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Item 5.
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Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
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17
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Item 6.
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Selected Financial
Data
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17
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Item 7.
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Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
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17
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Item 7A.
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Quantitative and
Qualitative Disclosures About Market Risk
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23
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Item 8.
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Financial Statements and
Supplementary Data
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24
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Item 9.
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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54
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Item 9A.
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Controls and
Procedures
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54
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Item 9B.
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Other
Information
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54
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PART
III
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Item 10.
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Directors and Executive
Officers of the Registrant
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54
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Item 11.
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Executive
Compensation
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56
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Item 12.
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Security Ownership of
Certain Beneficial Owners and Management
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56
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Item 13.
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Certain Relationships and
Related Transactions
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57
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Item 14.
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Principal Accounting Fees
and Services
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57
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PART
IV
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Item 15.
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Exhibits, Financial
Statement Schedules
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58
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EX-23.1 Consent of
Independent Registered Public Accounting Firm
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EX-31.1 Section 302
Certification of CEO
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||||
EX-31.2 Section 302
Certification of CFO
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EX-32.1 Section 906
Certification of CEO
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||||
EX-32.2 Section 906
Certification of CFO
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1
PART
I
You are
urged to read this Annual Report on Form 10-K (“Form 10-K”) in its entirety.
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the projected
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed below and in
Item 1A, “Risk Factors.” “We,” “our,” “ours,” “us,” or “the Company” when
used herein, refers to Lantis Laser Inc., a Nevada corporation.
Forward-Looking
Statements
Certain
statements made in this Form 10-K and the information incorporated into this
Form 10-K by reference contain “forward-looking statements,” including
statements regarding our expectations, beliefs, plans or objectives for future
operations and anticipated results of operations. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words, “believes,” “estimates,” “plans,” “expects,” “may” and similar
expressions are intended to identify forward-looking statements. Such statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements.
Our
current plans and objectives are based on assumptions relating to the
development of our business. Although we believe that our assumptions are
reasonable, any of our assumptions could prove inaccurate. In light of the
significant uncertainties inherent in the forward-looking statements made
herein, which reflect our views only as of the date of this Form 10-K, you
should not place undue reliance upon such statements. Except as required by law,
we undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Item 1.
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Business
|
Overview
We were
formed to commercialize the application of novel technologies in the dental
industry. As our first product, we are developing and plan to market, after we
obtain FDA clearance to do so, our “OCT Dental Imaging System”. The OCT Dental
Imaging System is a diagnostic aid using light-based imaging technology referred
to as optical coherence tomography, or OCT. We have the exclusive rights to OCT
in terms of our license agreement with Lawrence Livermore National Laboratories
(“Livermore”) and a non-exclusive license covering a scanning method with
LightLab Imaging, Inc. (“LightLab”), a leader in the application of OCT in the
biomedical field. We also have an exclusive license with University of Florida
for a patented technology relating to the probe scanner which we intend
deploying in the OCT System. In July 2008 we signed an exclusive
agreement with The Regents of California for a patent pending technology called
“Nearinfrared Transillumination For The Detection Of Tooth Decay” or
NIR. This technology is synergistic with OCT as both modalities use
the same light source but provide different views of oral structures. We expect
to integrate NIR with the OCT System in the form of a chairside platform and
also sell it separately as a standalone diagnostic imaging aid, subject to
adequate funding being available.
In June
2008, we entered into a strategic agreement with AXSUN Technologies, Inc.
(“AXSUN”) whereby AXSUN will develop the OCT Engine for our OCT System, based on
their advanced and patented technology, for our dental
application. AXSUN will manufacture and supply the OCT Engine to us.
We commenced development and received delivery and made payment for three beta1
systems. In the next stage of development AXSUN was to develop and
deliver 5 Beta2 systems according to an agreed development and payment
schedule. Due to lack of funding, we defaulted on a payment in April
2009 and have been formally advised in writing on March 17, 2010 of termination
of the agreement. We have both agreed to enter into an amended agreement and are
currently discussing the terms and conditions thereof. Upon funding,
we intend to complete the development of the Beta2 systems and deploy these in
our clinical systems.
In
December 2007, we entered into a joint venture with Laser Energetics, Inc., an
Oklahoma corporation (“LEI”), pursuant to which we and LEI formed HyGeniLase,
Inc., a Delaware corporation (“HyGeniLase”), with each party owning 50% of
HyGeniLase. HyGeniLase was formed to develop, manufacture, market, sell and
distribute to the dental markets worldwide a laser instrument, based on LEI
alexandrite laser technology, for the treatment and removal of tartar and
deposits from teeth. As of December 31, 2009, the Company has delayed
the joint venture project with LEI due to failure on LEI’s part to comply with
their end of the agreement as well as funding. As a result, the Company reserved
the remaining $81,332 of the investment on their books.
Our S-1
filing for our stock registration was deemed effective on February 17,
2009. In 2009 we moved our stock quotation from the Pink Sheets to
the Bulletin Board and are now a fully reporting company.
2
We
defaulted in May 2009 on the interest payment due to noteholders. As a result of
the Company’s failure to timely pay the interest, the convertible notes are in
technical default. Therefore, the Company has reclassified the debt
to current liabilities. In terms of the note, in the event of default
the interest increased from 5% to 10%. Provision for the interest payable
amounting to December 31, 2009 amounting to $287,530 has been included in the
financial statements. We intend to shortly enter into discussions with the
noteholders regarding the terms of the note to enable the Company to continue
its efforts to secure financing and complete its development program and
transition from a development company to an operating company.
We are
currently seeking options to obtain our next round of funding so that we can
complete development of our Beta systems and generate clinical data to support
our FDA submission to obtain clearance for marketing.
Corporate
History
Our
company was incorporated in Nevada in February 1998 under the name Beekman
Enterprises, Inc. In February 2001, our company changed its name to Virtual
Internet Communications, Inc., and in April 2002, our company changed its name
to Hypervelocity, Inc. Until September 2002, Hypervelocity was a consulting firm
specializing in voice, data and video communications convergence, network design
and integration. In September 2002, Hypervelocity dissolved its operating
subsidiary and assigned its assets to an individual holding a note payable that
was secured by the assets. From September 2002 until November 2004,
Hypervelocity was non-trading public shell company, with no operations. In
November 2004, we acquired Lantis Laser, Inc., a New Jersey corporation formed
in January 1998 (“Lantis New Jersey”), in a reverse-triangular merger and
succeeded to its business as our sole line of business. In connection with the
merger, we changed our name to “Lantis Laser Inc.”
Market
Opportunity
We
believe our OCT System, and NIR System, when developed, will enhance the
diagnostic capability of dentists to detect early, later stage and hidden
disease in oral tissue. We believe that the enhanced diagnostic ability of OCT
and NIR will be welcomed by dentists and will help early diagnosis capabilities
catch up with early stage dental disease treatment modalities.
Management
has proven experience in the dental field and believes that it’s OCT Dental
Imaging System will have a significant and positive impact on the practice of
dentistry.
Management’s
market analysis indicates that there are approximately 140,000 practicing
dentists in 100,000 offices and 380,000 treatment rooms, or chairs, in the
United States. Management estimates that Europe, Japan and other first world
countries have an additional 100,000 offices. Based on the assumption that each
office would purchase one OCT System, management estimates the world market at
200,000 OCT Systems.
Management
expects that initially early adopters will form the majority of purchasers but
that once the benefits of the OCT and NIR diagnostic modalities become evident,
a larger part of the dental professional body will embrace these safe and
effective modalities.
About
OCT And NIR Technology
OCT is a
new intraoral, laser-light based diagnostic imaging technology with an axial
resolution of up to 10 times that of conventional x-ray. OCT was invented in the
early 1990’s at the Massachusetts Institute of Technology (“MIT”) and has been
commercialized by Carl Zeiss Meditec for ophthalmology. LightLab, which holds
the master patents from MIT for applications other than ophthalmology, are
developing OCT for cardiovascular imaging.
In
dentistry, it is the first modality capable of imaging both “hard” tissue
(teeth) and “soft” tissue (gums). The high-resolution images of dental
structures are captured by the dental professional examining a patient’s mouth
using a hand-held scanner and the images are displayed on a chairside monitor in
real time.
According
to the ANSI Z136 laser classification, the superluminescent diode (“SLD”) to be
used in our imaging Systems is a Class IIIB laser, which is considered harmless
for diffuse light, although exposure to a direct beam may damage the retina of
the eye. As a precaution, the FDA will require both patients and dental
practitioners to wear safety glasses when our OCT System is being used. In
addition, dental practitioners will be required to use our OCT System in a
controlled area, which generally must be restricted to authorized, trained
personnel, and must contain warning signs and comply with certain other
precautionary safety requirements.
We
believe OCT enhanced diagnostic capability has significant benefits for the
practice of dentistry:
|
•
|
Early
detection of demineralization of enamel, tooth decay, secondary decay,
integrity of restorations, structural defects and periodontal
disease.
|
3
|
•
|
Early
detection of disease will enable non-invasive or minimally intervention
treatment, a stated objective of dentistry, to be deployed using an
expanding array of techniques to arrest and even reverse demineralization
and early decay and periodontal
disease.
|
|
•
|
Less
invasive early stage treatment is less traumatic, less painful and
potentially less costly for patients and results in a higher standard of
care.
|
|
•
|
More
loyal patients result in more regular visits and increase the opportunity
for other services, such as tooth bleaching and cosmetic procedures, to be
delivered.
|
|
•
|
OCT
images can be used chairside to visually demonstrate to patients the need
for a particular procedure. Intraoral cameras are extensively used to show
the patient a surface view of a particular problem and OCT can reinforce
the diagnosis with a view into the
tissue.
|
|
•
|
The
OCT System provides an image that can be used for insurance reimbursements
when claims are made for treatment of early disease, as early stage decay
is not visible on traditional x-ray and there is currently no formal means
of documenting the need for
treatment.
|
Invented
by Professor James Fujimoto, Eric Swanson and their colleagues at MIT, Carl
Zeiss Meditec developed the first commercial application of OCT for use in
ophthalmology. The Stratus OCT provides direct cross sectional images of the
retina to measure, clinically evaluate, and detect glaucoma and retinal
diseases. The Stratus OCT is a breakthrough device in the diagnostic imaging
field that enables patients to receive a thorough eye examination in an office
visit to the eye specialist. It has been very well accepted by the profession
and the reimbursement model indicates a high return on the investment of
approximately $65,000 per System. In a press release on November 8, 2006, Carl
Zeiss Meditec announced that it sold its 6,000th ophthalmology OCT System since
its introduction in 2002.
LightLab
holds the MIT patents for application in the biomedical field, excluding
ophthalmology, which is held exclusively by Carl Zeiss Meditec. LightLab was a
subsidiary of Carl Zeiss until 2002, when it was acquired by a Japanese
corporation, Goodman Co. Ltd. LightLab has developed an advanced OCT System for
application in cardiology, whereby arteries can be imaged through a
catheter.
NIR
Technology was discovered and developed at the University of California (San
Francisco) School of Dentistry by doctors Fried and Jones. They
discovered that at the same wavelength of light used by OCT, the tooth enamel
becomes highly transparent and decay and defects become visible. This
modality is suitable for imaging between the teeth and also the occlusal (biting
surfaces) where an estimated 80% of decay occurs. This modality is synergistic
with OCT in that NIR can be used for screening the teeth and then OCT can
provide the dentist with more detailed information on the areas of
interest.
Our
Products
The
OCT Dental Imaging System
We plan
to make the OCT System available in a self-contained cart configuration that can
be moved between rooms. Development has been slowed down in
2009 due to lack of adequate funding. Upon obtaining the necessary funding we
will move to complete our OCT System, generate the required data for FDA
submission to obtain marketing clearance, and thereafter begin the transition to
manufacturing and marketing.
We are
undertaking development in 3 phases:
Phase 1 of the technology
deployment commenced with development of the software to enable scanning,
capture and storage of images. OCT System software was designed specifically for
Phase 1 to monitor all the parameters of the processor and scanner/probe
operation. The parameters of the OCT processor were defined and optimized for
the dental application. The first generation scanning device for bench use was
built and operated to expectations. A prototype of the hand-held scanner for
operation in the mouth was also designed and built. The Phase 1 Alpha OCT System
prototype demonstrated depth penetration and characterization of dental
structures.
Phase 2 development is in
process with major components of the System being redesigned to provide the high
scanning speed required in the System, based on AXSUN OCT Engine. A significant
amount of time and resources was spent in upgrading components to function with
the specification of this advanced System as against the earlier time domain
system that we initially intended developing. The objective in this phase is to
build 5 beta Systems for clinical use and experience prior to completing the
final specification for the pre-production System. These Beta Systems will be
used to provide the data needed to support the FDA submission and to obtain
clinical feedback for the development of the pre-production
System. We have received 3 Beta1 OCT Engines from AXSUN and upon
resumption of development, subject to funding, a further 5 Beta2 Engines are due
to delivered.
4
Phase 3 development is
focusing on finalizing the specification of the pre-production OCT System and is
being conducted concurrently with Phase 2 development. The industrial design and
documentation commenced in 2008 but was suspended in March 2009 due to lack of
funding. The full documentation of the System for manufacturing will
be completed in this phase. FDA device regulatory consultants need to be fully
engaged to ensure that the System complies with FDA and CE (Europe) regulatory
requirements and any other applicable standards and requirements to enable
sales, worldwide. Validation of Software and UL testing will be undertaken in
this phase.
A
development facility has been established in Pinellas Park, Florida under the
direction of Mr. Doug Hamilton, VP Research and Development. In addition to
Hamilton we employed a software programmer until February 2009 when the clinical
software was completed. We use specialized outside resources on
a development and consulting basis to assist Mr. Hamilton in preparing the
components for the OCT System. The hand-held probe scanner was
developed at the University of Florida under the license
agreement. Based on the first iteration, which demonstrated the
applicability of the scanner for in mouth use, it is necessary to do a redesign
and fabrication which will take up to 6 months. A prototype of the
digital board has been completed and again a resign and fabrication is necessary
to produce a pre-production board to be used in the Beta Systems.
Upon
completion of the clinically usable Systems, estimated to be 6 months after
obtaining funding, clinical data will be generated to support an FDA
filing. We anticipate obtaining FDA marketing clearance through a
510(k) filing as OCT has previously been cleared for other biomedical
applications.
Our
projected cost to complete Phase 2 and Phase 3 is $2,000,000 and we anticipate
that we can achieve this in a 12-18 month timeframe, after funding.
The
NIR System
We can
only commence development upon adequate funding being available. We
have identified suitable and cost effective sensor technology which we believe
can be deployed in the NIR System. The first step will be to undertake a resign
and repacking of the camera to adapt to the handpiece we envisage suitable for
use in dental application. Development of the System is expected to
take up to 24 months at an estimated cost of $2.5 million.
Licenses
and Patents
Under our
exclusive agreement with Livermore and agreement with LightLab, we have rights
to applications and methods, and to make, use and sell diagnostic products for
use in the dental field incorporating technology covered by their respective
patents. We licensed a portfolio of seven patents from Livermore. Our licenses
from Livermore terminate upon expiration or abandonment of the patents.
Livermore can terminate our licenses earlier if we materially breach the license
agreement and fail to cure such breach. We paid Livermore an initial license fee
of $175,000 and agreed to pay an annual royalty equal to 3.5% of net sales. Our
minimum royalty payments are $20,000, $20,000, $20,000, $60,000, $100,000 and
$250,000 for 2008, 2009, 2010, 2011, 2012 and from 2013 through expiration,
respectively. We have paid to license fee due for 2008 and an amendment to the
agreement requires us to pay the license fees for 2009 and 2010 by July 31,
2010. Our original license agreement with Livermore required a license fee
payment with minimum royalties becoming payable in 2004. The development time
took longer than anticipated due to the difficulty in obtaining an OCT engine
that could scan at the desired speeds and at a cost that met our objectives. At
the end of 2004, Livermore granted us a two-year moratorium on all payments to
allow us to continue the commercialization process without undue pressure. By
the end of the moratorium in October 2006, we had established a clear path
forward and had raised a round of financing. In a meeting with Livermore in
November 2006, it was mutually agreed to reset the royalty clock with minimum
royalty payments to commence in 2008 instead of 2004, as originally intended.
Consequently, the minimum royalty payments under the initial contract were
forgiven and a new schedule to pay all other outstanding amounts was agreed
upon. We have adhered to this schedule with amendments.
Patent
Description
|
Patent
No.
|
Date
Issued/
Date
of Expiration
|
||
Method
for Detection of Dental Caries and Periodontal Disease Using Optical
Imaging
|
5,570,182
|
October
29, 1996/
May
27, 2014
|
||
Dental
Optical Coherence Domain Reflectometry Explorer
|
6,179,611
|
January
30, 2001/
May
19, 2019
|
5
Patent
Description
|
Patent
No.
|
Date
Issued/
Date
of Expiration
|
Birefringence
Insensitive Optical Coherence Domain Reflectometry System
|
6,385,358
|
May
7, 2002/
January
7, 2020
|
||
Optical
Coherence Tomography Guided Dental Drill
|
6,419,484
|
July
16, 2002/
September
12, 2020
|
||
OCDR
Guided Laser Ablation Device
|
6,451,009
|
September
17, 2002/
September
12, 2020
|
||
Optical
Fiber Head for Providing Lateral Viewing
|
6,466,713
|
October
15, 2002/
June
18, 2021
|
||
Optical
Detection of Dental Disease Using Polarized Light
|
6,522,407
|
February
18, 2003/
March
18, 2022
|
LightLab
has an intellectual property position in technology acquired from MIT, Harvard
University, Massachusetts General Hospital, Tufts University, and the Zeiss
Foundation, as well as numerous internally developed patents. The primary claim
of their master patents is the scanning of biomedical tissue using the
technology of optical coherence tomography. LightLab’s OCT patent portfolio
consists of 22 patents issued, with seven patents pending. We have licensed
LightLab’s portfolio of patents relating to methods for scanning biomedical
tissue. These licenses, together our licenses from Livermore, enable us to make,
use and sell OCT-based diagnostic products for the dental field. Our licenses
from LightLab will terminate in July 2010. LightLab may terminate our licenses
earlier if we materially breach the agreement and fail to cure such breach or if
LightLab’s rights to the underlying intellectual property become impaired. We
agreed to pay LightLab an annual royalty equal to 3.5% of net sales. Our minimum
royalty payments are $50,000, $150,000 and $600,000 on net sales commencing
after July 2010. The master LightLab OCT patents we have licensed
are:
Patent
Description
|
Patent
No.
|
Date
Issued/
Date
of Expiration
|
||
Method
and Apparatus for Optical Imaging with Means for Controlling The
Longitudinal Range of The Sample
|
5,321,501
|
June
14, 1994/
June
14, 2011
|
||
Method
and Apparatus for Performing Optical Measurements
|
5,459,570
|
October
17, 1995/
May
16, 2013
|
We also
have licensed from the University of Florida Research Foundation, Inc. (“UFRF”)
Patent No. 6,940,630, entitled “Vertical Displacement Device,” issued September
6, 2005 and expiring April 29, 2024. We have licensed this patent for use in
connection with the micromirror component of our products. This license expires
when the patent expires or is no longer enforceable. UFRF may terminate the
license earlier if we materially breach the agreement and fail to cure the
breach, if the first commercial sale of a product developed from the patent does
not occur on or before July 31, 2010 (as amended) or if the payment of earned
royalties, once begun, ceases for more than five calendar quarters. We paid UFRF
an initial license fee of $1,000 and agreed to pay an annual royalty equal to
$5.00 per unit. Our minimum royalty payments are $180, $630 and $1,485 for 2008,
2009 and from 2010 through expiration, respectively. We are also responsible for
undertaking certain development activities to bring to market a product
developed from the patent, and we must provide UFRF periodic written reports of
our progress, which we have done.
We have
entered into a license agreement with The Regents of the University of
California for exclusive rights to the patent, if and when issued, for a
patent-pending technology known as “Near-infrared Transillumination for the
Imaging of Early Dental Decay”. Under the license agreement, we are obligated to
spend at least $50,000 developing this technology by December 31, 2009 (as
amended). We have spent at least this amount in designing and
completing the software that would enable scanning, capture, manipulation and
saving of the images generated by this modality. If a patent is issued, we
anticipate that the earliest we would commence any development activity would be
in fiscal 2010 subject to adequate funding being available. Under terms of the
agreement, we paid a $10,000 non-refundable license fee with further milestone
payments of $15,000 and $25,000 to be paid if and when the patent is issued and
when FDA clearance is obtained, respectively. The license bears an annual
royalty of 5% on net sales and is subject to minimum earned royalties being
payable commencing in 2011, as amended. Minimum royalties in years, 2011, 2012,
2013, 2014, and 2015 and thereafter are $10,000, $50,000, $100,000, $150,000,
and $200,000, respectively.
6
Government
Regulation
Our
proposed products and research and development activities are subject to
regulation by numerous governmental authorities, principally, the FDA and
corresponding state regulatory agencies. The FDCA, the regulations promulgated
thereunder, and other federal and state statutes and regulations, govern, among
other things, the preclinical and clinical testing, manufacture, safety,
efficacy, labeling, storage, record keeping, advertising and promotion of
medical devices and drugs, including our products currently under development.
Product development and approval within this regulatory framework may take a
number of years and involves the expenditure of substantial
resources.
Medical
devices are classified into three different classes, class I, II and III, on the
basis of controls deemed necessary to reasonably ensure the safety and
effectiveness of the device. Class I devices are subject to general controls
which include labeling, pre-market notification and adherence to FDA’s GMPs and
class II devices are subject to general and special controls which include
performance standards, post-market surveillance, patient registries, and FDA
guidelines. Generally, class III devices are those which must receive pre-market
approval by the FDA to ensure their safety and effectiveness and include
life-sustaining, life-supporting and implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed
devices.
Before a
new medical device can be marketed, marketing clearance must be obtained through
a pre-market notification under Section 510(k) of the FDCA (a “510(k)
Notification”) or a pre-market approval (“PMA”) application under Section 515 of
the FDCA. A 510(k) Notification will typically be granted by the FDA if it can
be established that the device is substantially equivalent to a “predicate
device,” which is a legally marketed class I or II device or a pre-amendment
class III device (i.e. one that has been marketed since a date prior to May 28,
1976) for which the FDA has not called for PMAs. The FDA has been requiring an
increasingly rigorous demonstration of substantial equivalence, and this may
include a requirement to submit human clinical trial data. It generally takes
three to nine months from the date of a 510(k) Notification to obtain clearance,
but it may take longer. The FDA may determine that a medical device is not
substantially equivalent to a predicate device, or that additional information
is needed before a substantial equivalence determination can be made. A “not
substantially equivalent” determination, or a request for additional
information, could prevent or delay the market introduction of new products that
fall into this category. For any devices that are cleared through the 510(k)
Notification process, modifications or enhancements that could significantly
affect the safety or effectiveness, or that constitute a major change in the
intended use of the device, will require new 510(k) Notifications. We have been
working with our FDA consultant to prepare our 510(k) Notification, which we
expect to submit in the fourth quarter of 2009.
A PMA
application must be filed if a proposed device is not substantially equivalent
to a legally marketed class I or class II device, or if it is a pre-amendment
class III device for which the FDA has called for PMAs. A PMA application must
be supported by valid scientific evidence to demonstrate the safety and
effectiveness of the device, typically including the results of clinical trials,
bench tests, and laboratory and animal studies. The PMA must also contain a
complete description of the device and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature, and any training materials. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for
marketing.
Upon
receipt of a PMA application, the FDA makes a threshold determination as to
whether the application is sufficiently complete to permit a substantive review.
If the FDA determines that the PMA application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. The FDA review of a PMA application generally takes one to three years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of clinicians
may be convened to review and evaluate the application and provide a
recommendation to the FDA as to whether the device should be approved. The FDA
accords substantial weight to the recommendation but is not bound by it. Toward
the end of the PMA review process, the FDA generally will conduct an inspection
of the manufacturer’s facilities to ensure compliance with applicable GMP
requirements, which include elaborate testing, control documentation and other
quality assurance procedures.
If the
FDA evaluations of both a PMA application and the manufacturing facilities are
favorable, the FDA may issue either an approval letter or an approvable letter,
which usually contains a number of conditions that must be met in order to
secure final approval of the PMA. When and if those conditions have been
fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval
letter, authorizing marketing of the device for certain indications. If the
FDA’s evaluation of the PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a
“non-approvable” letter. The FDA may determine that additional clinical trials
are necessary, in which case the PMA may be delayed for one or more years while
additional clinical trials are conducted and submitted in an amendment to the
PMA. Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA. While we intend
for our OCT System to qualify for the 510(k) Notification process, it is
possible that a PMA may be required.
7
If human
clinical trials of a device are required, either for a 510(k) Notification or a
PMA, and the device presents a “significant risk,” the sponsor of the trial
(usually the manufacturer or the distributor of the device) must file an
investigational device exemption (“IDE”) application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
(“IRBs”), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a “non-significant risk” to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from the
studies support the safety and efficacy of the device or warrant the
continuation of clinical studies. Sponsors of clinical trials are permitted to
sell investigational devices distributed in the course of the study provided
such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
Among the
additional requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA’s GMP regulations. In complying with
the GMP regulations, manufacturers must continue to expend time, money and
effort in product, record keeping and quality control to assure that the product
meets applicable specifications and other requirements. The FDA periodically
inspects device manufacturing facilities in the U.S. in order to assure
compliance with applicable GMP requirements.
If we
obtain clearance or approval, any device we manufacture or distribute will be
subject to pervasive and continuing regulation by the FDA. We will be subject to
routine inspection by the FDA and will have to comply with the host of
regulatory requirements that usually apply to medical devices marketed in the
United States, including labeling regulations, GMP requirements, the Medical
Device Reporting (“MDR”) regulation (which requires a manufacturer to report to
the FDA certain types of adverse events involving its products), and the FDA’s
prohibitions against promoting products for unapproved or “off-label”
uses.
Because
our OCT Systems will incorporate the use of lasers, our products will be
regulated under the Radiation Control for Health and Safety Act administered by
the Center for Devices and Radiological Health of the FDA. The law requires
medical and non-medical laser manufacturers to file new product and annual
reports and to maintain quality control, product testing and sales records, to
incorporate certain design and operating features in lasers sold to end users
under a performance standard, and to comply with labeling and certification
requirements. Various warning labels must be affixed to the laser, depending on
the class of the product under the performance standard.
Competition
In the
field of dental diagnostic imaging, the x-ray has been the most dominant
modality. We estimate that almost 50% of dentists in the United States are
currently using this modality. The dental x-ray unit is limited in that it only
images hard tissue (teeth or bone) and cannot image soft tissue such as gums. In
addition, the resolution is such that decay can only be detected at a much later
stage when more invasive dentistry is required, usually removal with a drill. In
addition, the dental x-ray cannot image occlusal (biting surfaces), where an
estimated 80% of decay occurs.
A device
for detecting decay, “DIAGNOdent” from KaVo Dental GmbH (“KaVo”), has been
readily embraced by the market. It is priced at approximately $3,000 and uses
light fluorescence to indicate the presence of decay by emitting a reading
showing the amount of decay available. The device does not provide an
image. As the device measures porphyrins which are a byproduct of
decay, the amount of decay needed to activate a reading is not detected as the
very early demineralization stage. We believe the commercial success of
DIAGNOdent indicates a strong demand by dentists for additional information to
that provided by x-ray to improved early diagnostic capabilities of early, later
or hidden decay. A similar device, ID Caries was introduced by
Dentsply and like DIAGNOdent does not provide an image. We believe
that our OCT and NIR modalities fill the diagnostic void in every respect by
providing high-resolution, quantitative and qualitative, imaging of dental
tissue and with an image that can be stored in the patient file for monitoring
treatment. We believe the OCT Dental Imaging System is the only known modality
that can meet the extremely important quantitative and qualitative diagnostic
requirements for detection of early, later and hidden dental disease symptoms
and structural defects. Additionally, the OCT System provides detailed images of
both teeth and gums and the captured information can be displayed chairside on a
monitor, printed, digitally stored in the patient’s file and transmitted
electronically for consultation or insurance claims, if and when
applicable.
8
Sales
and Marketing
Subject
to obtaining FDA clearance for marketing, we intend selling the OCT and NIR
Systems through existing channels of distribution. The larger distribution
companies have specialized personnel to sell, install and train users of
high-technology equipment. We will support their sales efforts by placing our
own company field representatives to assist in sales, training and installation
of the equipment. We do not currently have any distribution agreement in place.
In international markets, we expect to enter into exclusive agreements with
distributors in each country or territory to undertake the sales, installation,
training and support of the OCT and NIR Systems.
We expect
the initial sales price to dentists to be approximately $27,000 for each OCT
System and $35,000 for the combination OCT/NIR System, including all components
packaged in a mobile cart and including computer and monitor. All Systems will
undergo very stringent quality assurance testing as necessary for a medical
device and also to meet the FDA Good Manufacturing Practices requirements. The
NIR System would also be sold as a standalone device for use in operatory which
typically have an x-ray. Subject to obtaining funding, and obtaining FDA
clearance, we anticipate being able to commence introduction of the OCT System
into the dental market within a 12-18 month timeframe. The NIR
System, subject to successful development and obtaining FDA clearance, would not
be ready for market introduction until at least 24 months after adequate
development funding is obtained.
Research
and Development
We have
devoted substantially all of our operating resources towards research and
development. Our research and development efforts to date have focused on
developing the OCT System based upon intellectual property originally developed
Livermore and LightLab. Due to lack of funding our development of the OCT has
slowed down in 2009. All of our employees devote a significant portion of their
time to research and development activities. In addition, we retain third
parties to perform specialized research and development activities.
Employees
We have
three full-time employees, two of whom are members of management. To the best of
our knowledge, we are in compliance with local prevailing wage, contractor
licensing and insurance regulations. None of our employees is represented by any
collective bargaining agreement, and our relationship with our employees is
good. Upon funding, we may seek to hire two additional employees – specifically,
an optical engineer and a technician – to help us complete the development and
preparation of the Systems OCT Systems for clinical use, although we may decide
to retain independent contractors in lieu of additional employees.
Item 1A.
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Risk
Factors
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Risks
Related to Our Operating Results and Business
The
likelihood of successfully implementing our business plan cannot be predicted
from our limited operating history.
We have
incurred losses since inception, and our accumulated deficit is approximately
$9.79 million. We have not generated any revenue from the sale of our products
to date. Therefore, there is limited historical basis on which to determine
whether we will be successful in implementing our business plan. We expect that
our annual operating losses will increase over the next few years as we expand
our research, development and commercialization efforts. To become profitable,
we must successfully develop and obtain regulatory approval for the OCT and NIR
imaging Systems and effectively manufacture, market and sell the products we
develop. Accordingly, we may never generate significant revenues, and even if we
do generate significant revenues, we may never achieve
profitability.
The
loss of our executive officers and certain other key personnel could hurt our
business.
We are
dependent on Stanley Baron, our Chairman, President & CEO, Craig Gimbel,
DDS, our Executive Vice-President and Douglas Hamilton our head of Research and
Development. Unlike larger companies, we rely heavily on a small number of
officers to conduct a large portion of our business. The loss or unavailability
of their services, along with the loss of their skills, numerous contacts and
relationships in the industry, would have a material adverse effect on our
product development and business prospects and/or potential earning
capacity.
We
have no Chief Financial Officer, which makes it more difficult for us to comply
with our public company reporting obligations and prevents us from having an
internal check on our financial reporting.
We have
no Chief Financial Officer, and the duties of a Chief Financial Officer are
currently performed by Mr. Baron, our Chairman, President & CEO. As a
result, it will be more difficult for us to fully comply with our reporting
obligations as a public company, and our ability to do so is uncertain. In
addition, as our CEO is also acting as our Chief Financial Officer, we do not
have any internal check on our financial reporting.
9
Our
products are subject to an extensive government regulation and pre-approval
process before our products may be marketed. Any unanticipated costs or delays
in these processes, or any failure to obtain the necessary approvals, will have
a material adverse affect on our ability to introduce and market our
products.
We and
our products are subject to extensive regulation by governmental authorities.
Before any new medical device may be introduced to the market in the United
States, the manufacturer generally must obtain FDA approval by filing a
pre-market application (a “PMA”) under Section 515 of the Federal Food, Drug and
Cosmetic Act (the “FDCA”) or a pre-market notification pursuant to Section
510(k) (a “510(k) Notification”) of the FDCA. Obtaining FDA approval requires
substantial time, effort, and financial resources, and may be subject to both
expected and unforeseen delays, and there can be no assurance that any approval
will be granted on a timely basis, if at all, or that delays will be resolved
favorably or in a timely manner. A 510(k) Notification generally receives
pre-market clearance from the FDA approximately three to nine months from
submission. Approval of a PMA generally takes two or more years from the date of
submission to be approved. We believe that our OCT System requires only 510(k)
Notification. However, the FDA may determine that our OCT System is not
substantially equivalent to a predicate device, or that additional information
is needed before a substantial equivalence determination can be made. A “not
substantially equivalent” determination, or a request for additional
information, would subject us to the lengthier PMA process and could prevent or
delay the market introduction of our OCT System. Obtaining FDA approval for our
products may require the submission of extensive preclinical and clinical data
and supporting information to the FDA, and there can be no guarantee of ultimate
clearance or approval. See “Business – Government Regulation.”
If the
FDA does not approve our products in a timely fashion, or does not approve them
at all, our business and financial condition may be adversely affected. We, our
collaboration partners or the FDA may suspend or terminate human clinical trials
at any time on various grounds, including a finding that the patients are being
exposed to an unacceptable health risk. The FDA conducts its own independent
analysis of some or all of the pre-clinical and clinical trial data submitted in
a regulatory filing and often comes to different and potentially more negative
conclusions than the analysis performed by the developer. Our failure to develop
safe, commercially viable OCT and NIR Systems approved by the FDA would
substantially impair our ability to generate revenues and sustain our operations
and would materially harm our business and adversely affect our stock price. In
addition, significant delays in clinical trials will impede our ability to seek
regulatory approvals, commercialize the OCT and NIR Systems and generate
revenue, as well as substantially increase our development costs.
In
addition, both before and after regulatory approval, we, our collaboration
partners and our products may be subject to numerous FDA requirements covering,
among other things, testing, manufacturing, quality control, labeling,
advertising, promotion, distribution and export. The FDA’s requirements may
change and additional government regulations may be promulgated that could
affect us, our collaboration partners or our products. We cannot predict the
likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action. There can be no assurance that we will not
be required to incur significant costs to comply with such laws and regulations
in the future or that such laws or regulations will not have a material adverse
effect upon our business.
To obtain
required government approvals, our technology must be shown to be efficacious
and safe for use in humans. Our current and future technology for humans are
subject to stringent government regulation in the United States by the FDA under
the FDCA. The FDA regulates the preclinical and clinical testing, manufacture,
safety, labeling, sale, distribution and promotion of medical devices. Included
among these regulations are compliance with establishment registration and
medical device listing, good manufacturing practices (or “GMP”) labeling, and
promotional requirements.
Failure
to comply with applicable regulatory requirements could result in, among other
things, any of the following actions: warning letters; fines and other civil
penalties; unanticipated expenditures; delays in approving or refusal to approve
a product; product recall or seizure; interruption of manufacturing or clinical
trials; operating restrictions; injunctions; and criminal
prosecution.
Our
products are subject to ongoing governmental regulation that could make it more
expensive and time consuming for us to manufacture our products.
Our
technology is subject to post-market reporting requirements for certain adverse
events and device malfunctions, and correction and removal reporting and
recordkeeping requirements for actions taken with respect to distributed devices
to reduce a risk to health. Additionally, the FDA actively enforces regulations
prohibiting marketing of devices for indications or uses that have not been
cleared or approved by the FDA. If safety or efficacy problems occur after the
product reaches the market, the FDA may take steps to prevent or limit further
marketing of the product.
10
The
manufacture of our products also is subject to periodic inspection by regulatory
authorities and certain marketing partners, while manufacture of our products
for human use is subject to regulation and inspection from time to time by the
FDA for compliance with GMPs, as well as equivalent requirements and inspections
by state and foreign regulatory authorities. There can be no assurance that we
will satisfy these requirements for our technology. In addition, there can be no
assurance that the FDA or other authorities will not, during the course of an
inspection of our facilities, identify what they consider to be deficiencies in
GMPs or other requirements and request, or seek, remedial action. Failure to
comply with such regulations or any delay in attaining compliance may adversely
affect our manufacturing activities and could result in, among other things, FDA
refusal to grant pre-market approvals or clearances for pending or future
products, warning letters, injunctions, civil penalties, fines, recalls or
seizures of products, total or partial suspensions of production and criminal
prosecution. Additionally, future modifications of our manufacturing facilities
and processes may subject us to further FDA inspections and review before
implementation of such modifications. There can be no assurance that we will be
able to obtain necessary regulatory approvals or clearances on a timely basis,
if at all. Delays in receipt of or failure to receive such approvals or
clearances or the loss of previously received approvals or clearances will
affect our ability to timely manufacture our products.
Uncertainties
related to the early stage of our commercialization and development efforts may
materially adversely affect our ability to commercialize our
products.
Our OCT
System is in Phase 2 and 3 development, with Systems expected to be deployed for
clinical testing 6 months after the next round of funding, if successful, is
completed. Although we now intend to commercially introduce our OCT
System to the dental market in the second half of 2011, subject to adequate
funding being available, the timing of the commercial availability of our
products is subject to a number of uncertainties. For example, our products
cannot be marketed until cleared by the FDA. To date, we have not applied for or
received marketing approval for any product from the FDA, but we plan to submit
pre-market notification application with the FDA within approximately 6 months
after completion of the Systems. In addition, we may experience unexpected
delays in product development. For example, we had initially expected to deploy
the OCT System in August 2008, but the vendor developing the optics components
for the Systems has experienced delays. In addition, we have had to redesign and
perform another round of fabrication of certain components of the System. The
development and commercialization of new dental imaging products are highly
uncertain and subject to a number of significant risks. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. Such reasons include the possibilities that the devices
will fail to receive necessary regulatory approvals, be difficult to manufacture
on a commercial scale, be uneconomical, fail to achieve market acceptance or be
precluded from commercialization by proprietary rights of third parties. No
assurance can be given that development of our OCT System will be successfully
completed, that clinical trials will generate anticipated results or will
commence or be completed as planned, that required regulatory approvals will be
obtained on a timely basis, if at all, or that any products for which approval
is obtained will be commercially successful. If our OCT System is not
successfully developed, required regulatory approvals are not obtained, or
products for which approvals are obtained are not commercially successful, our
business, financial condition and results of operations would be materially
adversely affected. The same risks apply for the development of the NIR
System.
The
application rights and technology underlying our OCT and NIR System are being
developed under license from third parties. The termination of any of our
licenses likely would have a material adverse effect on our ability to
commercialize our products.
Our OCT
System is based upon technology that we are licensing from Lawrence Livermore
National Laboratory and LightLab Imaging, LLC. and a development and supply
agreement with AXSUN Technologies for the OCT Engine. Our NIR System is based on
a license we have with the Regents of The University of California and for which
patent is still pending. If any of these licenses were to be terminated by the
other party, under most circumstances we would lose our rights to develop,
manufacture, market and sell any products based on the technology underlying the
terminated license and agreement. Such a termination would likely require us to
seek alternative technology, if available, which could:
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impede or prevent delivery of our
product;
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be time-consuming and expensive;
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divert attention away from our daily business;
and
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possibly require us to pay significantly greater royalties and licensing
fees.
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If
dental care providers are unable to obtain reimbursement for our products or the
procedures in which they are used from third-party payors, our ability to sell
or market the OCT and NIR Systems will be materially adversely
affected.
Dental
care providers that purchase medical devices such as our product generally rely
on third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of dental imaging
and procedures. We anticipate that in a prospective payment System, such as the
System utilized by Medicare, and in many managed care Systems used by private
health care payors, there will be no separate, additional reimbursement for our
products. However, we have had a meeting with the American Dental Association
Code Revision Committee to ask for inclusion of a new reimbursement code for
non-radiological (non x-ray) dental imaging, which would cover our OCT and NIR
Systems, and we cannot be assured that such a reimbursement code will be issued.
Even if there is no procedure-specific reimbursement code, we anticipate that
dental patients will justify the additional cost of accepting diagnostic imaging
with our OCT and NIR Systems if we can demonstrate long-term cost savings due to
improved clinical outcomes attributable to the use of our product.
11
There can
be no assurance that reimbursement for our products will be available in the
United States under either governmental or private reimbursement Systems.
Furthermore, we could be adversely affected by changes in reimbursement policies
of governmental or private health care payors. Failure by dental care providers
to obtain sufficient reimbursement from health care payors for procedures in
which our products are used or adverse changes in governmental and private
third-party payors’ policies toward reimbursement for such procedures would have
a material adverse effect on our business, financial condition and results of
operations.
Our
business may be also materially adversely affected by the continuing efforts of
government and third-party payors to contain or reduce the costs of health care
through various means. For example, an increasing emphasis on managed care has
put, and will continue to put, pressure on pharmaceutical and medical product
pricing. Such initiatives and proposals, if adopted, could decrease the price
that we receive for any products we may develop and sell in the future, and
thereby have a material adverse effect on our business, financial condition and
results of operations.
Furthermore,
to the extent that such proposals or initiatives have a material adverse effect
on other companies that are corporate partners or prospective corporate partners
for certain of our products, our ability to commercialize our products may be
materially adversely affected.
We
have limited experience in marketing or selling our products, and we may need to
rely on marketing partners or contract sales companies.
Even if
we are able to develop our products and obtain necessary regulatory approvals,
we have limited experience or capabilities in marketing or commercializing our
products. We currently do not have a sales, marketing or distribution
infrastructure. Accordingly, we are dependent on our ability to build this
capability ourselves or to find collaborative marketing partners or contract
sales companies for commercial sale of our internally-developed products. Even
if we find a potential marketing partner, we may not be able to negotiate a
licensing or distribution contract on favorable terms to justify our investment
or achieve adequate revenues.
Risks
Related to Our Industry
The
market for our products is new and evolving and a viable market may never
develop or may take longer to develop than we anticipate.
Our
products represent what we believe is a novel entry in an emerging market, and
we do not know the extent to which our targeted customers will want to purchase
them. The development of a viable market for our products may be impacted by
many factors which are out of our control, including customer reluctance to try
new products and the existence and emergence of products and services marketed
by better-known competitors.
If a
viable market fails to develop or develops more slowly than we anticipate, we
may be unable to recover the losses we will have incurred to develop our
products, and we may be unable to achieve profitability.
If
dentists and patients do not accept our products, we may be unable to generate
significant revenue, if any.
Our
Systems may not gain market acceptance among dentists, health care payors,
patients and the dental community. Dentists may elect not to purchase our
products for a variety of reasons including:
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timing
of market introduction of competitive
technologies;
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lack
of cost-effectiveness;
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lack
of availability of reimbursement from managed care plans and other
third-party payors;
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convenience
and ease of administration;
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other
potential advantages of alternative treatment methods;
and
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ineffective
marketing and distribution support.
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If
our products fail to achieve market acceptance, we would not be able to generate
sufficient revenue to fund our business plan.
12
Failure
to meet customers’ expectations or deliver expected performance of our products
could result in losses and negative publicity, which will harm our
business.
If our
products fail to perform in the manner expected by our customers, then our
revenues may be delayed or lost due to adverse customer reaction or negative
publicity about us and our products, which could adversely affect our ability to
attract or retain customers. Furthermore, disappointed customers may initiate
claims for substantial damages against us, regardless of our responsibility for
such failure.
We
operate in a competitive market which could constrain our future growth and
profitability.
We
operate in a competitive environment, competing for customers with biomedical
device companies with varying degrees of specialization in dental devices. Many
of our competitors offer complimentary products and/or services that we do not
offer. Moreover, some of our competitors are much larger than we are, have
proven products and may have the marketing and sales capabilities to
commercialize competing products more effectively than we can.
If
we cannot build and maintain strong brand loyalty our business may
suffer.
We
believe that the importance of brand recognition will increase as more companies
produce competing products. Development and awareness of our brands will depend
largely on our ability to advertise and market successfully. If we are
unsuccessful, our brands may not be able to gain widespread acceptance among
consumers. Our failure to develop our brands sufficiently would have a material
adverse effect on our business, results of operations and financial
condition.
We
may not be able to hire and retain qualified technical personnel.
Competition
for qualified personnel in the biomedical device industry is intense, and we may
not be successful in attracting and retaining such personnel. Failure to attract
qualified personnel could harm the proposed growth of our business.
Product
liability claims against us could be costly and could harm our
reputation.
The sale
of dental and medical devices involves the inherent risk of product liability
claims against us. We cannot be certain that we will be able to successfully
defend any claims against us, nor can we be certain that our insurance will
cover all liabilities resulting from such claims. In addition, there is no
assurance that we will be able to obtain such insurance in the future on terms
acceptable to us, or at all. Any product liability claims brought against us
could harm our reputation and cause our business to suffer.
We
license patent rights from third-party owners. If such owners do not properly
maintain or enforce the patents underlying such licenses, our competitive
position and business prospects will be harmed.
We are
party to a number of licenses that give us rights to third-party intellectual
property that is necessary or useful for our business. We may enter into
additional licenses to third-party intellectual property in the future. Our
success will depend in part on the ability of our licensors to obtain, maintain
and enforce patent protection for their intellectual property, in particular,
those patents to which we have secured exclusive rights. Our licensors may not
successfully prosecute the patent applications to which we are licensed. Even if
patents issue in respect of these patent applications, our licensors may fail to
maintain these patents, may determine not to pursue litigation against other
companies that are infringing these patents, or may pursue such litigation less
aggressively than we would. In addition, our licensors may terminate their
agreements with us in the event we breach the applicable license agreement and
fail to cure the breach within a specified period of time.
Risks
Related to Our Dependence on Third Parties
If
a collaborative partner terminates or fails to perform its obligations under
agreements with us, the development and commercialization of our products could
be delayed or terminated.
If any of
our collaborative partners or component suppliers do not devote sufficient time
and resources to collaboration arrangements with us, we may not realize the
potential commercial benefits of the arrangement, and our results of operations
may be adversely affected. In addition, if any existing or future collaboration
partner were to breach or terminate its arrangements with us, the development
and commercialization of our Systems could be delayed, curtailed or terminated
because we may not have sufficient financial resources or capabilities to
continue development and commercialization.
13
If
third-party payors do not provide adequate reimbursements for the use of our
Systems that are approved for marketing, our Systems might not be purchased or
used, and our revenues and profits will not develop or increase.
Our
revenues and profits will depend significantly upon the availability of adequate
reimbursement for the use of our imaging Systems from governmental and other
third-party payors. Reimbursement by a third party may depend upon a number of
factors, including the third-party payors determination that use of a product
is:
|
•
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a
covered benefit under its health
plan;
|
|
•
|
safe,
effective and medically necessary;
|
|
•
|
appropriate
for the specific patient;
|
|
•
|
cost
effective; and
|
|
•
|
neither
experimental nor investigational.
|
Moreover,
reimbursement rates may be based on payments allowed for lower-cost products
that are already reimbursed, and/or may be incorporated into existing payments
for other products or services producing lower than anticipated
revenues.
If
we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to market and sell our Systems, we may not
generate product revenue.
We have
no commercial products, and currently have no established network for the sales
and marketing. In order to successfully commercialize our products, we must
build our sales and marketing capabilities or make arrangements with third
parties to perform these services. We believe our Systems can be commercialized
by specialty sales forces that market to the dental community. If we are unable
to establish adequate sales, marketing and distribution capabilities, whether
independently or with third parties, we may not be able to generate product
revenue and may not become profitable.
Risks
Related to Our Common Stock
Currently,
there is a limited active trading market for our common stock, which may
adversely impact your ability to sell your shares and the price you
receive.
Although
our common stock is quoted on the OTC Bulletin Board under the symbol “LLSR”
there is a limited active trading market for our common stock and such a market
may not develop or be sustained. We cannot assure you that an active public
market will materialize as we are a development stage company and do not have
revenue or profit. Furthermore, the OTC Bulletin Board is not a listing service
or exchange, but is instead a dealer quotation service for subscribing
members.
If our
common stock ceases to be quoted on the OTC Bulletin Board or if an active
market for our common stock does not develop, then you may not be able to resell
the shares of our common stock that you have purchased, and you may lose all of
your investment. If we establish an active market for our common stock, the
market price of our common stock may be significantly affected by factors such
as actual or anticipated fluctuations in our operating results, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have
particularly affected the market prices for the shares of developmental stage
companies, which may materially adversely affect the market price of our common
stock.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
Our
common stock is deemed to be penny stock with a limited trading
market.
The OTC
Bulletin Board is generally considered to be a less efficient market than
markets such as NASDAQ or other national exchanges. This may make it more
difficult for you resell the shares of our common stock that you have purchased
and more difficult for us to obtain future financing. Furthermore, our common
stock is subject to the “penny stock” rules adopted under Section 15(g) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny
stock rules apply to companies whose common stock is not listed on the NASDAQ
Stock Market or another national securities exchange and trades at less than
$5.00 per share or that have tangible net worth of less than $5,000,000
($2,000,000 if the company has been operating for three or more years). These
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 stocks 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. If we remain subject to the penny stock
rules for any significant period, it could have an adverse effect on the market,
if any, for our common stock. Because our common stock is subject to the penny
stock rules, you will find it more difficult to dispose of the shares of our
common stock that you have purchased.
14
Shares
eligible for future sale may adversely affect the market price of our common
stock, exacerbate market price volatility and negatively impact our ability to
raise capital in equity financings.
All of
the current holders of our restricted common stock are or will be eligible to
sell all or some of their shares of common stock, under certain conditions,
pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”). In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of ours at
any time during the three months preceding a sale, and who has beneficially
owned restricted securities within the meaning of Rule 144 for at least six
months (including any period of consecutive ownership of preceding
non-affiliated holders) would be entitled to sell those shares, subject only to
the availability of current public information about our company. A
non-affiliated person who has beneficially owned restricted securities within
the meaning of Rule 144 for at least one year would be entitled to sell those
shares without regard to the current public information requirement of Rule 144.
In general, under Rule 144 as currently in effect, our affiliates or persons
selling shares on behalf of our affiliates are entitled to sell within any
three-month period beginning 90 days after the date of the effective date of our
S-1 registration statement, a number of shares that does not exceed the greater
of 1% of the number of shares of common stock then outstanding, or the average
weekly trading volume of the common stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such
sale.
The above
summarization of Rule 144 notwithstanding, Rule 144 is not available for the
resale of securities initially issued by a former shell company, such as us,
until the following conditions are met:
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•
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the
issuer of the securities has ceased to be a shell
company;
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•
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the
issuer is subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act;
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•
|
the
issuer has filed all reports and other materials required to be filed by
section 13 or 15(d) of the Exchange Act, as applicable, during the
preceding 12 months, other than Form 8-K reports;
and
|
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•
|
one
year has elapsed since the issuer has filed current “Form 10 information”
with the Commission reflecting its status as an entity that is no longer a
shell company.
|
We have
issued a total of 100,201,572 shares of which 39,553,571 are free trading or
eligible to become free trading. This far exceeds the average daily trading
volume for our common stock of approximately 65,200 shares. As a result of this
imbalance, the sale or attempted sale of those formerly-restricted shares into
the market can be expected to have a significant adverse effect on the market
price of our common stock. This imbalance could also exacerbate volatility in
the market price for our common stock – an increase in the market price could
trigger an increased volume of sales or attempted sales, which could flood the
market and cause the market price to decrease, resulting in price
volatility.
A
significant decrease in the market price of our common stock also could have a
negative impact or our ability to raise capital in one or more equity financings
on favorable terms, or at all.
We
will need to raise additional capital in the future, but that capital may not be
available.
Although
we initially believed that the proceeds of our September 2006 and May 2007
private placements would be sufficient to support our Phase 2 and Phase 3
development plan, it has taken longer than we planned and cost more than we had
forecast to complete our Beta Systems. As a result, we will need additional
funding to complete the development of our OCT System and transition to
manufacturing and begin marketing our Systems. We are in the process of seeking
additional financing. Such additional financing may not be available when we
need it or may not be available on terms that are favorable to us. If we are
unable to obtain adequate financing on a timely basis, we could be required to
delay, or terminate our product development program.
We cannot
assure you that we will be successful or that our operations will generate
sufficient revenues, if any, to meet the expenses of our operations.
Additionally, the nature of our business activities may require the availability
of additional funds in the future due to more rapid growth than is forecast, and
thus, we may need additional capital or credit lines to continue that rate of
business growth. We may encounter difficulty in obtaining these funds and/or
credit lines. Moreover, even if additional financing or credit lines were to
become available, it is possible that the cost of such funds or credit would be
high and possibly prohibitive.
If we
were to decide to obtain such additional funds by equity financing in one or
more private or public offerings, current stockholders would experience a
corresponding decrease in their percentage ownership.
15
If
we rely on stock issuances to fund any future acquisition activity, you may
experience a dilution of your investment.
We intend
to seek to acquire novel technologies in the dental field that we believe are
commercially viable. Given our present financial and operational situation, it
is likely that the purchase price in any such acquisition would be paid
primarily in shares of our common stock. In the event of such an issuance, you
would experience dilution of your percentage ownership of our common
stock.
Our
management controls a substantial percentage of our stock and therefore has the
ability to exercise substantial control over our affairs.
As of
December 31, 2009, our directors and executive officers beneficially owned
60,648,000 shares, or approximately 60.5%, of our outstanding common stock in
the aggregate. Because of the large percentage of stock held by our directors
and executive officers, these persons could influence the outcome of any matter
submitted to a vote of our stockholders. This concentration of ownership may
have the effect of:
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•
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delaying,
deferring or preventing a change in control of our
company;
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•
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entrenching
our management and/or board;
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•
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impeding
a merger, consolidation, takeover or other business combination involving
our company; or
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•
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discouraging
a potential acquirer from making a tender offer or otherwise attempting to
obtain control of our company.
|
We
have no independent directors and no committees of our Board of Directors
composed of independent directors.
Currently,
we have no independent directors or committees of directors. We cannot guarantee
that our board of directors will have a majority of independent directors in the
future. In the absence of a majority of independent directors, our executive
officers, could establish policies and enter into transactions without
independent review and approval thereof. This could present the potential for a
conflict of interest between us and our controlling officers, stockholders or
directors, including, without limitation, with respect to executive
compensation, employment contracts and the like.
Prior
to become a publicly reporting company we have not been required to comply with
SEC reporting requirements, and future public reporting obligations may put
significant demands on our financial, operational and management
resources.
As a new
public reporting company we are subject to the public reporting requirements of
the Exchange Act and are required to implement an internal control structure and
procedures for financial reporting, including those contemplated by Section 404
of the Sarbanes-Oxley Act, designed to enable us to produce consolidated
financial statements and related disclosure within the time periods and in the
form required under the Exchange Act. To comply with these requirements, we
expect that we may need to hire additional accounting and finance staff and
implement new financial Systems and procedures.
Our
independent registered public accounting firm has expressed substantial doubt
regarding our ability to continue as a going concern.
Our
audited financial statements for the years ended December 31, 2009, December 31,
2008, and December 31, 2007 have been prepared under the assumption that we will
continue as a going concern. Our independent registered public accounting firm
has issued their reports dated March 27, 2010, in connection with the audit of
our financial statements for the year ended December 31, 2009 and December 31,
2008 that included an explanatory paragraph describing the existence of
conditions that raise substantial doubt about our ability to continue as a going
concern due to our having sustained operating losses and capital deficits from
operations. The fact that we have received this “going concern opinion” from our
independent registered public accounting firm will likely make it more difficult
for us to raise capital on favorable terms and could hinder, to some extent, our
operations. Additionally, if we are not able to continue as a going concern, it
is likely that stockholders will lose all of their investment. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Item
2.
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Properties
|
We lease
approximately 720 square feet of office space for our research and development
activities at 8100 Park Boulevard, Pinellas Park, Florida pursuant to a
month-to-month lease. Our lease for this space provides for rent of $695 per
month. Our Denville, New Jersey office is also the home of Dr. Gimbel, a
director and our Executive Vice-President of Clinical Affairs. We do not have
any formal agreement with Dr. Gimbel regarding the use of this address, and we
pay no rent. We believe that our facilities are adequate for our needs and that
additional space is readily available should we need it.
16
Item
3.
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Legal
Proceedings
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None
Item
4.
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Submission
of Matters to a Vote of Securities
Holders
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No
matters were submitted to a vote of stockholders during the fourth quarter of
2009.
PART
II
Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities
|
Market
Information
Our
common stock has been quoted on the Pink Sheets under the symbol “LLSR” from
October 26, 2006 to November 2009 when it commenced quotation on the OTC
Bulletin Board.
The
following table sets forth the high and low closing bid quotations for our
common stock for each calendar quarter since October 26, 2006, as reported by
the Pink Sheets and the OTC Bulletin Board. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not reflect actual transactions.
Bid
Price Per Share
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High
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Low
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|||||||
2008
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||||||||
January
1 through March 31
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$ | 0.28 | $ | 0.19 | ||||
April
1 through June 30
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$ | 0.235 | $ | 0.12 | ||||
July
1 through September 30
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$ | 0.30 | $ | 0.15 | ||||
October
1 through December 31
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$ | 0.18 | $ | 0.07 | ||||
2009
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||||||||
January
1 through March 31
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$ | 0.14 | $ | 0.05 | ||||
April
1 through June 30
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$ | 0.37 | $ | 0.07 | ||||
July
1 through September 30
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$ | 0.09 | $ | 0.02 | ||||
October
1 through December 31
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$ | 0.11 | $ | 0.03 |
Number
of Stockholders
As of
March 8, 2010 there were approximately 125 holders of record of our common stock
and 122 beneficial owners 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.
Item
6.
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Selected
Financial Data
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Not
required.
Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
information set forth and discussed in this Management’s Discussion and Analysis
is derived from our financial statements and the related notes. You
should read the following discussion of our financial condition and results of
operations together with the audited financial statements and the notes thereto
included in this Annual Report on Form 10-K for the year ended December 31,
2009. This discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results may differ materially from
those anticipated in these forward-looking statements, including those set forth
in this Annual Report on Form 10-K.
17
Overview
Our
company was incorporated in Nevada in February 1998 under the name Beekman
Enterprises, Inc. In February 2001, our company changed its name to Virtual
Internet Communications, Inc., and in April 2002, our company changed its name
to Hypervelocity, Inc. Until September 2002, Hypervelocity was a consulting firm
specializing in voice, data and video communications convergence, network design
and integration. In September 2002, Hypervelocity dissolved its operating
subsidiary and assigned its assets to an individual holding a note payable that
was secured by the assets. From September 2002 until November 2004,
Hypervelocity was non-trading public shell company, with no operations. In
November 2004, we acquired Lantis Laser, Inc., a New Jersey corporation formed
in January 1998 (“Lantis New Jersey”), in a reverse-triangular merger and
succeeded to its business as our sole line of business. In connection with the
merger, we changed our name to “Lantis Laser Inc.”
In the
merger transaction, we issued a total of 63,859,250 shares of common stock,
consisting of 60,648,000 shares issued to Lantis New Jersey shareholders and
3,211,250 shares issued to holders of convertible notes payable by Lantis New
Jersey. The transaction was treated for accounting purposes as a reverse merger,
with Lantis New Jersey being the accounting acquirer.
In
September 2006, we completed a private placement of 5,850,000 shares of common
stock at a price per share of $0.10. Investors received warrants to purchase one
share of common stock at a price of $0.15 per share for each 1.8 shares of stock
purchased. The placement agent received a warrant to purchase 178,750 shares of
common stock at a price of $0.15 per share.
In May
2007, we completed a private placement of $2,526,500 of 5% Senior Convertible
Notes. Investors received warrants to purchase four shares of common stock at a
price of $0.25 per share for each $10 invested, and the placement agent received
a warrant to purchase 2,947,583 shares of common stock at an exercise price of
$0.25 per share.
All of
the foregoing share amounts reflect a 1-for-2 reverse stock split that was
effected in June 2006.
We were
formed to commercialize the application of novel technologies in the dental
industry. Our first product we are developing and plan to market,
subject to FDA clearance being obtained, is our OCT Dental Imaging
System. We have the exclusive rights to OCT in the dental field as
defined in our license agreement with Lawrence Livermore National Laboratories
(“Livermore”) and a non-exclusive license covering a scanning method with
LightLab Imaging, Inc. (“LightLab”), a leader in the application of OCT in the
biomedical field. We also have an exclusive license with University of Florida
for a patented technology relating to the probe scanner which we intend
deploying in the OCT System. In July 2008 we signed an exclusive
agreement with The Regents of California for a patent pending technology called
“Nearinfrared Transillumination For The Detection Of Tooth Decay” or
NIR. This technology is synergistic with OCT as both modalities use
the same light source and we expect to integrate it into the OCT System in the
form of a chairside platform and sell it separately as a standalone imaging
aid. This System has been validated and full development will
commence upon the issue of the patent and adequate financial resources being
available. Our development of the OCT System has taken place over the last five
years with the objective of designing and building a System for dentistry that
would meet two specific criteria: (1) sufficient resolution to enable the
evaluation of oral tissue for the early detection of oral diseases; and (2) that
the System would retail for approximately $27,000, making it accessible to
almost all dentists for chairside use.
In Phase
1 development, we demonstrated that our System design provided adequate
resolution for imaging oral structures. We are currently in Phase 2 and Phase 3
development with the objective of building 5 OCT Beta Systems for deployment in
clinical use. Clinical use of these Systems would generate feedback on the user
interface and to provide data to support the FDA 510(k) application. We
commenced Phase 3, the final pre-production phase, in June 2008 with industrial
design, validation of the OCT System and FDA documentation, with market
introduction targeted for the first quarter of 2010.
Although
we initially believed that the proceeds of our September 2006 and May 2007
private placements would be sufficient to support our Phase 2 and Phase 3
development plan, it has taken longer than we planned and cost more than we had
forecast to complete our Systems. We had anticipated that the development of
Systems would be completed by the fourth quarter of 2009, when transition to
manufacturing will commence with product scheduled to be shipped in the first
quarter of 2010. However, we are unable to meet this timetable as our
development of Systems, generation of clinical data needed to support our FDA
submission has been hampered by lack of funding. In order to complete
the Systems we need adequate funding to redesign and fabricate two components of
the System. We are currently engaged in seeking funding and currently
have no commitments for additional funding. We anticipate that from the time we
obtain adequate we would be able to introduce the OCT System to the dental
market in a 12-18 month timeframe subject to obtaining FDA clearance for
marketing. We plan to outsource the manufacturing of the OCT System. We may seek
to hire two additional employees to assist in the completion of the OCT System
development, although we may decide to retain independent contractors in lieu of
additional employees.
Fiscal
Year Ended December 31, 2009 and 2008
Total
Operating Revenues
We
recognized $0 in revenue during the years ended December 31, 2009 and 2008.
Revenues are anticipated to commence 12-18 months after financing is obtained to
complete the OCT product development. Generation of sales can only commence upon
FDA 510(k) clearance.
18
Total
Operating Expenses
Total
operating expenses for the year ended December 31, 2009 were $647,004compared to
$4,019,587 for the same period in 2008. This represented a decrease of
$3,372,583, or 84%, primarily due to stock issued for public relations and
investor relations, totaling $150,000 for the year ended December 31, 2009,
compared to $2,219,500 for the same period in 2008. The remaining decrease is
attributable to the decrease in professional, consulting and marketing fees as
well as legal and accounting fees relating that were associated with filing the
S-1 Registration. Research and development costs decreased from $890,779 in year
ended December 31, 2008 to $173,116 in the same period in 2009, as the OCT
development program was slowed due to lack of funding. Operating expenses also
included accrued salaries for management amounting to $200,000 for the period,
rent, travel and other general and administrative expenses.
In June
2008, we initiated legal proceedings against two public relations consultants to
recover the stock as a result of nonperformance. In October 2008, we settled the
dispute, and the consultants agreed to return half of the stock they had
received. The stock, amounting to 3,000,000 shares, was returned to
treasury in 2009 and cancelled.
We
depreciate fixed assets. This resulted in an expense of $22,481and $24,056 for
the years ended December 31, 2009 and 2008, respectively. We determine the fair
value of the undiscounted cash flows annually and sooner if circumstances change
and determination is required, to value any impairment on our intangible assets
and long-lived assets. As of December 31, 2009 and December 31, 2008, we
determined there was no impairment charge.
Other
Income (Expense)
Amortization
of debt issuance costs of $94,625for the year ended December 31, 2009 compares
to $97,397 for the same period in 2008. The loss on investment of $81,332
relates to our share of the loss in the joint venture HyGeniLase, Inc., a
development stage company. The difference in the interest expense - debt
discount amounting to $344,585and $333,601 in the years ended December 31, 2009
and 2008, respectively, relates to the 5% Senior Convertible Notes that were
issued in May 2007. Interest expense, net of interest income, of $208,123 is the
amount of interest payable on the notes for the year ended December 31, 2009
compared to interest of $96,773. This increase is due to the increase
in interest payable from 5% to 10% as we defaulted by not having sufficient
funds to pay the interest when due.
Net
Income (Loss)
We
reported a net (loss) from operations of $(647,004) for the year ended December
31, 2009 versus $(4,019,587) for the year ended December 31, 2008. The decrease
in the net loss is attributable to the decrease in total operating expenses,
discussed above.
Provision
for Income Taxes
There was
no provision for income taxes for the year ended December, 2009 and 2008. There
was no provision due to the carry forward of approximately $9,786,053 of net
operating losses as of December 31, 2009 that we reserved in valuation
allowances against this deferred tax asset.
Liquidity
and Capital Resources
During
the year ended, 2008, the balance in cash and cash equivalents decreased to
$72,858, representing a net decrease of $1,389,048 for the period, compared to a
net increase in cash and cash equivalents of $1,112,985 during the year ended
December 31, 2007, which included net cash provided by financing activities of
$2,234,310 (net of debt issuance costs) attributable to our sale of the 5%
Senior Convertible Notes. This difference also reflects an increase in net cash
used in operating activities of $515,753, or approximately 91%.
As of
December 31, 2008, we had current assets of $159,190, primarily consisting of
cash and cash equivalents totaling $72,858.
As of
December 31, 2008, we had $1,115,597 in current liabilities, consisting of
$1,025,138 in accounts payable and accrued expenses and $90,459 in accrued
interest on convertible notes. We had a working capital deficit of $956,407 at
December 31, 2008.
During
the year ended, 2009, the balance in cash and cash equivalents decreased to
$0 representing a net decrease of $72,858 for the period,
compared to a net decrease in cash and cash equivalents of $1,389.048 during the
year ended December 31, 2008. The decrease of $72,858 is reflective of cash used
in operating activities of $182,318, includes an increase in accounts payable
and accrued expenses of $530,893, an increase in prepaid expenses of $30,566 as
well as adjustments to the net loss for non-cash interest expense relating to
the debt discount amortization and beneficial conversion feature of $344,586.
The Company also had cash provided for financing activities for the year ended
December 31, 2009 in the amount of $109,460, mostly derived from the related
party loans made by the principals in 2009 in the amount of
$104,292.
19
As of
December 31, 2009, we had current assets of $35,566 consisting of prepaid
expenses and other current assets.
As of
December 31, 2009, we had $4,026.534 in current liabilities, consisting of
accrued interest payable on the 5% convertible note of $287,530; accounts
payable of $383,118; the convertible note payable, which was
reclassified from a long term liability to a current liability due to default in
the second interest payment, amounting to $2,292,594; notes payable to
management amounting to $960,000 as a result of converting their accrued
salaries in terms of their management
agreements; and $104, 292 owing to management for loans to
provide the company with working capital.
We had a
working capital deficit of $3,990,968 at December 31, 2009.
As a
development stage company, financial resources have been directed to product
development and no revenue has yet been generated. This has caused significant
doubt about our ability to continue as a going concern for a period of twelve
months. Our consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Critical
Accounting Policies
Critical
accounting polices include the areas where we have made what we consider to be
particularly subjective or complex judgments in making estimates and where these
estimates can significantly impact our financial results under different
assumptions and conditions.
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available. These estimate, judgments and assumptions
affect the reported amounts of assets and liabilities at the date of the
financial statement and the reported amounts of revenue and expenses during the
periods presented. Actual results could be different than those
estimates.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements:
Principles
of Consolidation
Our
consolidated financial statements include our accounts and the accounts of all
of our wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Fair
Value of Financial Instruments (other than Derivative Financial
Instruments)
The
carrying amounts reported in our condensed consolidated balance sheets for cash
and cash equivalents and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. For the notes
payable, the carrying amount reported is based upon the incremental borrowing
rates otherwise available to us for similar borrowings.
Research
and Development
We
annually incur costs on activities that relate to research and development of
new technology and products. Research and development costs are expensed as
incurred. Certain of these costs would be reduced by government grants and
investment tax credits where applicable. We have expensed our payments in
connection with license agreements as research and development
costs.
Revenue
Recognition
We have
not yet generated revenue. We anticipate recognizing revenue in accordance with
the contracts we enter into for the distribution of the products that are
currently in development.
Income
Taxes
Under ASC
740 the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.
20
Uncertainty
in Income Taxes
Under ASC
740-10-25 recognition and measurement of uncertain income tax positions is
required using a “more-likely-than-not” approach. We evaluate our tax
positions on an annual basis and have determined that as of December 31, 2009 no
additional accrual for income taxes is necessary.
Advertising
Costs
We
expense the costs associated with advertising as incurred. Advertising expenses
for the year ended December 31, 2009 and the years ended December 31, 2008 are
included in professional, consulting and marketing fees in the consolidated
statements of operations.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets; computer and medical
equipment – 5 years, and furniture and fixtures – 5 years.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized. Deduction is made for retirements resulting from renewals or
betterments.
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. We do not perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, we recognize an
impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amounts and estimated fair value.
Earnings
(Loss) Per Share of Common Stock
Basic net
(loss) per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share (“EPS”) include additional
dilution from common stock equivalents, such as stock issuable pursuant to the
exercise of stock options and warrants. The common stock equivalents were not
included in the computation of diluted earnings per share on the consolidated
statement of operations due to the fact that we reported a net loss and to do so
would be anti-dilutive for the periods presented.
Stock-Based
Compensation
In 2006,
we adopted the provisions of ASC 718-10 “Share Based Payments”. The
adoption of this principle had no effect on the Company’s
operations.
ASC
718-10 requires recognition of stock-based compensation expense for all
share-based payments based on fair value. Prior to January 1, 2006,
we measured compensation expense for all of its share-based compensation using
the intrinsic value method.
We have
elected to use the modified-prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values. Stock-based compensation
expense for all awards granted after January 1, 2006 is based on the grant-date
fair values. We recognize these compensation costs, net of an
estimated forfeiture rate, on a pro rata basis over the requisite service period
of each vesting tranche of each award. We consider voluntary
termination behavior as well as trends of actual option forfeitures when
estimating the forfeiture rate.
We
measure compensation expense for non-employee stock-based compensation under ASC
505-50, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services". The fair value
of the option issued is used to measure the transaction, as this is more
reliable than the fair value of the services received. The fair value
is measured at the value of the Company’s common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete. The fair value of the equity
instrument is charged directly to compensation expense and additional paid-in
capital. For common stock issuances to non-employees that are fully
vested and are for future periods, we classify these issuances as prepaid
expenses and expenses the prepaid expenses over the service
period. At no time have we issued common stock for a period that
exceeds one year.
21
Debt
Issuance Costs
Debt
issuance costs relate to the fees paid in connection with our outstanding
convertible notes. These fees are being amortized over the life of the
convertible notes, which is three years. Should the notes be converted prior to
the maturity date of three years, then the debt issuance costs will be amortized
sooner.
Beneficial
Conversion Features
ASC
470-20 applies to convertible securities with beneficial conversion features
that must be settled in stock and to those that give the issuer a choice in
settling the obligation in either stock or cash. ASC 470-20 requires
that the beneficial conversion feature should be valued at the commitment date
as the difference between the conversion price and the fair market value of the
common stock into which the security is convertible, multiplied by the number of
shares into which the security is convertible. ASC 470-20 further
limits this amount to the proceeds allocated to the convertible
instrument
Recent
Issued Accounting Standards
In
September 2006, ASC issued 820, Fair Value Measurements. ASC
820 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of ASC 820 is not expected to have a material impact on
our financial statements.
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. ASC 825-10 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment.
ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Management is determining the impact that
the adoption of ASC 810-10-65 will have on the Company’s financial position,
results of operations or cash flows.
In
December 2007, we adopted ASC 805, Business Combinations (“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately
from the business combination the direct costs, where previously these costs
were included in the total allocated cost of the acquisition. ASC 805
will require an entity to recognize the assets acquired, liabilities assumed,
and any non-controlling interest in the acquired at the acquisition date, at
their fair values as of that date.
ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted and the ASC is to
be applied prospectively only. Upon adoption of this ASC, there would
be no impact to the Company’s results of operations and financial condition for
acquisitions previously completed. The adoption of ASC 805 is not
expected to have a material effect on our financial position, results of
operations or cash flows.
22
In March
2008, ASC issued ASC 815, Disclosures about Derivative
Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities. These
enhanced disclosures will discuss: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted
for and its related interpretations; and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. ASC 815 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. We do not believe
that ASC 815 will have an impact on their results of operations or financial
position.
In April
2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible
Assets”. This amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under ASC 350. The guidance is used for determining the useful
life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. We do not believe ASC 350 will materially impact their
financial position, results of operations or cash flows.
ASC
470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”) requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. We do not believe that the adoption of ASC 470-20 will have a material
effect on its financial position, results of operations or cash
flows.
ASC
815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock” (“ASC 815-40”), provides guidance for determining whether
an equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock and it applies to any freestanding financial instrument or
embedded feature that has all the characteristics of a derivative., ASC 815-40
also applies to any freestanding financial instrument that is potentially
settled in an entity’s own stock. We are determining what impact, if any,
ASC815-40 will have on our financial position, results of operations and cash
flows
ASC
470-20-65, “Transition Guidance for Conforming Changes to, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” (“ASC 470-20-65”). ASC 470-20-65 is effective for
years ending after December 15, 2008. The overall objective of ASC 470-20-65 is
to provide for consistency in application of the standard. We have computed and
recorded a beneficial conversion feature in connection with certain of their
prior financing arrangements and do not believe that ASC 470-20-65 will have a
material effect on that accounting.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted market price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using certain
techniques. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. ASU 2009-05 also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not
have a material impact on our results of operations or financial
condition.
In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements
(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in 2010. The
disclosures about the rollforward of information in Level 3 are required for the
Company with its first interim filing in 2011. The Company does not believe this
standard will impact their financial statements.
Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Not
applicable.
23
Item 8.
|
Financial
Statements and Supplementary
Data
|
The
following financial statements are included:
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2009 AND 2008
24
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
|
||
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
25
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
26
|
|
CONSOLIDATED
BALANCE SHEET AS OF DECEMBER 31, 2009 AND DECEMBER 31,
2008
|
27
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
|
28
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) SINCE JANUARY 14,
1998 (INCEPTION)
|
29
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
|
30
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2009 AND
2008
|
31-53
|
25
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Lantis
Laser Inc.
Denville,
NJ
We have
audited the accompanying consolidated balance sheets of Lantis Laser Inc. (the
“Company”) as of December 31, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash
flows for the years ended December 31, 2009 and 2008 with cumulative totals
since the Company’s inception. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 Lantis Laser Inc. as of
December 31, 2009 and 2008, and the results of its consolidated statements of
operations, changes in stockholders’ equity (deficit), and cash flows for the
years ended December 31, 2009 and 2008, with cumulative totals since January 14,
1998, the commencement of the development stage in conformity with U.S.
generally accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company is a development stage
company and has sustained operating losses and capital deficits that raise
substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ KBL,
LLP
New York,
NY
March 27,
2010
26
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
DECEMBER
31,
|
DECEMBER
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | - | $ | 72,858 | ||||
Prepaid
expenses and other current assets
|
35,566 | 5,000 | ||||||
Investment
under equity method
|
- | 81,332 | ||||||
Total
Current Assets
|
35,566 | 159,190 | ||||||
Fixed
assets, net of depreciation
|
47,071 | 69,552 | ||||||
Other
Assets:
|
||||||||
Debt
issuance costs, net of amortization
|
30,618 | 129,862 | ||||||
Total
Other Assets
|
30,618 | 129,862 | ||||||
TOTAL
ASSETS
|
$ | 113,255 | $ | 358,604 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
LIABILITIES
|
||||||||
Current
Liabilities:
|
||||||||
Accrued
interest - convertible notes
|
$ | 287,530 | $ | 90,459 | ||||
Accounts
payable and accrued expenses (including $5,168 in bank
overdraft)
|
383,118 | 1,025,138 | ||||||
Notes
payable - related parties
|
960,000 | - | ||||||
Related
party payable
|
104,292 | - | ||||||
Convertible
notes payable, net of discount and beneficial conversion
feature
|
2,291,594 | - | ||||||
Total
Current Liabilities
|
4,026,534 | 1,115,597 | ||||||
Long-term
Liabilities:
|
||||||||
Convertible
notes payable, net of discount and beneficial conversion
feature
|
- | 2,054,999 | ||||||
Total
Long-term Liabilities
|
- | 2,054,999 | ||||||
Total
Liabilities
|
4,026,534 | 3,170,596 | ||||||
STOCKHOLDERS’
EQUITY (DEFICIT)
|
||||||||
Preferred
stock, $.001 Par Value; 10,000,000 shares authorized and 0 shares issued
and outstanding
|
- | - | ||||||
Common
stock, $.001 Par Value; 990,000,000 shares authorized and 100,201,572 and
100,118,238 shares issued and outstanding
|
100,201 | 100,118 | ||||||
Additional
paid-in capital
|
4,604,586 | 4,330,287 | ||||||
Additional
paid-in capital - warrants
|
1,167,987 | 1,167,987 | ||||||
Deficits
accumulated during the development stage
|
(9,786,053 | ) | (8,410,384 | ) | ||||
Total
Stockholders’ Equity (Deficit)
|
(3,913,279 | ) | (2,811,992 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 113,255 | $ | 358,604 |
The
accompanying notes are an integral part of the consolidated financial
statements
27
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
WITH
CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
CUMULATIVE
|
||||||||||||
TOTALS
SINCE
|
||||||||||||
YEARS
ENDED
|
INCEPTION
|
|||||||||||
DECEMBER
31,
|
JANUARY
14,
|
|||||||||||
2009
|
2008
|
1998
|
||||||||||
OPERATING
REVENUES
|
||||||||||||
Sales
|
$ | - | $ | - | $ | - | ||||||
OPERATING
EXPENSES
|
||||||||||||
Research
and development
|
173,116 | 890,779 | 2,109,869 | |||||||||
Wages
and wage related expenses
|
200,000 | 200,000 | 979,981 | |||||||||
Professional,
consulting and marketing fees
|
88,945 | 2,726,481 | 4,357,001 | |||||||||
Other
general and administrative expenses
|
162,462 | 178,271 | 540,719 | |||||||||
Depreciation
|
22,481 | 24,056 | 91,248 | |||||||||
Total
Operating Expenses
|
647,004 | 4,019,587 | 8,078,818 | |||||||||
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
(647,004 | ) | (4,019,587 | ) | (8,078,818 | ) | ||||||
Amortization
of debt issuance costs
|
(94,625 | ) | (97,397 | ) | (256,953 | ) | ||||||
Loss
in investment under equity method
|
(81,332 | ) | (25,000 | ) | (167,664 | ) | ||||||
Interest
expense - debt discount
|
(344,585 | ) | (333,601 | ) | (891,517 | ) | ||||||
Interest
income (expense), net
|
(208,123 | ) | (96,773 | ) | (391,101 | ) | ||||||
Total
Other Income (expense)
|
(728,665 | ) | (552,771 | ) | (1,707,235 | ) | ||||||
NET
LOSS BEFORE PROVISION FOR INCOME TAXES
|
(1,375,669 | ) | (4,572,358 | ) | (9,786,053 | ) | ||||||
Provision
for Income Taxes
|
- | - | - | |||||||||
NET
LOSS APPLICABLE TO COMMON SHARES
|
$ | (1,375,669 | ) | $ | (4,572,358 | ) | $ | (9,786,053 | ) | |||
NET
LOSS PER BASIC AND DILUTED SHARES
|
(0.01 | ) | (0.03 | ) | (0.29 | ) | ||||||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
|
99,122,394 | 132,825,065 | 33,478,573 |
The
accompanying notes are an integral part of the consolidated financial
statements
28
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE YEAR ENDED DECEMBER 31, 2009
WITH
CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
Deficits
|
||||||||||||||||||||||||||||||||
Additional
|
Accumulated
|
|||||||||||||||||||||||||||||||
Additional
|
Paid-in
|
During the
|
||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-in
|
Capital-
|
Development
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Warrants
|
Stage
|
Total
|
|||||||||||||||||||||||||
Balance
- January 14, 1998
|
- | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
Shares
issued to founders
|
- | - | 200 | 200 | 87 | - | - | 287 | ||||||||||||||||||||||||
Net
loss for the period January 14, 1998 through December 31,
2003
|
- | - | - | - | - | - | (408,404 | ) | (408,404 | ) | ||||||||||||||||||||||
Balance
January 1, 2004
|
- | - | 200 | 200 | 87 | - | (408,404 | ) | (408,117 | ) | ||||||||||||||||||||||
Shares
issued in reverse merger
|
- | - | 81,788,563 | 81,589 | (81,876 | ) | - | - | (287 | ) | ||||||||||||||||||||||
Shares
issued in conversion of notes
|
- | - | 3,211,250 | 3,211 | 256,318 | - | - | 259,529 | ||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | (251,734 | ) | (251,734 | ) | |||||||||||||||||||||||||
Balance
December 31, 2004
|
- | - | 85,000,013 | 85,000 | 174,529 | - | (660,138 | ) | (400,609 | ) | ||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | - | (347,397 | ) | (347,397 | ) | ||||||||||||||||||||||
Balance
December 31, 2005
|
- | - | 85,000,013 | 85,000 | 174,529 | - | (1,007,535 | ) | (748,006 | ) | ||||||||||||||||||||||
Shares
and warrants issued in private placement, net of placement
fees
|
- | - | 5,850,000 | 5,850 | 307,507 | 208,143 | - | 521,500 | ||||||||||||||||||||||||
Shares
issued for services rendered
|
- | - | 1,500,000 | 1,500 | 148,500 | - | - | 150,000 | ||||||||||||||||||||||||
Warrants
issued to former noteholders
|
- | - | - | - | - | 159,610 | - | 159,610 | ||||||||||||||||||||||||
Warrants
issued to consultant in private placement
|
- | - | - | - | - | 17,769 | - | 17,769 | ||||||||||||||||||||||||
Adjust
fair value of warrants issued in private placement
|
- | - | - | - | - | 114,930 | - | - | ||||||||||||||||||||||||
Royalty
fees forgiven by Lawrence Livermore
|
- | - | - | - | 380,000 | - | - | 380,000 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2006 as previously
reported
|
- | - | - | - | - | - | (771,352 | ) | (771,352 | ) | ||||||||||||||||||||||
Prior
period adjustment - correction of an error see Note 10
|
- | - | - | - | - | (114,930 | ) | 114,930 | - | |||||||||||||||||||||||
Net
loss for the year ended December 31, 2006 as restated
|
- | - | - | - | - | - | (656,422 | ) | (656,422 | ) | ||||||||||||||||||||||
Balance
December 31, 2006
|
- | - | 92,350,013 | 92,350 | 1,010,536 | 385,522 | (1,663,957 | ) | (175,549 | ) | ||||||||||||||||||||||
Warrants
issued to placement agent
|
- | - | - | - | - | 292,518 | - | 292,518 | ||||||||||||||||||||||||
Warrants
issued to convertible noteholders
|
- | - | - | - | - | 513,132 | - | 513,132 | ||||||||||||||||||||||||
Beneficial
conversion feature on convertible notes
|
- | - | - | - | 505,300 | - | - | 505,300 | ||||||||||||||||||||||||
Shares
issued for services rendered (including prepaid services)
|
- | - | 6,460,000 | 6,460 | 2,528,090 | - | - | 2,534,550 | ||||||||||||||||||||||||
Exercise
of warrants
|
- | - | 163,375 | 163 | 40,584 | (16,241 | ) | - | 24,506 | |||||||||||||||||||||||
Net
loss for the year ended December 31, 2007
|
- | - | - | - | - | - | (2,174,069 | ) | (2,174,069 | ) | ||||||||||||||||||||||
Balance
December 31, 2007
|
- | - | 98,973,388 | 98,973 | 4,084,510 | 1,174,931 | (3,838,026 | ) | 1,520,388 | |||||||||||||||||||||||
Exercise
of warrants
|
- | - | 69,850 | 70 | 17,352 | (6,944 | ) | - | 10,478 | |||||||||||||||||||||||
Shares
issued for services rendered (including prepaid services)
|
- | - | 1,075,000 | 1,075 | 228,425 | - | - | 229,500 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2008
|
- | - | - | - | - | - | (4,572,358 | ) | (4,572,358 | ) | ||||||||||||||||||||||
Balance
December 31, 2008
|
- | - | 100,118,238 | 100,118 | 4,330,287 | 1,167,987 | (8,410,384 | ) | (2,811,992 | ) | ||||||||||||||||||||||
Shares
returned to treasury and retired
|
(3,000,000 | ) | (3,000 | ) | 3,000 | - | - | - | ||||||||||||||||||||||||
Shares
issued upon conversion from note payable
|
833,334 | 833 | 111,049 | - | - | 111,882 | ||||||||||||||||||||||||||
Shares
issued for services rendered (including prepaid services)
|
- | - | 2,000,000 | 2,000 | 148,000 | - | - | 150,000 | ||||||||||||||||||||||||
Shares
issued for accounts payable
|
- | - | 250,000 | 250 | 12,250 | - | - | 12,500 | ||||||||||||||||||||||||
Net
loss for the year ended December 31, 2009
|
- | - | - | - | - | - | (1,375,669 | ) | (1,375,669 | ) | ||||||||||||||||||||||
Balance
December 31, 2009
|
- | $ | - | 100,201,572 | $ | 100,201 | $ | 4,604,586 | $ | 1,167,987 | $ | (9,786,053 | ) | $ | (3,913,279 | ) |
The
accompanying notes are an integral part of the consolidated financial
statements
29
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
WITH
CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
YEARS
ENDED
|
CUMULATIVE
|
|||||||||||
DECEMBER
31,
|
TOTALS
SINCE
|
|||||||||||
2009
|
2008
|
JANUARY 14, 1998
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net
loss
|
$ | (1,375,669 | ) | $ | (4,572,358 | ) | $ | (9,786,053 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
22,481 | 24,056 | 91,248 | |||||||||
Amortization
of debt issuance costs
|
94,625 | 97,397 | 256,953 | |||||||||
Interest
expense - debt discount
|
173,648 | 168,083 | 449,217 | |||||||||
Interest
expense - beneficial conversion feature
|
170,938 | 165,518 | 442,301 | |||||||||
Loss
on investment under equity method
|
81,332 | 25,000 | 167,664 | |||||||||
License
fees payable for research and development
|
- | - | 605,000 | |||||||||
Warrants
issued to former noteholders and consultants
|
- | - | 469,897 | |||||||||
Common
stock issued for consulting services
|
150,000 | 124,500 | 859,050 | |||||||||
Changes
in assets and liabilities
|
||||||||||||
(Increase)
decrease in prepaid expenses
|
(30,566 | ) | 2,200,000 | 2,169,434 | ||||||||
Increase
in accounts payable and accrued expenses
|
325,312 | 423,388 | 1,503,783 | |||||||||
Accrued
interest on convertible notes
|
205,581 | (346 | ) | 205,235 | ||||||||
Total
adjustments
|
1,193,351 | 3,227,596 | 7,219,782 | |||||||||
Net
cash (used in) operating activities
|
(182,318 | ) | (1,344,762 | ) | (2,566,271 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Acquisitions
of fixed assets
|
- | (4,764 | ) | (138,319 | ) | |||||||
Investment
under equity method
|
- | (50,000 | ) | (167,664 | ) | |||||||
Net
cash (used in) investing activities
|
- | (54,764 | ) | (305,983 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITES
|
||||||||||||
Proceeds
from notes payable
|
- | - | 197,000 | |||||||||
Proceeds
from exercise of warrants
|
- | 10,478 | 34,984 | |||||||||
Increase
in bank overdraft
|
5,168 | - | 5,168 | |||||||||
Proceeds
from convertible notes and warrants, net of debt issuance
costs
|
- | - | 2,234,310 | |||||||||
Payments
of license fee payable
|
- | - | (225,000 | ) | ||||||||
Proceeds
from private placement, net of fees
|
- | - | 521,500 | |||||||||
Proceeds
(payments) from related parties
|
104,292 | - | 104,292 | |||||||||
Net
cash provided by financing activities
|
109,460 | 10,478 | 2,872,254 | |||||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(72,858 | ) | (1,389,048 | ) | - | |||||||
CASH
AND CASH EQUIVALENTS -BEGINNING OF PERIOD
|
72,858 | 1,461,906 | - | |||||||||
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
$ | - | $ | 72,858 | $ | - | ||||||
CASH
PAID DURING THE YEAR FOR:
|
||||||||||||
Income
taxes
|
$ | - | $ | - | $ | - | ||||||
Interest
expense
|
$ | 79,900 | $ | 126,325 | $ | 93,517 | ||||||
SUPPLEMENTAL
NONCASH INFORMATION:
|
||||||||||||
Conversion
of notes and interest for common stock, net of discounts and issuance
costs
|
$ | 111,882 | $ | - | $ | 371,411 | ||||||
Conversion
of license fee payable into capital
|
$ | - | $ | - | $ | 380,000 | ||||||
Common
stock issued for consulting services
|
$ | 150,000 | $ | 124,500 | $ | 859,050 | ||||||
Warrants
issued to former noteholders and consultants
|
$ | - | $ | - | $ | 469,897 | ||||||
Common
stock issued for prepaid expenses
|
$ | - | $ | 105,000 | $ | 2,205,000 | ||||||
Conversion
of accrued expenses for note payable - related parties
|
$ | 960,000 | $ | - | $ | 960,000 |
The
accompanying notes are an integral part of the consolidated financial
statements
30
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1 -
|
ORGANIZATION AND BASIS
OF PRESENTATION
|
Lantis
Laser, Inc. (the “Company”) was incorporated in the State of New Jersey on
January 14, 1998. On November 3, 2004, the Company was acquired by
Hypervelocity, Inc., a Nevada corporation.
In the
transaction, the Company exchanged 100% of their stock in exchange for
127,718,500 shares of common stock of Hypervelocity, Inc. The
transaction was treated for accounting purposes as a reverse merger by Lantis
Laser, Inc. being the accounting acquirer. Included in the
127,718,500 shares issued to the shareholders of Lantis Laser, Inc. in the
transaction, 6,422,500 shares were issued in conversion of convertible notes
payable the Company had entered into in 2001 and 2003. The shares
represent the conversion of the original notes, the interest accrued on those
notes as well as warrants that were offered and paid for by the note
holders. The value of the convertible notes, interest and warrants
were $259,529.
On
December 9, 2004, Hypervelocity, Inc. changed its name to Lantis Laser Inc.
which is domiciled in Nevada.
On June
16, 2006, the Company authorized a 1 for 2 reverse stock split for all issued
shares. All shares reflected herein have been retroactively adjusted
to account for the reverse stock split.
In
October 2006, the Company completed a private placement for the sale of
5,850,000 shares of its common stock at a price per share of
$.10. For every 1.8 share of stock purchased, the investors received
1 warrant.
In April
and May 2007, the Company issued 5% Senior Convertible 3 Year Notes to investors
in the amount of $2,526,500, which equaled the gross proceeds raised by the
Company (the “Convertible Notes”). The Convertible Notes are
convertible to shares of the Company’s common stock anytime in the three-year
period at a fixed conversion price of $.15. The Convertible Notes
will convert into 16,843,333 shares of the Company’s common
stock. The convertible noteholders received 6,737,333 detachable
warrants with their notes. The warrants are exercisable for five
years from date of issue at an exercise price of $.25. The Company
separately valued the warrants at $513,132, and recorded a debt discount in that
amount which is being amortized to interest expense over the three-year
Convertible Notes period. The Company has recorded an additional
discount of $505,300 as the value of the beneficial conversion
option.
In May
2009, convertible notes of $125,000 were converted to 833,334 shares of common
stock ($.15).
31
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1 -
|
ORGANIZATION AND BASIS
OF PRESENTATION (CONTINUED)
|
On
December 19, 2007, HyGeniLase, Inc., (“HyGeniLase”) a Delaware corporation was
formed. HyGeniLase is a joint venture between the Company and Laser
Energetics, Inc., (“LEI”), an Oklahoma corporation, with each party owning 50%
of the company. HyGeniLase was formed to develop, manufacture,
market, sell and distribute dental laser process technology to the dental
markets worldwide (see Note 10). As of December 31, 2009, the Company
has delayed the joint venture project with LEI due to failure on LEI’s part to
comply with their end of the agreement as well as funding. As a result, the
Company reserved the remaining $81,332 of the investment on their
books.
The
Company was formed to commercialize the application of novel technologies in the
dental industry. The criteria for selected products include
competitive edge, exclusivity and large market potential. The Company
is in development of its Optical Coherence Tomography ("OCT") "Dental Imaging"
as its first product. The Company has licensed the exclusive rights
for the dental field for the OCT patented technology from Lawrence Livermore
National Laboratories (dental application patents) and the non-exclusive rights
from LightLab Imaging (scanning patents). OCT was invented in the
early 1990’s at Massachusetts Institute of Technology and it is currently being
commercialized by LightLab Imaging for cardiovascular imaging, cancer detection
and Carl Zeiss Meditec in ophthalmology. On May 31, 2007, the Company
entered into an exclusive licensing agreement for the field of dentistry with
The University of Florida Research Foundation for novel technology relevant to
the imaging probe of its Dental Imaging System; the Agreement carries a $1,000
initial licensing fee with royalty payments to commence in 2008.
The
Company in June 2008, entered into a strategic agreement with AXSUN Technologies
whereby AXSUN will manufacture and supply the Integrated Optical Coherence
Tomography Engine for the Company’s OCT Dental Imaging System. Under
the terms of the agreement, the Company has exclusive rights to the OCT Engine
for use in diagnostic imaging of teeth and soft tissue in human and animal
dentistry. The Company defaulted on progressive development payments
and received notice of termination of the agreement on March 17,
2010. The parties have agreed to enter into a new agreement with
amended terms and conditions and this is presently under discussion. The Company
issued 500,000 shares of stock to AXSUN in connection with this agreement (see
Note 7).
On July
9, 2008, the Company entered into an exclusive license agreement for the field
of dentistry for a patent pending technology known as Near Infrared
Transillumination Imaging (NIR). The Company paid the initial licensing fee of
$10,000. This technology is synergistic with the OCT technology and
the Company intends to sell it in a combination OCT/NIR platform and also as a
standalone product.
32
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1 -
|
ORGANIZATION AND BASIS
OF PRESENTATION (CONTINUED)
|
Management
of the Company has extensive experience in the dental industry, including
technology, development, marketing and distribution, clinical and research
dentistry.
OCT is a
new diagnostic imaging technology that is based on advanced photonics and fiber
optics. It enables the capture of cross-sectional images of tissue
with an axial resolution of up to ten times that of x-ray, providing tissue
characterization and images that cannot be obtained by any other means,
including x-ray. Information is captured by shining a near- infrared
light through a single optical fiber only .006” diameter deep into the internal
structures of the subject tissue.
When the
light becomes scattered in the dense biological tissue, a certain component of
the reflected light remains unscattered and thus contains good quantitative and
structural image information. The OCT technology maps the changing
intensities of reflections from the tissue to form an image of the subject
area. This image, displayed on a monitor in real time, has an
unprecedented amount of diagnostic information and can be manipulated, printed
out and stored in a digital format.
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted
Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB
Accounting Standards Codification (the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Positions or Emerging
Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”).
The FASB
will not consider ASUs as authoritative in their own right. ASUs will serve only
to update the Codification, provide background information about the guidance
and provide the basis for conclusions on the change(s) in the Codification.
References made to FASB guidance throughout this document have been updated for
the Codification.
Going
Concern
As shown
in the accompanying consolidated financial statements the Company has incurred
recurring losses of $1,375,669 and $4,572,358 for the years ended December 31,
2009 and 2008 respectively, and has incurred a cumulative loss of $9,786,053
since inception (January 14, 1998). The Company has a working capital
deficit in the amount of $3,990,968 as of December 31, 2009. The
Company is currently in the development stage and has been spending a majority
of their time in the development of the OCT technology for which they currently
hold exclusive and non-exclusive licenses of the patents for.
33
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
1 -
|
ORGANIZATION AND BASIS
OF PRESENTATION (CONTINUED)
|
Going Concern
(continued)
There is
no guarantee that the Company will be able to raise enough capital or generate
revenues to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern for
a reasonable period.
Management
believes that the Company’s capital requirements will depend on many
factors. These factors include the final phase of development being
successful as well as product implementation and distribution first nationally,
then internationally. In April and May 2007, the Company completed a
debt offering in the form of a 5% Senior Convertible Note in the amount of
$2,526,500 as well as a private placement for $585,000 with the issue of
5,850,000 of its stock of which the Company received, net of fees, $2,786,785
from both offerings. The proceeds received will be utilized in the
Phase 2 and final stages of development.
The
Company also renegotiated both of their license agreements and Lawrence
Livermore agreed to forgive accrued royalty fees in the amount of $380,000 as
the Company was not sufficiently capitalized to further develop its
technology.
The
Company will continue to pursue traditional forms of financing, in addition to
the approximately $3,250,000 it raised through convertible notes and the
issuance of common stock to assist them in meeting their current working capital
needs. The Company’s ability to continue as a going concern for a
reasonable period is dependent upon management’s ability to raise additional
interim capital and, ultimately, achieve profitable operations. There
can be no assurance that management will be able to raise sufficient capital,
under terms satisfactory to the Company, if at all.
The
consolidated financial statements do not include any adjustments relating to the
carrying amounts of recorded assets or the carrying amounts and classification
of recorded liabilities that may be required should the Company be unable to
continue as a going concern.
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Development Stage
Company
The
Company is considered to be in the development stage as defined in ASC 915. The Company has devoted
substantially all of its efforts to the development of their OCT
technology. Additionally, the Company has allocated a substantial
portion of their time and investment in bringing their services to the market,
and the raising of capital.
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
34
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, the Company
evaluates its estimates, including, but not limited to, those related to
derivative liabilities, bad debts, income taxes and
contingencies. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from
those estimates.
Cash and Cash
Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents. Any amounts of cash in financial institutions over FDIC
insured limits, exposes the Company to cash concentration risk.
Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
The
carrying amounts reported in the consolidated balance sheet for cash and cash
equivalents, and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments. For
the notes payable, the carrying amount reported is based upon the incremental
borrowing rates otherwise available to the Company for similar
borrowings.
Research and
Development
The
Company annually incurs costs on activities that relate to research and
development of new technology and products. Research and development
costs are expensed as incurred. Certain of these costs would be
reduced by government grants and investment tax credits where
applicable. The Company has expensed its payments in connection with
the license agreement as research and development costs.
Revenue
Recognition
The
Company has not recognized revenues to date. The Company anticipates
recognizing revenue in accordance with the contracts it enters into for the
distribution of the products that are currently in development.
35
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE2-
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Accounts
Receivable
The
Company when it will conduct business it will extend credit based on an
evaluation of the customers’ financial condition, generally without requiring
collateral. Exposure to losses on receivables is expected to vary by
customer due to the financial condition of each customer. The Company
monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances. The Company has
not recorded any receivables, and therefore no allowance for doubtful accounts
at December 31, 2009 and 2008, respectively.
Accounts
receivable will generally be due within 30 days and collateral is not
required.
Income
Taxes
Under ASC
740 the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.
Uncertainty in Income
Taxes
Under ASC
740-10-25 recognition and measurement of uncertain income tax positions is
required using a “more-likely-than-not” approach. Management
evaluates their tax positions on an annual basis and has determined that as of
December 31, 2009 no additional accrual for income taxes is
necessary.
Advertising
Costs
The
Company expenses the costs associated with advertising as
incurred. Advertising expenses for the years ended December 31, 2009
and 2008 are included in professional, consulting and marketing fees in the
consolidated statements of operations.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets; computer and
medical equipment - 5 years, and furniture and fixtures - 5 years.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized. Deduction is made for retirements resulting from
renewals or betterments.
36
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Impairment of Long-Lived
Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does not perform a periodic
assessment of assets for impairment in the absence of such information or
indicators. Conditions that would necessitate an impairment
assessment include a significant decline in the observable market value of an
asset, a significant change in the extent or manner in which an asset is used,
or a significant adverse change that would indicate that the carrying amount of
an asset or group of assets is not recoverable. For long-lived assets
to be held and used, the Company recognizes an impairment loss only if its
carrying amount is not recoverable through its undiscounted cash flows and
measures the impairment loss based on the difference between the carrying amount
and estimated fair value.
Subsequent
Events
In
accordance with ASC 855 “Subsequent Events”, the Company is required to disclose
the date through which subsequent events have been evaluated and whether that
date is the date the financial statements were issued or the date the financial
statements were available to be issued. ASC 855 is effective for
financial periods ending after June 15, 2009. Management has
evaluated subsequent events through March 27, 2010, the date the consolidated
financial statements were issued.
(Loss) Per Share of Common
Stock
Basic net
(loss) per common share is computed using the weighted average number of common
shares outstanding. Diluted earnings per share ("EPS") include
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock
equivalents were not included in the computation of diluted earnings per share
on the consolidated statement of operations due to the fact that the Company
reported a net loss and to do so would be anti-dilutive for the periods
presented.
The
following is a reconciliation of the computation for basic and diluted
EPS:
Cumulative
|
||||||||||||
Totals since
|
||||||||||||
December 31,
|
December 31,
|
January 14, 1998
|
||||||||||
2009
|
2008
|
(Inception)
|
||||||||||
Net
loss
|
$ | (1,375,669 | ) | $ | (4,572,358 | ) | $ | (9,786,053 | ) | |||
Weighted-average
common shares
|
||||||||||||
Outstanding
(Basic)
|
99,122,394 | 132,825,065 | 33,478,573 | |||||||||
Weighted-average
common stock
|
||||||||||||
Equivalents
|
||||||||||||
Convertible
Notes
|
16,009,999 | 16,843,333 | 16,009,999 | |||||||||
Stock
options
|
- | - | - | |||||||||
Warrants
|
14,486,066 | 14,486,066 | 14,486,066 | |||||||||
Weighted-average
commons shares
|
||||||||||||
Outstanding
(Diluted)
|
129,618,459 | 164,154,464 | 63,974,638 |
37
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Stock-Based
Compensation
In 2006,
the Company adopted the provisions of ASC 718-10 “Share Based Payments”. The
adoption of this principle had no effect on the Company’s
operations.
ASC
718-10 requires recognition of stock-based compensation expense for all
share-based payments based on fair value. Prior to January 1, 2006,
the Company measured compensation expense for all of its share-based
compensation using the intrinsic value method.
The
Company has elected to use the modified-prospective approach
method. Under that transition method, the calculated expense in 2006
is equivalent to compensation expense for all awards granted prior to, but not
yet vested as of January 1, 2006, based on the grant-date fair
values. Stock-based compensation expense for all awards granted after
January 1, 2006 is based on the grant-date fair values. The Company
recognizes these compensation costs, net of an estimated forfeiture rate, on a
pro rata basis over the requisite service period of each vesting tranche of each
award. The Company considers voluntary termination behavior as well
as trends of actual option forfeitures when estimating the forfeiture
rate.
The
Company measures compensation expense for its non-employee stock-based
compensation under ASC 505-50, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received. The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is
charged directly to compensation expense and additional paid-in
capital. For common stock issuances to non-employees that are fully
vested and are for future periods, the Company classifies these issuances as
prepaid expenses and expenses the prepaid expenses over the service
period. At no time has the Company issued common stock for a period
that exceeds one year.
Segment
Information
The
Company follows the provisions of ASC 280-10, "Disclosures about Segments of an
Enterprise and Related Information”. This standard requires
that companies disclose operating segments based on the manner in which
management disaggregates the Company in making internal operating
decisions. The Company only operates in one reporting segment as of
December 31, 2009 and for the years ended December 31, 2009 and
2008.
Debt Issuance
Costs
Debt
issuance costs relate to the fees paid in connection with the Convertible
Notes. These fees are being amortized over the life of the
Convertible Notes which is three years. Should the notes be converted
prior to the maturity date of three years, then the debt issuance costs will be
amortized sooner. The Company amortized $94,625 and $97,397 for the
years ended December 31, 2009 and 2008, respectively.
38
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Beneficial Conversion
Features
ASC
470-20 applies to convertible securities with beneficial conversion features
that must be settled in stock and to those that give the issuer a choice in
settling the obligation in either stock or cash. ASC 470-20 requires
that the beneficial conversion feature should be valued at the commitment date
as the difference between the conversion price and the fair market value of the
common stock into which the security is convertible, multiplied by the number of
shares into which the security is convertible. ASC 470-20 further
limits this amount to the proceeds allocated to the convertible
instrument.
Recent Accounting
Pronouncements
In
September 2006, ASC issued 820, Fair Value Measurements. ASC
820 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of ASC 820 is not expected to have a material impact on
the financial statements.
In
February 2007, ASC issued 825-10, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of ASC 320-10,
(“ASC 825-10”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. ASC 825-10 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
In
December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in
Consolidated Financial Statements. ASC 810-10-65 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, changes in a parent’s ownership of a noncontrolling
interest, calculation and disclosure of the consolidated net income attributable
to the parent and the noncontrolling interest, changes in a parent’s ownership
interest while the parent retains its controlling financial interest and fair
value measurement of any retained noncontrolling equity investment.
ASC
810-10-65 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. Management is determining the impact that
the adoption of ASC 810-10-65 will have on the Company’s financial position,
results of operations or cash flows.
39
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In
December 2007, the Company adopted ASC 805, Business Combinations (“ASC
805”). ASC 805 retains the fundamental requirements that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. ASC 805 defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. ASC 805 will require an entity to record separately
from the business combination the direct costs, where previously these costs
were included in the total allocated cost of the acquisition. ASC 805
will require an entity to recognize the assets acquired, liabilities assumed,
and any non-controlling interest in the acquired at the acquisition date, at
their fair values as of that date.
ASC 805
will require an entity to recognize as an asset or liability at fair value for
certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, ASC 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted and the ASC is to
be applied prospectively only. Upon adoption of this ASC, there would
be no impact to the Company’s results of operations and financial condition for
acquisitions previously completed. The adoption of ASC 805 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In March
2008, ASC issued ASC 815, Disclosures about Derivative
Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities. These
enhanced disclosures will discuss: how and why an entity uses derivative
instruments; how derivative instruments and related hedged items are accounted
for and its related interpretations; and how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. ASC 815 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company does
not believe that ASC 815 will have an impact on their results of operations or
financial position.
In April
2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible
Assets”. This amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under ASC 350. The guidance is used for determining the useful
life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The Company does not believe ASC 350 will materially
impact their financial position, results of operations or cash
flows.
40
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
ASC
470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”) requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company does not believe that the adoption of ASC 470-20 will have a
material effect on its financial position, results of operations or cash
flows.
ASC
815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entity’s Own Stock” (“ASC 815-40”), provides guidance for determining whether
an equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock and it applies to any freestanding financial instrument or
embedded feature that has all the characteristics of a derivative., ASC 815-40
also applies to any freestanding financial instrument that is potentially
settled in an entity’s own stock. The Company is determining what impact, if
any, ASC 815-40 will have on its financial position, results of operations and
cash flows.
ASC
470-20-65, “Transition Guidance for Conforming Changes to, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” (“ASC 470-20-65”). ASC 470-20-65 is effective for
years ending after December 15, 2008. The overall objective of ASC 470-20-65 is
to provide for consistency in application of the standard. The Company has
computed and recorded a beneficial conversion feature in connection with certain
of their prior financing arrangements and does not believe that ASC 470-20-65
will have a material effect on that accounting.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted market price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using certain
techniques. ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of a liability. ASU 2009-05 also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not
have a material impact on the Company’s results of operations or financial
condition.
41
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
2 -
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
|
Recent Accounting
Pronouncements (Continued)
In
January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and
Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements
(“ASU 2010-06”). These standards require new disclosures on the amount
and reason for transfers in and out of Level 1 and 2 fair value measurements.
The standards also require new disclosures of activities, including purchases,
sales, issuances, and settlements within the Level 3 fair value measurements.
The standard also clarifies existing disclosure requirements on levels of
disaggregation and disclosures about inputs and valuation techniques. These new
disclosures are effective beginning with the first interim filing in 2010. The
disclosures about the rollforward of information in Level 3 are required for the
Company with its first interim filing in 2011. The Company does not believe this
standard will impact their financial statements.
Other
ASU’s that have been issued or proposed by the FASB ASC that do not require
adoption until a future date and are not expected to have a material impact on
the financial statements upon adoption.
NOTE
3 -
|
FIXED
ASSETS
|
Fixed
assets as of December 31, 2009 and 2008 were as follows:
Estimated
|
||||||||||||
Useful Lives
|
December 31,
|
December 31
|
||||||||||
(Years)
|
2009
|
2008
|
||||||||||
Computer
and medical equipment
|
5
|
$ | 126,319 | $ | 126,319 | |||||||
Software
|
3
|
12,000 | 12,000 | |||||||||
138,319 | 138,319 | |||||||||||
Less:
accumulated depreciation
|
(91,248 | ) | (68,767 | ) | ||||||||
Fixed
assets, net
|
$ | 47,071 | $ | 69,552 |
There was
$22,481 and $24,056 charged to operations for depreciation expense for the years
ended December 31, 2009 and 2008, respectively.
42
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
4 -
|
CONVERTIBLE
NOTES
|
In April
and May 2007, the Company issued 5% Senior Convertible 3 Year Notes to investors
in the amount of $2,526,500, which equaled the gross proceeds raised by the
Company (the “Convertible Notes”). The Convertible Notes are
convertible to shares of the Company’s common stock anytime in the three-year
period at a fixed conversion price of $.15. The Convertible Notes
will convert into 16,843,333 shares of the Company’s common stock. In
May 2009, convertible notes of $125,000 were converted, at a fixed conversion
rate of $.15 per share, into 833,334 shares of common stock. This
conversion reduced the outstanding principal to a balance of $2,401,500. The
convertible noteholders received 6,737,333 detachable warrants with their
notes. The warrants are exercisable for 5 years at an exercise price
of $.25. The Placement Agent received 2,947,583 exercisable at $.25
for 5 years. The Company separately valued the warrants at $513,132,
and recorded a debt discount in that amount which is being amortized to interest
expense over the three-year Convertible Notes period. The Company has
recorded an additional discount of $505,300 as the value of the beneficial
conversion option.
Proceeds
of the $2,526,500 allocated as follows:
i)
Convertible Notes - $2,013,368; and
ii)
Warrants (also Debt Discount) - $513,132.
The debt
discount of $1,018,432 is being amortized using the effective interest method
over the life of the Convertible Notes of three years. As part of the
transaction, the Company incurred $292,190 of debt issuance costs.
Interest
expense on the Convertible Notes for the years ended December 31, 2009 and 2008
was $205,581 and $125,979, respectively and $287,530 is accrued at December 31,
2009. Interest expense on the debt discount was $173,647 and $168,083
for the years ended December 31, 2009 and 2008, respectively, and amortization
of the discount on the beneficial conversion feature was $170,938 and $165,518,
respectively for the years ended December 31, 2009 and 2008.
As a
result of the Company’s failure to timely pay the interest in May 2009, the
convertible notes are in technical default. Therefore, the Company
has reclassified the debt to current liabilities. The summary of the
Convertible Notes is as follows at December 31, 2009:
$2,401,500
Convertible Debenture, net of discount of
|
||||
$109,906
at 10% interest per annum due on demand
|
$ | 2,291,594 |
43
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
5 -
|
RELATED PARTY
LOANS
|
The
Company has unsecured loans with two of its directors. There was
$104,292 outstanding as of December 31, 2009 inclusive of $2,542 in accrued
interest. These loans were made to fund the Company with working
capital during the development stage. The loans are accruing interest
at a rate of 5% per annum. Interest expense during the years ended
December 31, 2009 and accrued at December 31, 2009 is $2,542. There
were no amounts outstanding in 2008.
NOTE
6 -
|
LICENSE AND ROYALTY
FEES
|
Lawrence
Livermore
The
Company on September 14, 2001, entered into a Limited Exclusive Patent License
Agreement for Optical Coherence Tomography for Human and Animal Dentistry with
The Regents of the University of California (Lawrence Livermore National
Laboratories). Pursuant to this license agreement, the Company
entered into an installment note with Lawrence Livermore National
Laboratories. In the license agreement, the Company agreed to pay to
Lawrence Livermore a total of $175,000 in installments commencing September
2001. The $175,000 note did not include annual minimum royalty fees
or interest. The first installment was a license issue fee of $15,000
which was paid by the Company. The second installment of $50,000 was
the second part of the issue fee that was to be paid in nine monthly
installments commencing April 2003 was partially paid by the Company
($26,000). The last installment was originally due December 31, 2005
but it was extended by Lawrence Livermore to October 1, 2006 in the amount of
$110,000. The total due under the license agreement was $134,000,
prior to a payment made by the Company in October 2006 of $50,000.
Upon
payment of this amount, the parties agreed to amend the agreement they had for
payment of the balance of $84,000 along with the unpaid royalty fees of $380,000
for 2003, 2004 and 2005 as noted below. The Company incurred $10,000
of maintenance fees in February 2007, and paid these on February 28,
2007.
In
addition to the license fee, the Company agreed to pay minimum royalties to
Lawrence Livermore beginning in 2004. The Company prior to the
amendment to the agreement had not paid any of the royalties to Lawrence
Livermore.
The
royalties due were for 2003 $30,000, for 2004 $100,000 and $250,000 for
2005. These fees were to be paid February 28 of each year for the
prior calendar year. The royalties due were $380,000.
44
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
6 -
|
LICENSE AND ROYALTY
FEES (CONTINUED)
|
Lawrence Livermore
(Continued)
The
parties agreed on December 22, 2006 to amend the agreement. The
Company agreed to pay Lawrence Livermore a total of $144,000 in three
installments; $10,000 by February 28, 2007 (which was for maintenance fees for
2007 and paid by the Company), $84,000 by July 28, 2007 (which was paid by the
Company on July 9, 2007), and the final $50,000 by December 31, 2007 (which was
paid by the Company on December 11, 2007). The $380,000 of minimum
royalties have been forgiven by Lawrence Livermore and reclassified to
additional paid in capital as of December 22, 2006.
On
January 1, 2008, the Company paid minimum annual royalty fees of $20,000 for
2008.
On
February 18, 2009, the Company and Lawrence Livermore entered into an Amended
License Agreement, and again amended on October 7, 2009, whereby, the Company is
obligated to pay minimum royalty fees of $20,000 by December 15, 2009 (for 2009,
which has been deferred until July 31, 2010 by Lawrence Livermore and is
included in accounts payable at December 31, 2009), $20,000 by February 28, 2010
(for 2010, which has been deferred until July 31, 2010 by Lawrence Livermore),
$60,000 by February 28, 2011 (for 2011), $100,000 by February 28, 2012 (for
2012), and $250,000 by February 28, 2013 and February 28 each thereafter (for
2013 and each year thereafter).
LightLab
The
Company has an obligation under the Non-Exclusive License Agreement for Imaging
Patents between themselves and LightLab Imaging, LLC entered into August 8,
2001.
The
License Agreement had an original term of 5 years, commencing 2 years after the
original agreement date, which would expire August 8, 2008, and the license
could be renewed. The minimum royalty requirements were based on Net
Sales by the Company. Since the Company generated no sales in the
periods, there were no amounts due. On December 19, 2006, the Company
and LightLab Imaging, Inc. negotiated an amendment whereby the new term of the
agreement is, unless terminated by either party to remain in effect for three
years following whichever of the following events occurs first: i) the Company’s
release of a licensed product; ii) the Company’s first commercial sale of a
licensed product, or; iii) July 1, 2007 (July 1, 2010). The Company
on September 18, 2007 paid LightLab Imaging, LLC $50,000.
There
were no amounts outstanding to LightLab as of December 31, 2009 and
2008.
University of
Florida
On May
31, 2007, the Company entered into an exclusive licensing agreement for the
field of dentistry with The University of Florida Research Foundation for novel
technology relevant to the imaging probe of its Dental Imaging System. The
Agreement carries a $1,000 initial licensing fee with royalty payments to
commence in 2008.
45
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
6 -
|
LICENSE AND ROYALTY
FEES (CONTINUED)
|
University of Florida
(Continued)
The
Company has paid the minimum fees in 2008 and the minimum royalty for 2009
originally due by December 31, 2009 has been deferred until July 31, 2010, and
is in accounts payable as it is unpaid as of December 31, 2009. The Company did
pay some patent fees of $123 in 2009 to the University of Florida. In addition,
the first year of sale under the agreement has been amended to 2010 from
2009.
University of California –
San Francisco
On July
9, 2008, the Company entered an exclusive license agreement for near-infrared
transillumination for the imaging of early dental decay with The Regents of the
University of California. The agreement requires the payment of an
initial non-refundable license fee of $10,000 and an annual license maintenance
fee of $5,000 which for 2009 has been deferred until July 31,
2010. The agreement also requires the payment of certain milestone
payments based on patent allowance and FDA approval.
On August
4, 2009, the Company and The Regents of the University of California entered
into an Amended License Agreement (Amendment No. 1) whereby milestones were
updated to provide adequate time for the Company to complete development, obtain
FDA clearance and transition to marketing and manufacturing. Minimum
royalties are required as follows:
First
year of sales, or no later than 2011
|
$ | 10,000 | ||
Second
year
|
50,000 | |||
Third
year
|
100,000 | |||
Fourth
year
|
150,000 | |||
Fifth
and subsequent years
|
200,000 |
Earned
royalties of 5% of net sales of the product or method are required to the extent
that they exceed the minimum royalties. The agreement continues in
effect until terminated by the parties or the patent rights expire or are
abandoned. The Company paid $16,352 in license fees ($5,000) and other patent
and legal expenses $11,352 in 2009, and there are no amounts accrued for as of
December 31, 2009.
NOTE
7 -
|
COMMITMENTS
|
AXSUN
In June
2008, the Company entered into a strategic agreement with AXSUN Technologies,
Inc. (“AXSUN”) whereby AXSUN will manufacture and supply the integrated OCT
engine for the OCT System. Under the terms of the agreement, the Company has
exclusive rights to the OCT engine for use in diagnostic imaging of teeth and
soft tissue in human and animal dentistry. The exclusivity is subject to the
Company’s purchasing a minimum number of OCT engines in each year, commencing in
2009. Minimum annual purchases are required to maintain exclusivity.
The Company will be required to order 1,000 OCT engines over an 18 month period
at a per unit price of $5,000. This agreement is for a period of 4 years, to be
renewed annually thereafter.
46
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
7 -
|
COMMITMENTS
(CONTINUED)
|
AXSUN
The
Company was in default of this agreement by not making development progress
payments according to the agreed schedule and received confirmation of
termination of the agreement on March 17, 2010. The parties have agreed to enter
a new agreement to take into account the anticipated timeline of the OCT System
development and currently discussing the terms and conditions of a new
agreement. The Company also issued 500,000 shares of stock to AXSUN in
connection with the agreement.
Employment
Agreements
The
Company has entered into employment agreements with its two senior officers
through December 31, 2009. The agreements obligate the Company to pay
these officers $200,000 per year through December 31, 2009. Total
commitment for the Company is $960,000 through December 31, 2009. The
Company and the officers can terminate these agreements, and can adjust
compensation at anytime during the length of the contracts. The
amount owed to these officers, through December 31, 2009, will be paid in the
form of a three-year convertible note bearing interest at 5% per annum,
convertible into shares of common stock at a conversion price equal to the
average bid price for 10 days prior to conversion. The amount is due
in three-years (December 31, 2012, however, there is no prepayment
penalty).
NOTE
8 -
|
STOCKHOLDERS’ EQUITY
(DEFICIT)
|
Common Stock and Preferred
Stock
As of
December 31, 2009, the Company has 990,000,000 shares of common stock authorized
with a par value of $.001. On December 9, 2004, Lantis Laser Inc.
increased the authorized shares from 250,000,000 to 990,000,000. They
also removed the 1,000,000 shares of preferred stock from its charter, and on
January 23, 2007, amended their articles of incorporation to create a class of
preferred stock, and authorized the issuance of 10,000,000 shares of preferred
stock at $.001 par value. No shares have been issued to
date.
The
Company has 100,201,572 and 100,118,238 shares issued and outstanding as of
December 31, 2009 and 2008, respectively.
During
the year ended December 31, 2009:
The
Company issued 2,000,000 shares to various consultants for administrative
services and public and investor relation services. These shares were
valued at various prices between $.10 and $.04 per share or
$150,000. In addition, the Company issued 250,000 shares to convert a
payable to a consultant ($12,500).
The
Company converted $125,000 of convertible notes, at a fixed conversion rate of
$.15 per share, less discount, beneficial conversion feature and issuance costs
net of accrued interest, into 833,334 shares of common stock at a fixed
conversion price of $.15 per share. The Company incurred additional
charges to interest expense and amortization of debt issuance costs to reflect
the conversion of these notes. This resulted in a reduction of
additional paid in capital in the amount of $13,118.
47
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
8 -
|
STOCKHOLDERS’ EQUITY
(DEFICIT) (CONTINUED)
|
The
Company received 3,000,000 shares of stock in settlement of its complaints
against Ice Cold Stocks, LLC and DC International Consulting
LLC. These shares were returned to the Treasury and retired (see Note
11).
During
the year ended December 31, 2008, the Company issued 575,000 shares to various
consulting companies for public and investor relation services and 500,000
shares to a vendor in connection with a strategic supply agreement related to an
Optical Coherence Tomography (OCT) engine for use in future
products. These shares were valued between $.21 and $.26 per share or
$229,500. In addition, a former noteholder who received warrants in
2006 exercised his warrants at $.15 per share for 69,850 shares of common stock
for a cash value paid to the Company of $10,478.
In
addition, two former noteholders who received warrants in 2006 exercised their
warrants at $.15 per share in 2007 for a cash value paid to the Company of
$24,506.
During
the year ended December 31, 2006, the Company completed a private placement
resulting in the sale of 5,850,000 shares of its common stock at a price per
share of $.10. For every 1.8 share of common stock purchased, the
investors received 1 warrant. The Company valued each component in
accordance with APB 14. The Company received, net of fees, $521,500
through December 31, 2006. The Company also issued 1,500,000 to a
consulting company for public and investor relation services. These
shares were valued at $.10 per share or $150,000.
On June
16, 2006, the Company authorized a reverse 1 for 2 stock split on all issued
shares. All shares herein have been reflected retroactive to the
stock split.
For the
year ended December 31, 2005, the Company issued no shares of common
stock.
During
2004, the only shares issued were in connection with the reverse merger between
Lantis Laser, Inc. and Hypervelocity, Inc. The total shares issued
were 127,718,500 which included the 6,422,500 shares issued for the conversion
of the notes, done simultaneously with the merger.
Warrants
The
Company granted 3,250,000 warrants to the investors who took part in the private
placement of $585,000 based on a 1: 1.8 conversion ratio. The
warrants were valued in accordance with APB 14 at a value of $208,143 utilizing
the Black-Scholes method.
The
Company granted 1,605,625 warrants to former noteholders that had previously
converted their notes into shares of common stock in 2004. The
Company valued these warrants utilizing the Black-Scholes method and expensed
them in their consolidated statements of operations. The warrants
have a fair value of $159,610. Two of these former noteholders who
received these warrants exercised their warrants at $.15 per share in 2008 and
2007 for a cash value paid to the Company of $34,984.
48
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
8 -
|
STOCKHOLDERS’ EQUITY
(DEFICIT) (CONTINUED)
|
Warrants
(Continued)
The
Company granted 178,750 warrants to a consultant who assisted the Company in
their private placement. The Company valued these warrants utilizing
the Black-Scholes method and expensed them in their consolidated statements of
operations. The warrants have a fair value of $17,769.
The
Company granted 6,737,333 warrants to the convertible noteholder investors who
took part in the debt offering based on a 4:10 conversion ratio. The
warrants were valued in accordance with APB 14 at a value of $513,132 utilizing
the Black-Scholes method.
The
Company granted 2,947,583 warrants to the placement agent who managed the
issuance of the 5% Senior Convertible Note. The Company valued these
warrants utilizing the Black-Scholes method and expensed them in their
consolidated statements of operations. The warrants have a fair value
of $292,518.
The
following is a breakdown of the warrants:
Exercise
|
Date
|
||||||
Warrants
|
Price
|
Issued
|
Term
|
||||
3,250,000
|
$ | 0.15 |
09/28/2006
|
5
Years
|
|||
1,372,400
|
$ | 0.15 |
09/28/2006
|
5
Years
|
|||
178,750
|
$ | 0.15 |
09/28/2006
|
5
Years
|
|||
6,737,333
|
$ | 0.25 |
05/01/2007
|
5
Years
|
|||
2,947,583
|
$ | 0.25 |
05/17/2007
|
5
Years
|
|||
14,486,066
|
The
warrant agreements contain no clauses regarding adjustments to exercise price,
net settlement provisions, registration rights or liquidated damages
clauses.
49
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
9 -
|
PROVISION FOR INCOME
TAXES
|
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
At
December 31, 2009, deferred tax assets consist of the following:
Net
operating losses
|
$ | 3,060,522 | ||
Valuation
allowance
|
(3,060,522 | ) | ||
$ | - |
At
December 31, 2009, the Company had a net operating loss carryforward in the
amount of $9,001,535 available to offset future taxable income through
2029. The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods. A reconciliation of the
Company’s effective tax rate as a percentage of income before taxes and federal
statutory rate for the periods ended December 31, 2009 and 2008 is summarized as
follows:
2009
|
2008
|
|||||||
Federal
statutory rate
|
(34.0 | )% | (34.0 | )% | ||||
State
income taxes, net of federal benefits
|
3.3 | 3.3 | ||||||
Valuation
allowance
|
30.7 | 30.7 | ||||||
0 | % | 0 | % |
NOTE
10 -
|
JOINT VENTURE
AGREEMENT WITH LEI
|
On
December 19, 2007, HyGeniLase, Inc., ("HyGeniLase") a Delaware corporation was
formed. HyGeniLase is a joint venture between the Company and Laser
Energetics, Inc., ("LEI"), an Oklahoma corporation, with each party owning 50%
of the company. HyGeniLase was formed to develop, manufacture,
market, sell and distribute dental laser process technology to the dental
markets worldwide.
In this
joint venture, the Company is responsible for funding HyGeniLase, clinical
evaluation, process development, market development, and sales and marketing to
the human and animal dental market. The Company shall be directly
compensated by HyGeniLase for these functions at a rate equal to 5% of net sales
less discounts. LEI is responsible for product development, product
specifications, quality control, product improvement and
manufacturing. LEI shall be directly compensated by HyGeniLase for
these functions at a rate equal to cost plus 10% basis.
50
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
10 -
|
JOINT VENTURE
AGREEMENT WITH LEI
(CONTINUED)
|
The
Company is responsible for raising the initial funding of HyGeniLase in the
amount of approximately $650,000: approximately $25,000 being allocated to fund
a laser cost study to be conducted by LEI (all of which has been advanced);
approximately $61,000 being allocated to purchase a reconditioned research laser
(of which $42,664 has been advanced); and $550,000 being allocated to fund the
development of a pre-production prototype Alexandrite laser system to be
provided by LEI (of which $100,000 has been advanced). LEI has cancelled the
balance of $18,336 due on the reconditioned laser because of its late delivery,
and the Company has suspended additional payments and funding pending delivery
of the research prototype by LEI. LEI’s default in delivery of the research
prototype occurred for technical reasons experienced by LEI.
Upon
delivery of the research prototype by LEI, subject to our satisfactory clinical
evaluation, the Company plans to resume performance of its obligations under the
terms of the joint venture. Neither party has called the other into default
under the agreement. HyGeniLase will repay the Company for all advances it has
made in connection with the initial funding after HyGeniLase has received
funding of at least $750,000 (in excess of the Company’s initial
funding).
The
$25,000 allocated to fund the laser cost study and the $550,000 allocated to
fund the development of a pre-production prototype will be (or have been) paid
to LEI for the benefit of HyGeniLase, and LEI has provided the Company, for the
benefit of HyGeniLase, the laser cost study and will deliver the pre-production
prototype.
The
Company recognized a loss on the investment in HyGeniLase for the year ended
December 31, 2007 in the amount of $61,332 and for the year ended December 31,
2008 of $25,000 under the equity method of accounting.
As of
December 31, 2009, the Company has delayed the joint venture project with LEI
due to failure on LEI’s part to comply with their end of the agreement as well
as funding. As a result, the Company reserved the remaining $81,332 of the
investment on their books.
NOTE
11 -
|
LITIGATION
|
On June
2, 2008, the Company filed a complaint, Case No. CV08-3587, in the U.S. District
Court for the Central District of California – Western Division against Ice Cold
Stocks, LLC (“Ice Cold”), VAR Growth Corporation (“VAR”), Barry Davis (“Davis”),
Debbie Sutz (“Sutz”) and Interwest Transfer Co., Inc. (“Interwest”). In its
complaint, the Company seeks to enjoin Interwest from removing restrictive
legends and transferring 3,500,000 shares of stock issued in connection with a
consulting agreement the Company entered into with VAR in November 2007 and to
rescind those shares. The Company alleged breach of contract against Ice Cold
and Sutz.
51
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE 11 -
|
LITIGATION
(CONTINUED)
|
On June
16, 2008, the Company filed a complaint, Docket No. C-212-08, in the Superior
Court of New Jersey, Chancery Division, General Equity Part (Bergen County)
against Barry Davis (“Davis”), DC International Consulting, LLC (“DC
International”), Danny Colon (“Colon”) and Interwest Transfer Co., Inc.
(“Interwest”). In its complaint, the Company seeks to enjoin Interwest from
removing restrictive legends and transferring 2,500,000 shares of stock issued
in connection with a consulting agreement the Company entered into with DC
International in November 2007 and to rescind those shares. The Company alleged
that DC International, Davis and Colon, breach of contract against DC
International. As of November 18, 2008, the Company had reached agreements to
settle both of the foregoing actions, pursuant to which the defendants would
surrender for cancellation an aggregate of 3,000,000 of the total 6,000,000
shares of stock. On January 28, 2009, half of the 2,500,000 shares (1,250,000
shares) in the DC Consulting transaction have been returned and placed back into
treasury. On February 26, 2009, Davis returned a certificate for
3,165,000 shares. Half of the original 3,500,000 shares (1,750,000) were
returned to treasury and a new certificate in the amount of 1,415,000 shares
(the 1,750,000 shares less 335,000 shares were unable to be returned as they had
been transferred from this group).
During
the year ended December 31, 2009 the 3,000,000 shares in the Treasury were
retired.
NOTE
12 -
|
FAIR VALUE
MEASUREMENTS
|
The
Company adopted certain provisions of ASC Topic 820. ASC 820 defines fair value,
provides a consistent framework for measuring fair value under generally
accepted accounting principles and expands fair value financial statement
disclosure requirements. ASC 820’s valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from
independent sources, while unobservable inputs reflect our market assumptions.
ASC 820 classifies these inputs into the following hierarchy:
Level 1
inputs: Quoted prices for identical instruments in active markets.
Level 2
inputs: Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.
Level 3
inputs: Instruments with primarily unobservable value drivers.
52
LANTIS
LASER INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
NOTE
12 -
|
FAIR VALUE
MEASUREMENTS (CONTINUED)
|
The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2009:
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Convertible
debentures, net of discount
|
- | - | 2,291,594 | 2,291,594 | ||||||||||||
Total
liabilities
|
- | - | 2,291,594 | 2,291,594 |
53
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None.
Item 9A(T).
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
As of December 31, 2009, the reporting period covered by this Annual Report
on Form 10-K, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer, who are same person, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15 Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are not effective as of December 31, 2009 due to the fact that we
have not been funded effectively for us to separate these two functions. We plan
on making changes in the upcoming year to become more effective and properly
segregate these functions.
Our
internal controls are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. We maintain records that, in reasonable detail, accurately and
fairly reflect the transactions that are recorded as necessary to permit
preparation of our financial statements in accordance with generally accepted
accounting principles, and that our expenditures are being made only in
accordance with authorizations of our management and
directors.
As soon
as feasible Management intends to engage a Chief Financial Officer to ensure
that internal controls and procedures are fully effective. For the
year ended December 31, 2009, management feels that our internal controls over
financial reporting was not effective.
Management’s
Annual Report on Internal Control Over Financial Reporting
This
annual report does not include a report of management's assessment regarding
internal control over financial reporting or an attestation report of the
company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
Item 9B.
|
Other
Information
|
Not
applicable.
PART
III
Item 10.
|
Directors
and Executive Officers of the
Registrant
|
Directors
and Executive Officers
The
following table sets forth the name, age and position of each of our directors
and executive officers. Directors are elected annually. Officers serve at the
pleasure of the Board of Directors.
Name
|
Age
|
Position
|
||
Stanley
B. Baron
|
65
|
Chairman,
President & Chief Executive Officer
|
||
Craig
B. Gimbel, DDS
|
57
|
Executive
Vice-President Clinical Affairs, Director
|
||
Douglas
Hamilton
|
50
|
Vice-President
R&D
|
||
Linda
Otis, DDS
|
55
|
Vice-President
Clinical Research
|
54
Stanley B.
Baron — Mr. Baron has been our Chairman, President & Chief Executive
Officer since November 2004, and previously he had been Chairman, President
& Chief Executive Officer of Lantis New Jersey since prior to 2002. He has
over 25 years experience in the dental industry. In 1971 in Zimbabwe he founded
Metro Cash & Carry, a consumer products wholesale distribution business.
Metro Cash & Carry was subsequently sold to Metro, a large European food
company.
Mr. Baron
and his family emigrated to Israel in 1979. He purchased a partnership in
Mardent Ltd., a small dental equipment company that represented Adec, a leading
US dental equipment manufacturer, as well as other leading European and Japanese
companies. Mardent merged with Healthco (Israel), a sundry distributor and a
subsidiary of Healthco International. Mr. Baron continued to manage the combined
company following the merger.
In 1989,
Mr. Baron moved to the United States and started to work with dental companies
to identify, license and commercialize new technologies. From 1993 to 2001, Mr.
Baron was a principal of TechnaLink which acted as a consultant to Integra
Medical, which successfully commercialized an intraoral camera imaging System
for dentistry. From 1996 to 2001 TechnaLink also acted as a consultant to
Frontier Pharmaceuticals which successfully commercialized a novel
antiseptic/surface disinfection technology for biomedical
application.
Craig B. Gimbel,
DDS — Dr. Gimbel has been our Executive Vice-President Clinical Affairs
and a Director since November 2004, and previously he had been Executive
Vice-President Clinical Affairs and a Director of Lantis New Jersey since prior
to 2002. Dr. Gimbel graduated from New York University College of Dentistry in
1977. From 1978 to 2005, Dr. Gimbel practiced clinical dentistry and worked on
numerous dental technology projects that included clinical research, publishing
and teaching. In November 2005, Dr. Gimbel left clinical private practice to
devote his full time and attention to Lantis.
Dr.
Gimbel has over 16 years of clinical and research experience in laser/photonic
dentistry. He is a past Chairperson, from 2006 to 2007, of the Scientific
Committee of the Academy of Laser Dentistry and had achieved Advanced
Proficiency Certification in Laser Dentistry in 1993. Presently, Dr. Gimbel is
Conference Committee Chair, and since March 2007 has been President of the
Academy. He is a Fellow of the American College of Dentists, American Society of
Dentistry for Children, Academy of General Dentistry and Academy of Dentistry
International.
Dr.
Gimbel is the 2003 recipient of the T. H. Maiman Award for Excellence in Dental
Laser/Photonics Research.
Douglas
Hamilton — Mr. Hamilton has been our Vice-President R&D since
November 2004. From June 2005 to November 2006, he was also Director of
Operations at Citi WiFi Networks, Inc., a privately-held provider of municipal
WiFi services. From September 1997 to June 2005, Mr. Hamilton was a Technology
Administrator and consultant for American Financial Solutions, a privately-held
financial services firm that was acquired by National Financial Partners Corp.
in October 2003. Previously, from 1992 to 1998, Mr. Hamilton was President and
Director of Operations of Aries International Inc., a privately-held logistics
company, where he was responsible for project team management including Systems
development and integration of optical, digital and radiographic
products.
Linda Otis,
DDS — Dr. Otis has been our Vice-President Clinical Research since
November 2004. From 2005 to the present, she has been a Professor of Oral and
Maxillofacial Radiology at the University of Maryland, Baltimore College of
Dental Surgery, in Baltimore, Maryland. She received her D.D.S. at University of
Nebraska, Lincoln and did her postgraduate work in diagnostic science at
University of Texas, San Antonio.
Dr. Otis
initiated the application of OCT for use in dentistry while she was at the
University of California, San Francisco Dental School in 1994 and implemented
the research on OCT with the Medical Technology Program scientists at Lawrence
Livermore National Laboratory. She is an authority on OCT and is active in
research relating to new methods for diagnosing common oral conditions as a
principal investigator of a National Institute of Health research grant. Dr.
Otis has lectured throughout the United States on many topics in dentistry. She
has published widely, including 35 publications. She is named on three of the
patents relating to OCT application in dentistry.
There are
no family relationships among the officers and directors.
Audit,
Nominating and Compensation Committees, and Director Independence
Our Board
of Directors does not have standing audit, nominating or compensation
committees, and our Board of Directors performs the functions that would
otherwise be delegated to such committees. We anticipate that our Board of
Directors will be able to attract qualified independent directors to serve on
the Board and ultimately form standing audit, nominating and compensation
committees.
Neither
of our directors is considered independent.
55
Item 11.
|
Executive
Compensation
|
The
following table sets forth the compensation earned for services rendered in all
capacities by our Principal Executive Officer and Principal Financial Officer
whose total annual salary and bonus exceeded $100,000 for the fiscal year-ended
2009. No other executive officer’s compensation exceeded $100,000 in
the fiscal year ended December 31, 2009. The individual named in the table will
be hereinafter referred to as the “Named Executive Officer.”
SUMMARY
COMPENSATION TABLE
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
Stanley B. Baron |
2009
|
$ | 120,000 | – | – | – | – | – | – | $ | 120,000 | |||||||||||||||||||||||
President and Chief Executive Officer |
2008
|
$ | 120,000 | – | – | – | – | – | – | $ | 120,000 | |||||||||||||||||||||||
(PEO and PFO) |
2007
|
$ | 120,000 | – | – | – | – | – | – | $ | 120,000 |
We have
employment agreements with Mr. Baron and Dr. Gimbel. Under these agreements, Mr.
Baron is entitled to receive an annual salary of $120,000, and Dr. Gimbel is
entitled to receive an annual salary of $80,000, respectively. Their salaries
will accrue until we believe our cash position allows us to pay, up to a maximum
of three years, or until December 31, 2009, after which accrued and unpaid
salary, if any, will be paid in the form of a convertible note bearing interest
at the rate of 5% per annum, convertible into shares of common stock at a
conversion price equal to the average bid price for 10 days prior to
conversion. Under
the terms of their respective employment agreements, Mr. Baron and Dr. Gimbel
may elect to have salary paid in shares of our common stock, valued at a price
equal to the average bid price for our stock for the previous 30
days. In terms of their agreement, notes were issued to them at the
end of 2009 for the accrued amount of $960,000.
The
tables entitled “OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END” and “DIRECTOR
COMPENSATION” and the respective discussions related to those tables have been
omitted because no compensation required to be reported in those tables was
awarded to, earned by or paid to any of the named executive officers or
directors in any of the covered fiscal years.
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
following table sets forth, as of March 27, 2010, certain information concerning
the beneficial ownership of common stock by (i) each person known by the company
to be the owner of more than 5% of the outstanding common stock, (ii) each
director, (iii) each Named Executive Officer, and (iv) all directors and
executive officers as a group. In general, “beneficial ownership” includes those
shares a director or executive officer has the power to vote or the power to
transfer, and stock options and other rights to acquire common stock that are
exercisable currently or become exercisable within 60 days. Except as indicated
otherwise, the persons named in the table below have sole voting and investment
power with respect to all shares shown as beneficially owned by them. The
calculation of the percentage owned is based on 100,201,572 shares issued and
outstanding (plus, with respect only to each holder of securities that are
exercisable for or convertible into common stock, shares underlying such
securities). The address of each of the directors and executive officers listed
below is c/o Lantis Laser Inc., 11 Stonebridge Court, Denville, New Jersey 07834
unless otherwise indicated.
56
Name and Address
|
Amount and Nature
of Beneficial Ownership
|
Percentage of
Outstanding
Shares Owned
|
||||||
Directors
and Executive Officers
|
||||||||
Stanley
B. Baron
|
27,511,500 | (1) | 27.5 | % | ||||
Craig
B. Gimbel DDS
|
27,511,500 | (2) | 27.5 | % | ||||
Douglas
Hamilton
|
5,000,000 | 5.0 | % | |||||
Linda
Otis, DDS
|
625,000 | * | ||||||
All
directors and executive
officers
as a group (4 persons)
|
60,648,000 | 60.5 | % |
*
Represents less than 1%
(1)
|
Includes
2,997,000 shares owned directly by Mr. Baron’s son and 2,997,000 shares
owned directly by Mr. Baron’s daughter. Mr. Baron disclaims beneficial
ownership of all shares owned directly by
others.
|
(2)
|
Includes
26,014,500 shares owned directly by Ruth L. Gimbel, Dr. Gimbel’s spouse,
and 1,497,000 owned directly by Dr. Gimbel’s son. Dr. Gimbel disclaims
beneficial ownership of all shares owned directly by
others.
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
Since
January 1, 2009, we have not been a party to any transaction, proposed
transaction, or series of transactions in which the amount involved exceeds one
percent of the average of our total assets at year-end for the last three fiscal
years, or $13,885, and in which, to its knowledge, any of its directors,
officers, five percent beneficial security holders, or any member of the
immediate family of the foregoing persons has had or will have a direct or
indirect material interest other than (1) compensation arrangements, which are
described where required under the “Executive Compensation” section and (2)
unsecured loans made by Mr. Baron and Dr. Gimbel to fund the company with
working capital during the development stage. In 2009, Mr. Baron and
Dr. Gimbel advanced the Company $104,292 for working capital with interest
amounting to $2,542 accruing at 5% annually. We believe that all of the
transactions described above were made on terms no less favorable to us than
could have been obtained from unaffiliated third parties.
Since
January 1, 2009, no promoter or control person (within the meaning of paragraph
(c) to Item 404 of Regulation S-K under the Exchange Act) has received anything
of value, directly or indirectly, from us, and we have acquired no assets from
any such person except as follows:
|
•
|
We
are accruing salaries for Mr. Baron and Dr. Gimbel pursuant to their
employment agreements as more fully described above following the “SUMMARY
COMPENSATION TABLE.”
|
Neither
of our directors is considered independent.
Item 14.
|
Principal
Accounting Fees and
Services
|
Audit
Fees
The
aggregate fees for professional services rendered by KBL, LLP for the audit of
our financial statements for the fiscal years ended December 31, 2009 and
December 31, 2008 were $36,500 and $36,500, respectively.
Audit–Related
Fees
None
Tax Fees
None
57
All
Other Fees
None
PART
IV
Item 15.
|
Exhibits,
Financial Statement Schedules
|
3(i)
|
Articles
of Incorporation, as amended (incorporated by reference to Exhibit 3(i) to
Form SB-2 filed on September 26, 2007).
|
|
3(ii)
|
By-laws,
as amended (incorporated by reference to Exhibit 3(ii) to Form SB-2 filed
on September 26, 2007).
|
|
4.1
|
Form
of common stock certificate (incorporated by reference to Exhibit 4.1 to
Form SB-2 filed on September 26, 2007).
|
|
4.2
|
Form
of Amended and Restated 5% Senior Convertible Note (incorporated by
reference to Exhibit 4.2 to Amendment No. 1 to Form SB-2 on Form S-1 filed
on February 14, 2008).
|
|
4.3
|
Form
of Common Stock Purchase Warrant expiring September 28, 2011 (corrected)
(incorporated by reference to Exhibit 4.3 to Amendment No. 1 to Form SB-2
on Form S-1 filed on February 14, 2008).
|
|
4.4
|
Form
of Placement Agent’s Warrant expiring September 28, 2011 (incorporated by
reference to Exhibit 4.4 to Form SB-2 filed on September 26,
2007).
|
|
4.5
|
Form
of Class B Common Stock Purchase Warrant expiring May 17, 2012
(incorporated by reference to Exhibit 4.5 to Form SB-2 filed on September
26, 2007).
|
|
4.6
|
Form
of Placement Agent’s Warrant expiring May 17, 2012 (incorporated by
reference to Exhibit 4.6 to Form SB-2 filed on September 26,
2007).
|
|
†
10.1
|
Management
Employment Agreement with Stanley B. Baron, dated January 1, 2006
(incorporated by reference to Exhibit 10.1 to Form SB-2 filed on September
26, 2007).
|
|
†
10.2
|
Management
Employment Agreement with Craig B. Gimbel, dated January 1, 2006
(incorporated by reference to Exhibit 10.2 to Form SB-2 filed on September
26, 2007).
|
|
10.3
|
Limited
Exclusive Patent License Agreement with the Regents of the University of
California (as manager and operator of Lawrence Livermore National
Laboratory), dated September 14, 2001 (incorporated by reference to
Exhibit 10.3 to Form SB-2, filed on September 26,
2007).
|
|
10.4
|
Amendment
No. 3, dated December 18, 2006, to Limited Exclusive Patent License
Agreement with the Regents of the University of California (as manager and
operator of Lawrence Livermore National Laboratory) (incorporated by
reference to Exhibit 10.4 to Form SB-2 filed on September 26,
2007).
|
|
10.5
|
Non-Exclusive
License for Imaging Patents with LightLab Imaging, LLC, dated August 8,
2001 (incorporated by reference to Exhibit 10.5 to Form SB-2 filed on
September 26, 2007).
|
|
10.6
|
First
Amendment, dated December 19, 2006, to Non-Exclusive License for Imaging
Patents with LightLab Imaging, LLC (incorporated by reference to
Exhibit 10.6 to Form SB-2 filed on September 26, 2007).
|
|
10.7
|
Standard
Non-Exclusive License Agreement with the University of Florida Research
Foundation, Inc., dated May 31, 2007 (incorporated by reference to
Exhibit 10.7 to Form SB-2 filed on September 26, 2007).
|
|
10.8
|
Amendment
No. 1, dated September 30, 2004, to Limited Exclusive Patent License
Agreement with the Regents of the University of California (as manager and
operator of Lawrence Livermore National Laboratory) (incorporated by
reference to Exhibit 10.8 to Amendment No. 1 to Form SB-2 on Form S-1
filed on February 14, 2008).
|
|
10.9
|
Amendment
No. 2, dated March 2, 2005, to Limited Exclusive Patent License Agreement
with the Regents of the University of California (as manager and operator
of Lawrence Livermore National Laboratory) (incorporated by reference to
Exhibit 10.9 to Amendment No. 1 to Form SB-2 on Form S-1 filed on February
14, 2008).
|
58
†
10.10
|
Amendment
to Management Employment Agreement with Stanley B. Baron, dated February
13, 2008 (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to
Form SB-2 on Form S-1 filed on February 14, 2008).
|
|
†
10.11
|
Amendment
to Management Employment Agreement with Craig B. Gimbel, dated February
13, 2008 (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to
Form SB-2 on Form S-1 filed on February 14, 2008).
|
|
10.12
|
Form
of Subscription Agreement from September 2006 private placement
(incorporated by reference to Exhibit 10.12 to Amendment No. 2 to Form
SB-2 on Form S-1 filed on June 24, 2008).
|
|
10.13
|
Form
of Subscription Agreement from May 2007 private placement (incorporated by
reference to Exhibit 10.13 to Amendment No. 2 to Form SB-2 on Form S-1
filed on June 24, 2008).
|
|
10.14
|
Joint
Venture Shareholders Agreement among the registrant, Laser Energetics,
Inc., and HyGeniLase, Inc., dated December 18, 2007 (incorporated by
reference to Exhibit 10.14 to Amendment No. 4 to Form SB-2 on Form S-1
filed on September 15, 2008).
|
|
10.15
|
Optical
Coherence Tomography (OCT) Optical Engine Development Program and Supply
Agreement between the registrant and AXSUN Technologies, Inc., dated as of
May 13, 2008 (incorporated by reference to Exhibit 10.15 to Amendment No.
4 to Form SB-2 on Form S-1 filed on September 15,
2008).
|
|
10.16
|
Exclusive
License Agreement with the Regents of the University of California, dated
July 9, 2008 (incorporated by reference to Exhibit 10.16 to Amendment No.
5 to Form SB-2 on Form S-1 filed on October 8, 2008).
|
|
10.17
|
Consulting
Agreement, dated November 14, 2007, with DC International Consulting, LLC
(incorporated by reference to Exhibit 10.17 to Amendment No. 11 to Form
SB-2 on Form S-1 filed on February 17, 2009).
|
|
10.18
|
Consulting
Agreement, dated November 15, 2007, with Debbie Sutz (affiliate of VAR
Growth Corp.) (incorporated by reference to Exhibit 10.18 to Amendment No.
9 to Form SB-2 on Form S-1 filed on January 29, 2009).
|
|
10.19
|
Settlement
Agreement, dated October 16, 2008, with DC International Consulting, LLC
(incorporated by reference to Exhibit 10.17 to Amendment No. 11 to Form
SB-2 on Form S-1 filed on February 17, 2009).
|
|
10.20
|
Settlement
Agreement, dated October 16, 2008, with Barry Davis and Debbie Sutz
(affiliates of VAR Growth Corp.) (incorporated by reference to Exhibit
10.17 to Amendment No. 11 to Form SB-2 on Form S-1 filed on February 17,
2009).
|
|
16.1
|
Letter
of KBL, LLP (incorporated by reference to Exhibit 16.1 to Amendment No. 4
on Form S-1 to the registrant’s Registration Statement on Form SB-2, filed
on September 15, 2008).
|
|
21.1
|
Subsidiaries
of the registrant (incorporated by reference to Exhibit 21.1 to the
registrant’s Registration Statement on Form SB-2, filed on September 26,
2007).
|
|
24.1
|
Power
of attorney
|
|
31.1
|
Section
302 CEO Certification
|
|
31.2
|
Section
302 CFO Certification
|
|
32.1
|
Section
906 CEO Certification
|
|
32.2
|
Section
906 CFO Certification
|
†
Compensation plan or agreement
59
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this Annual Report on Form 10-K to be signed
by the undersigned, thereunto duly authorized, this27th day of
March 2010.
By:
|
/s/
Stanley B. Baron
|
Stanley
B. Baron
|
|
Chairman,
President, Chief Executive
|
|
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons, in the capacities and on the dates
indicated.
SIGNATURE
|
TITLE
|
DATE
|
|||
/s/
Stanley B. Baron
|
Chairman,
President, Chief Executive
Officer,
Principal Executive, Financial and
|
March
27, 2010
|
|||
Stanley
B. Baron
|
Accounting
Officer and Director
|
|
|||
/s/
Craig B. Gimbel
|
Executive
Vice-President Clinical Affairs,
|
||||
Craig
B. Gimbel, DDS
|
Director
|
March
27, 2010
|
|||
By:
|
/s/
Stanley B. Baron
|
||||
Stanley
B. Baron
Attorney-in-fact
|
60