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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 31, 2006
XCORPOREAL, INC.
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(Exact name of registrant as specified in its chapter)
Nevada 001-31608 98-0349685
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
11640 96A Avenue
Surrey, B.C., Canada V3V 2A1
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 760-1400
Pacific Spirit Inc.
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.1 3e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
License Agreement
On September 1, 2006, we entered into a License Agreement with National
Quality Care, Inc. (NQCI), pursuant to which it granted to us an exclusive
license to all technology relating to a Wearable Artificial Kidney and other
medical devices, with no geographic restrictions, that will last for a period of
ninety-nine years or until the expiration of its proprietary rights in each item
of intellectual property, if earlier. As consideration for granting the license,
we agreed to pay a minimum annual royalty of $250,000, or 7% of gross sales less
research, development and indirect costs attributable to the technology, if
higher.
Merger Agreement
On September 1, 2006, we entered into a Merger Agreement with NQCI
which contemplates that either (i) we will acquire NQCI as a wholly owned
subsidiary pursuant to a triangular merger, or (ii) we will issue to NQCI shares
of our common stock in consideration of the assignment of the technology
relating to the Wearable Artificial Kidney and other medical devices.
In the event of the completion of the merger reorganization, all
outstanding shares of NQCI's common stock (other than any dissenting shares)
would automatically be converted into and become validly issued, fully paid and
non-assessable shares of our common stock, such that all NQCI stockholders would
collectively receive shares of our common stock representing in the aggregate
48% of our issued and outstanding common stock as of the date of the agreement.
In the event of the closing of the merger, the Asset Assignment and
Debt Payment Agreement by and among our company and the NQCI parties will become
effective. This agreement provides that NQCI's wholly owned subsidiary, Los
Angeles Community Dialysis, Inc. ("LACD"), will assume all of NQCI's and LACD's
accounts payable and accounts receivable and arrange for the payment of NQCI's
obligations to its creditors.
Either party may terminate the merger transaction in accordance with
the provisions of the agreement. We will not have any obligation to issue or
deliver any of its shares after December 31, 2006, unless the parties mutually
agree to extend such date.
If the merger is terminated, NQCI will transfer all of its technology
relating to its Wearable Artificial Kidney and other medical devices to our
company, and we will issue to NQCI shares of our common stock in the amount
provided above, or if NQCI is not responsible for the termination, by reason of
a material breach of the Merger Agreement, a 30% stock premium.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
On August 31, 2006, we agreed to issue 9,600,000 shares of our common
stock to Consolidated National, LLC (CNL), in exchange for all of CNL's right,
title, and interest to the name "Xcorporeal" and related trademarks and domain
names, and the right to enter into the License Agreement and Merger Agreement
with NQCI described in Item 1.01 above. The exchange transaction was consummated
pursuant to a Contribution Agreement by and among our company, CNL, and Summit
Trading Limited, one of our stockholders. The shares of common stock issued by
us were exempt from registration under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to the exemption provided by Section 4(2) of
the Securities Act for issuances not involving a public offering.
ITEM 5.01 CHANGES IN CONTROL OF REGISTRANT.
On August 31, 2006, Consolidated National, LLC (CNL) obtained control
of our company from Peter Sotola by virtue of acquiring 96% of our currently
outstanding shares of common stock, as set forth in Item 3.02 above, and CNL's
managing member was appointed to our board of directors and elected chairman, as
set forth in Item 5.02 below. Mr. Sotola has agreed to resign from the board
effective ten days from the filing of an information statement.
Forward-Looking Statements
This report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed due
to factors such as, among others, limited operating history, difficulty in
developing, exploiting and protecting proprietary technologies, intense
competition and substantial regulation in the medical devices industry.
Additional information concerning factors that could cause or contribute to such
differences can be found in the following discussion, including the "Risks
Factors" section below.
Description of Business
Overview
We were incorporated in the State of Nevada as Pacific Spirit Inc. on
May 4, 2001 to engage in the acquisition, exploration and development of natural
resource properties. On August 31, 2006, we changed our name to Xcorporeal, Inc.
As a result of entering into the License Agreement discussed in Item 1.01 above,
we will become a developmental stage company focused on acquiring, developing,
and commercializing technology and products related to the treatment of kidney
failure and congestive heart failure.
Plan of Operation
For the coming year we plan to test and develop the technology pursuant
to our exclusive license to our Wearable Artificial Kidney and other medical
devices acquired pursuant to the License Agreement. We plan to utilize this
technology to build an extra-corporeal platform technology that can potentially
perform functions of various human organs. The four products that we plan to
market are:
1. Hospital congestive heart failure device
2. Hospital renal replacement device
3. Wearable congestive heart failure device
4. Wearable artificial kidney
Our management believes that both of the hospital adaptations of the
platform technology could qualify for the CE Marking in Europe, the European
equivalent of the US FDA approval, within one year and a half. Since the time
frame and related costs to enter the European market are substantially less than
the US, we plan on entering this market first with the goal to first generate
cash flow and create credibility before entering the US market.
In the US market, we believe that the CHF hospital device will qualify
for the fastest approval from the FDA due to its similarity to another device
currently on the market. Therefore, we plan to lead with this device in the US
which potentially could be available to market in two years. The hospital renal
failure device would likely be available in three years since it will most
likely require more trials. The wearable versions will need more time to design
and due to their breakthrough nature, they will also require a lengthier FDA
approval timeline. We estimate that the wearable devices will be available to
market in five years.
We currently have extremely limited operating capital. There can be no
assurance that funds required for us to commence operations will be available on
terms acceptable to us or at all. Additional funding will also be needed to meet
our royalty obligations with respect to the License Agreement. If we are unable
to raise sufficient funds on terms acceptable to us, we may be unable to
complete our business plan. If equity financing is available to us on acceptable
terms, it could result in additional dilution to our stockholders.
Competitors
We compete directly and indirectly with other businesses, including
businesses in the dialysis industry. The major competitors for the Xcorporeal
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platform technology are those companies manufacturing and selling dialysis
equipment and supplies. Xcorporeal will compete with these companies in the
critical care markets as well as the wearable application markets. In many
cases, these competitors are larger and more firmly established than Xcorporeal.
In addition, many of such competitors have greater marketing and development
budgets and greater capital resources than our company. The wearable artificial
kidney will also compete with dialysis clinics in treating ESRD patients. We
anticipate that some of our largest competitors will be companies such as
Baxter, Fresenius, Gambro, DaVita, AKSYS, NxStage, and Nephros.
Governmental Regulations
We are subject to government regulation relating to the development and
marketing of the Wearable Kidney. Due to the relatively early nature of our
development efforts, we have not yet confirmed with the FDA its view of the
regulatory status of the Wearable Kidney or which center of the FDA might have
primary responsibility for review of the regulatory submissions we intend to
make. Depending on the claims made and the FDA's ruling regarding the regulatory
status of the Wearable Kidney, it may be designated as a device, a biologic or
as a combination product. However, we anticipate that regardless of regulatory
designation, we will need to conduct pre-clinical and clinical studies on humans
before being able to market the Wearable Kidney.
To support a regulatory submission, the FDA commonly requires clinical
studies to show safety and effectiveness. While we cannot currently state the
nature of any such studies that the FDA may require due to our early stage of
product development, it is likely any product we attempt to develop will require
extensive and time-consuming clinical studies in order to secure approval.
Outside the U.S., the ability to market potential products is
contingent upon receiving market application authorizations from the appropriate
regulatory authorities. These foreign regulatory approval processes may involve
differing requirements than those of the FDA, but also generally include many,
if not all, of the risks associated with the FDA approval process described
above, depending on the country involved.
In the U.S., medical devices are classified into 3 different classes,
Class I, II and III, on the basis of controls deemed reasonably necessary to
ensure the safety and effectiveness of the device. Class I devices are subject
to general controls (i.e. labeling, pre-market notification and adherence to the
FDA's Good Manufacturing Practices or GMP), Class II devices are subject to
general and special controls (I.E. performance standards, post-market
surveillance, patient registries and FDA guidelines). Class III devices are
those which must receive pre-market approval by the FDA to ensure their safety
and effectiveness, that is, 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, such as its Wearable
Kidney for the treatment of ESRD, marketing clearance must be obtained through a
pre-market notification under Section 510(k) of the Federal Food, Drug, and
Cosmetic Act or the FDC Act. Noncompliance with applicable requirements can
result in fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, refusal to authorize the marketing of
new products or to allow us to enter into supply contracts and criminal
prosecution. A 510(k) clearance 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, which may
include a requirement to submit human clinical trial data. It generally takes 4
to 12 months from the date of a 510(k) submission to obtain clearance, but it
may take longer.
If clearance or approval is obtained, any device manufactured or
distributed by us 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 U.S. including labeling regulations, GMP requirements, Medical
Device Reporting, or 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.
The FDA Act makes changes to the device provisions of the FDC Act and
other provisions in the FDC Act affecting the regulation of devices. Among other
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things, the changes will affect the IDE and PMA processes, and also will affect
device standards and data requirements, procedures relating to humanitarian and
breakthrough devices, tracking and post-market surveillance, accredited third
party review and the dissemination of off-label information. We cannot predict
how or when these changes will be implemented or what effect the changes will
have on the regulation of our products and anticipated products.
If the FDA believes that a company is not in compliance with law, it
can institute proceedings to detain or seize products, issue a recall, enjoin
future violations and assess civil and criminal penalties against that company,
its officers and its employees. Failure to comply with the regulatory
requirements could have a material adverse effect on our business, financial
condition and results of operations. In addition, regulations regarding the
manufacture and sale of our products are subject to change.
International Organization for Standards, or ISO, standards were
developed by the European Community, or EC, as a tool for companies interested
in increasing productivity, decreasing cost and increasing quality. The EC uses
ISO standards to provide a universal framework for quality assurance and to
ensure the good quality of products and services across borders. The ISO 9000
standards have facilitated trade throughout the EC, and businesses and
governments throughout the world are recognizing the benefit of the globally
accepted uniform standards. Any manufacturer utilized for purposes of
manufacturing our products (including us, if we manufacture our own Wearable
Kidney) will be required to obtain ISO certification to facilitate the highest
quality products and the easiest market entry in cross-border marketing. This
will enable us to market our products in all of the member countries of the EU.
We also will be required to comply with additional individual national
requirements that are outside the scope of those required by the European
Economic Area.
Any medical device that is legally in the U.S. may be exported anywhere
in the world without prior FDA notification or approval. The export provisions
of the FDC Act apply only to unapproved devices. While FDA does not place any
restrictions on the export of these devices, certain countries may require
written certification that a firm or its devices are in compliance with U.S.
law. In such instances FDA will accommodate U.S. firms by providing a
Certificate for Foreign Government. In cases where there are devices which the
manufacturer wishes to export during the interim period while their 510(k)
submission is under review, exporting may be allowed without prior FDA clearance
under certain limited conditions.
Research and Development
We have just acquired the exclusive license to the platform technology
from NQCI and have not yet begun research and development efforts. Once we have
assembled a team to facilitate our research and development efforts, we
anticipate that the goals of our research and development efforts will include
but are not limited to:
o Improving the chemicals used in the dialysis process; the current
chemicals have been used for decades. Management believes that new
chemicals that last longer and can be used in small quantities
would further reduce the cost and weight of its product.
o Developing software that allows physicians to customize the
function of the device to meet the specific dialysis needs of
each patient.
o Adapting the technology underlying the wearable artificial
kidney to other medical uses. Management believes that this
technology is a platform for a number of other devices that can be
used to treat other diseases and it would offer substantive value
propositions for patients and healthcare providers.
Properties
We do not currently own or lease any property.
Employees
Currently our only employees are our executive officers.
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Risk Factors
Ownership of our common stock involves a high degree of risk. You
should consider carefully the factors set forth below, as well as other
information contained in this report.
Risks Related to Our Business and Our Company
Our limited operating history may make it difficult to evaluate our business to
date and our future viability.
We are in the early stage of operations and development, and have only
a limited operating history on which to base an evaluation of our business and
prospects, having just commenced operations in August 2006 in accordance with
our new business plan and entry into the medical devices industry. In addition,
our operations and developments are subject to all of the risks inherent in the
growth of an early stage company. We will be subject to the risks inherent in
the ownership and operation of a company with a limited operating history such
as regulatory setbacks and delays, fluctuations in expenses, competition, the
general strength of regional and national economies, and governmental
regulation. Any failure to successfully address these risks and uncertainties
would seriously harm our business and prospects. We may not succeed given the
technological, marketing, strategic and competitive challenges we will face. The
likelihood of our success must be considered in light of the expenses,
difficulties, complications, problems and delays frequently encountered in
connection with the growth of a new business, the continuing development of new
technology, and the competitive and regulatory environment in which we operate
or may choose to operate in the future. We have generated no revenues to date,
and there can be no assurance that we will be able to successfully develop our
products and penetrate our target markets.
We expect to continue to incur operating losses, and if we are not able to raise
necessary additional funds we may have to reduce or stop operations.
We have not generated revenues or become profitable, may never do so,
and may not generate sufficient working capital to cover the cost of operations.
No party has guaranteed to advance additional funds to us to provide for any
operating deficits. Until we begin generating revenue, we will seek funding
through the sale of equity, or securities convertible into equity, further
dilution to our then existing stockholders will result. If we raise additional
capital through the incurrence of debt, our business may be affected by the
amount of leverage we incur, and our borrowings may subject us to restrictive
covenants. Additional funding may not be available to us on acceptable terms, or
at all. If we are unable to obtain adequate financing on a timely basis, we may
be required to delay, reduce or stop operations, any of which would have a
material adverse effect on our business.
Our success will depend on our ability to retain our managerial personnel and to
attract additional personnel.
Our success will depend largely on our ability to attract and retain
managerial personnel. Competition for desirable personnel is intense, and we
cannot guarantee that we will be able to attract and retain the necessary staff.
Furthermore, we do not currently have employment contracts with our key
employee. The loss of members of managerial, sales or scientific staff could
have a material adverse effect on our future operations and on successful
development of products for our target markets. The failure to maintain our
management and to attract additional key personnel could materially adversely
affect our business, financial condition and results of operations. Although we
intend to provide incentive compensation to attract and retain our key
personnel, we cannot guarantee that these efforts will be successful.
We may need to expand our staff, including in the areas of finance,
administrative, scientific, sales and marketing, and operations. There are no
assurances that we will be able to make such hires. In addition, we may be
required to enter into relationships with various strategic partners and other
third parties necessary to our business. Planned personnel may not be adequate
to support our future operations, management may not be able to hire, train,
retain, motivate and manage required personnel or management may not be able to
identify, manage and exploit existing and potential strategic relationships and
market opportunities. If we fail to manage our growth effectively, it could have
a material adverse effect on our business, results of operations and financial
condition.
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We need to develop our financial and reporting processes, procedures and
controls to support our anticipated growth.
We have not historically invested significantly in our financial and
reporting systems. To comply with our public reporting requirements, and manage
the anticipated growth of our operations and personnel, we will be required to
improve existing or implement new operational and financial systems, processes
and procedures, and to expand, train and manage our employee base. Our current
and planned systems, procedures and controls may not be adequate to support our
future operations.
The laws and regulations affecting public companies, including the
provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by
the Securities and Exchange Commission, will result in increased costs to us as
we evaluate the implications of any new rules and respond to their requirements.
New rules could make it more difficult or more costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we
may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. We cannot
predict or estimate the amount of the additional costs we may incur or the
timing of such costs to comply with any new rules and regulations, or if
compliance can be achieved.
We cannot assure you that we will be able to complete development and obtain
necessary approvals for our proposed products even if we obtain sufficient
funding.
Even if we obtain sufficient funding, no assurance can be given that we
will be able to design or have designed parts necessary for the manufacture of
our products or complete the development of our proposed products within our
anticipated time frames, if at all. Such a situation could have a material
adverse effect upon our ability to remain in business.
The success of our business will depend on our ability to develop and protect
our intellectual property rights, which could be expensive.
Patent and other proprietary rights are essential to our business. Our
success depends to a significant degree on our ability to obtain and enforce
patents and licenses to patent rights, both in the U.S. and in other countries.
We cannot be certain that the patents that we license from others will be
enforceable and afford protection against competitors. Our patent rights may not
provide us with proprietary protection or competitive advantages against
competitors with similar technologies. Even if such patents are valid, we cannot
guarantee that competitors will not independently develop alternative
technologies that duplicate the functionality of our technology.
We also rely on trademarks, copyrights, trade secrets and know-how to
develop, maintain and strengthen our competitive positions. While we protect our
proprietary rights to the extent possible, we cannot guarantee that third
parties will not know, discover or develop independently equivalent proprietary
information or techniques, that they will not gain access to our trade secrets
or disclose our trade secrets to the public. Therefore, we cannot guarantee that
we can maintain and protect unpatented proprietary information and trade
secrets. Misappropriation of our intellectual property would have an adverse
effect on our competitive position and may cause us to incur substantial
litigation costs.
We may be subject to claims that we infringe the intellectual property rights of
others, and unfavorable outcomes could harm our business.
Our future operations may be subject to claims, and potential
litigation, arising from our alleged infringement of patents, trade secrets or
copyrights owned by other third parties. We intend to fully comply with the law
in avoiding such infringements. However, within the medical devices industry,
established companies have actively pursued such infringements, and have
initiated such claims and litigation, which has made the entry of competitive
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products more difficult. We may experience such claims or litigation initiated
by existing, better-funded competitors. Court-ordered injunctions may prevent us
from bringing new products to market, and the outcome of litigation and any
resulting loss of revenues and expenses of litigation may substantially affect
our ability to meet our expenses and continue operations.
We may not be able to operate as a going concern and our business may fail.
The Independent Auditor's Report to our audited financial statements
for the period ended December 31, 2005 indicates that there are a number of
factors that raise substantial doubt about our ability to continue as a going
concern. Such factors identified in the report are: we are in a net loss
position; we have not attained profitable operations; and we are dependent upon
obtaining adequate financing to execute our business plan. If we are not able to
continue as a going concern, it is likely investors will lose their investments.
We compete against other dialysis equipment manufacturers with much greater
financial resources and better established products and customer relationships,
which may make it difficult for us to penetrate the market and achieve
significant sales of our products.
Our proposed products will compete directly against equipment produced
by Fresenius Medical Care AG, Baxter Healthcare Corporation, Gambro AB, and
others, each of which markets one or more FDA-cleared medical devices for the
treatment of acute or chronic kidney failure. Each of these competitors offers
products that have been in use for a longer time than our products and are more
widely recognized by physicians, patients and providers. Most of our competitors
have significantly more financial and human resources, more established sales,
service and customer support infrastructures and spend more on product
development and marketing than we do. Many of our competitors also have
established relationships with the providers of dialysis therapy. Most of these
companies manufacture additional complementary products enabling them to offer a
bundle of products and have established sales forces and distribution channels
that may afford them a significant competitive advantage.
The market for our products is competitive, subject to change and
affected by new product introductions and other market activities of industry
participants. If we are successful, our competitors are likely to develop
products that offer features and functionality similar to our proposed products.
Improvements in existing competitive products or the introduction of new
competitive products may make it more difficult for us to compete for sales,
particularly if those competitive products demonstrate better safety,
convenience or effectiveness or are offered at lower prices. If we are unable to
compete effectively against existing and future competitors and existing and
future alternative treatments and pharmacological and technological advances, it
will be difficult for us to penetrate the market and achieve significant sales
of our products.
We have not commissioned or obtained marketing studies which support the
likelihood of success of our business plan.
No independent studies with regard to the feasibility of our proposed
business plan have been conducted by any independent third parties with respect
to our present and future business prospects and our capital requirements. In
addition, there can be no assurances that our products or our treatment modality
for ESRD will find sufficient acceptance in the marketplace to enable us to
fulfill our long and short term goals, even if adequate financing is available
and our products are approved to come to market, of which there can be no
assurance.
Risks Related to Our Industry
Our business will always be strictly regulated by the federal and other
governments, and we cannot assure you that we will remain in compliance with all
applicable regulation.
Clinical testing, manufacture, promotion and sale of our proposed
products are subject to extensive regulation by numerous governmental
authorities in the U.S., principally the FDA, and corresponding foreign
regulatory agencies. Changes in existing regulations or adoption of new
regulations or policies could prevent us from obtaining, or affect the timing
of, future regulatory approvals or clearances. We cannot assure you that we will
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be able to obtain necessary regulatory clearances or approvals on a timely
basis, or at all, or that we will not be required to incur significant costs in
obtaining or maintaining such foreign regulatory approvals. Delays in receipt
of, or failure to receive, such approvals or clearances, the loss of previously
obtained approvals or clearances or the failure to comply with existing or
future regulatory requirements could have a material adverse effect on our
business, financial condition and results of operations.
Any enforcement action by regulatory authorities with respect to past
or future regulatory noncompliance could have a material adverse effect on our
business, financial condition and results of operations. Noncompliance with
applicable requirements can result in fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
refusal to authorize the marketing of new products or to allow us to enter into
supply contracts and criminal prosecution.
Even if our proposed products are approved for market, we will be
subject to continuing regulation. We will continuously 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 U.S.
including labeling regulations, GMP requirements, 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. Our failure to comply with applicable regulatory
requirements could result in enforcement action by the FDA, which could have a
material adverse effect on our business, financial condition and results of
operations.
In addition, failure to comply with applicable international regulatory
requirements can result in fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspensions of production, refusals by
foreign governments to permit product sales and criminal prosecution.
Furthermore, changes in existing regulations or adoption of new regulations or
policies could prevent us from obtaining, or affect the timing of, future
regulatory approvals or clearances. There can be no assurance that we will be
able to obtain necessary regulatory clearances or approvals on a timely basis,
or at all, or that we will not be required to incur significant costs in
obtaining or maintaining such foreign regulatory approvals. Delays in receipt
of, or failure to receive, such approvals or clearances, the loss of previously
obtained approvals or clearances or the failure to comply with existing or
future regulatory requirements could have a material adverse effect on our
business, financial condition and results of operations. Any enforcement action
by regulatory authorities with respect to past or future regulatory
noncompliance could have a material adverse effect on our business, financial
condition and results of operations.
Our failure to respond to rapid changes in technology and its applications and
intense competition in the medical devices industry could make our treatment
system obsolete.
The medical devices industry is subject to rapid and substantial
technological development and product innovations. To be successful, we must
respond to new developments in technology, new applications of existing
technology and new treatment methods. Our response may be stymied if we require,
but cannot secure, rights to essential third-party intellectual property. We may
compete against companies offering alternative treatment systems to ours, some
of which have greater financial, marketing and technical resources to utilize in
pursuing technological development and new treatment methods. Our financial
condition and operating results could be adversely affected if our medical
device products fail to compete favorably with these technological developments,
or if we fail to be responsive on a timely and effective basis to competitors'
new devices, applications, treatments or price strategies.
Risks Related to Our Common Stock
If a market for our common stock does not develop, our stockholders may be
unable to sell their shares.
There is currently no market for our common stock and we can provide no
assurance that a market will develop. If no market is ever developed for our
shares, it will be difficult for stockholders to sell their stock. In such a
case, stockholders may find that they are unable to achieve benefits from their
investment.
If a market for our common stock develops, our stock price may be volatile.
If a market for our common stock develops, the price at which our
common stock will trade may be highly volatile and may fluctuate as a result of
a number of factors, including the number of shares available for sale in the
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market, quarterly variations in our operating results, actual or anticipated
announcements of new data, studies, products or services by us or competitors,
regulatory investigations or determinations, acquisitions or strategic alliances
by us or our competitors, recruitment or departures of key personnel, the gain
or loss of significant customers, changes in the estimates of our operating
performance, market conditions in our industry and the economy as a whole.
Over 90% of our stock is controlled by a single stockholder who has the ability
to substantially influence the election of directors and the outcome of matters
submitted to stockholders.
As of September 1, 2006, Consolidated National, LLC, a limited
liability company whose managing member is our chairman, directly owned
9,600,000 shares, which represent approximately 96% of our 10,000,000 shares of
outstanding common stock. As a result, CNL presently and is expected to continue
to have the ability to substantially influence the election of our board of
directors and the outcome of all other issues submitted to our stockholders. The
interests of this stockholder may not always coincide with our interests or the
interests of other stockholders, and it may act in a manner that advances its
best interests and not necessarily those of other stockholders. One consequence
to this substantial stockholder's interest is that it may be difficult for
investors to remove management of the company. It could also deter unsolicited
takeovers, including transactions in which stockholders might otherwise receive
a premium for their shares over then current market prices.
Investors' interests in our company will be diluted and investors may suffer
dilution in their net book value per share if we issue additional shares or
raise funds through the sale of equity securities.
In the event that we are required to issue any additional shares or
enter into private placements to raise financing through the sale of equity
securities, investors' interests in our company will be diluted and investors
may suffer dilution in their net book value per share depending on the price at
which such securities are sold. If we issue any such additional shares, such
issuances also will cause a reduction in the proportionate ownership and voting
power of all other stockholders. Further, any such issuance may result in a
change in our control.
We have never paid cash dividends and do not intend to do so.
We have never declared or paid cash dividends on our common stock. We
currently plan to retain any earnings to finance the growth of our business
rather than to pay cash dividends. Payments of any cash dividends in the future
will depend on our financial condition, results of operations and capital
requirements, as well as other factors deemed relevant by our board of
directors.
Directors and Executive Officers
The following table sets forth information concerning our current
executive officers and directors:
Name Age Position
Terren S. Peizer 46 Director, Chairman of the Board
Peter Sotola 48 President, Secretary, Treasurer, and Director
Terren S. Peizer was appointed as a Director and Chairman on August 31, 2006.
From April 1999 to October 2003, Mr. Peizer served as Chief Executive Officer of
Clearant, Inc., which he founded to develop and commercialize a universal
pathogen inactivation technology. He served as Chairman of its board of
directors from April 1999 to October 2004 and a Director until February 2005.
From February 1997 to February 1999, Mr. Peizer served as President and Vice
Chairman of Hollis-Eden Pharmaceuticals, Inc. In addition, from June 1999
through May 2003 he was a Director, and from June 1999 through December 2000 he
was Chairman of the Board, of supercomputer designer and builder Cray Inc., and
remains its largest beneficial stockholder. Mr. Peizer has been the largest
beneficial stockholder and held various senior executive positions with several
technology and biotech companies. In these capacities he has assisted the
companies with assembling management teams, boards of directors and scientific
advisory boards, formulating business and financial strategies, investor and
public relations, and capital formation. Mr. Peizer has been a Director,
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Chairman of the Board and Chief Executive Officer of Hythiam, Inc., a healthcare
services management company focused on delivering solutions for those suffering
from alcoholism and other substance dependencies, since September 2003. Mr.
Peizer has a background in venture capital, investing, mergers and acquisitions,
corporate finance, and previously held senior executive positions with the
investment banking firms Goldman Sachs, First Boston and Drexel Burnham Lambert.
He received his B.S.E. in Finance from The Wharton School of Finance and
Commerce.
Peter Sotola is the founder of our company. Mr. Sotola has been the President,
Secretary, and Treasurer of Pacific Spirit since the company's inception in May
2001. Between 1987 and 1999, Mr. Sotola was an account executive at Georgia
Pacific Securities, which has its principal offices in Vancouver, British
Columbia, and engages in the business of buying and selling public securities.
From 1999 to the present, Mr. Sotola has been engaged in providing business
consulting services. He is expected to hold his position with our company until
the next annual meeting of stockholders. Mr. Sotola educational experience
includes attending the College of Hotel Management in Mareinbad, Czechoslovakia
between 1976 and 1980. From 1980 to1982 he attended the Economic University in
Prague, Czechoslovakia where he majored in economics and political science.
There are no family relationships among any of our directors, executive officers
or key employees.
Indemnification of Directors and Officers
Our Articles of Incorporation provide that no director or officer of
the Company will be personally liable to the Company or any of its stockholders
for damages for breach of fiduciary duty as a director or officer or for any act
or omission of any such director or officer, in accordance with the Nevada
Revised Statutes. Our Bylaws provide indemnification by the Company of any
individual made a party to proceeding because he is or was an officer, director,
employee or agent of the Company against liability incurred in the proceeding in
accordance with the Nevada Revised Statutes.
We have not entered into any employment agreements with our executive
officers.
We have entered into a Director Agreement with Terren S. Peizer in
connection with Mr. Peizer's appointment to the Board of Directors with respect
to his capacity as Chairman of the Board. The agreement has an initial term of
three (3) years, and will be automatically renewed for an additional 1-year term
unless either party provides notice of its intention not to renew. Our directors
do not receive any compensation for services as directors. They are entitled to
reimbursement for all reasonable business, travel, promotional and similar
expenditures incurred in performance of obligations as directors. Mr. Peizer has
also entered into our standard form Indemnification Agreement.
Certain Relationships and Related Transactions
In connection with the contribution of the assets to our company, we
issued to Consolidated National, LLC an aggregate of 9,600,000 shares of common
stock. Terren S. Peizer, our Chairman, is managing member of CNL.
Voting Securities
Our authorized capital stock consists of 100,000,000 shares of common
stock, $0.001 par value per share, and 10,000,000 shares of preferred stock,
$0.001 par value per share. Our common stock is the only class of voting
securities issued and outstanding. Each share of common stock is entitled to one
vote. On August 31, 2006 (after the return to our treasury for cancellation of
3,420,000 shares of our common stock), there were 10,000,000 shares of our
common stock issued and outstanding.
Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters
There currently is, and there has been, no market for our common stock.
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We have not paid any cash dividends since inception to the holders of
our common stock. We currently intend to retain any earnings for internal cash
flow use.
Compensation of Directors and Executive Officers
We do not currently compensate our directors in cash for their service
as members of our board of directors. We do reimburse directors for reasonable
expenses in connection with attendance at board meetings.
The following table sets forth certain annual and long-term
compensation paid to our Chief Executive Officer and our executive officers.
Summary Compensation Table
Long-Term
Compensation Securities
Other Annual Restricted Underlying All Other
Fiscal Salary Bonus Compensation Stock Award(s) Options Compensation
Name & Principal Position Year ($) ($) ($) ($) (#) ($)
--------------------------- ---- ---- ---- ----------- ------------ --------- ------------
Terren S. Peizer, Chairman* 2006 0 0 0 0 0 0
Peter Sotola, President, 2006 0 0 6,000 0 0 0
Secretary, Treasurer, and
Director*
2005 0 0 6,000 0 0 0
2004 0 0 3,000 0 0 0
* Effective August 31, 2006, Mr. Peizer was appointed as our Chairman of the
Board. We have not yet entered into employment agreements with our officers and
their compensation have not yet been determined by the Board of Directors.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the shares
of common stock beneficially owned or deemed to be beneficially owned as of
September 1, 2006 by: (i) each person whom we know beneficially owns more than
5% of our common stock, (ii) each of our directors, (iii) the executive officers
named in the summary compensation table, and (iv) all such directors and
executive officers as a group.
Except as indicated by the footnotes below, we believe, based on the
information furnished to us, that the persons and entities named in the table
below have sole voting and investment power with respect to all shares of our
common stock that they beneficially own, subject to applicable community
property laws.
In computing the number of shares of common stock beneficially owned by
a person and the percentage ownership of that person, we deemed outstanding
shares of common stock subject to options or warrants held by that person that
are currently exercisable or exercisable within 60 days of September 1, 2006. We
did not deem these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
Shares of Common Stock Percent of Common Stock
Name Beneficially Owned (1) Beneficially Owned (1)
----------------------------------------------------------- ---------------------- -----------------------
Consolidated National, LLC(2) 9,600,000(2) 96.0%
Peter Sotola 0 0
All directors and executive officers as a group (2 persons) 9,600,000(2) 96.0%
Notes to Beneficial Ownership Table:
(1) Applicable percentage ownership is based on 10,000,000 shares of common
stock outstanding at September 1, 2006. The number of shares of common stock
owned are those "beneficially owned" as determined under the rules of Securities
and Exchange Commission, including any shares of common stock as to which a
person has sole or shared voting or investment power and any shares of common
stock which the person has the right to acquire within sixty (60) days through
exercise of any option, warrant or right.
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(2) Our Chairman of the Board, Terren S. Peizer, is the sole managing member of
CNL.
Committees of the Board of Directors
We do not have standing audit, nominating or compensation committees of
the board of directors, or committees performing similar functions, and
therefore our entire board of directors performs such functions. We are not
currently listed on any national exchange and are not required to maintain such
committees by any self-regulatory agency. We do not believe it is necessary for
our board of directors to appoint such committees because the volume of matters
that come before our board of directors for consideration permits each director
to give sufficient time and attention to such matters to be involved in all
decision making. All directors participate in the consideration of director
nominees. We do not have a policy with regard to attendance at board meetings.
We do not have a policy with regard to consideration of nominations of
directors. We accept nominations for directors from our security holders. There
is no minimum qualification for a nominee to be considered by our directors. All
of our directors will consider any nomination and will consider such nomination
in accordance with his or her fiduciary responsibility to the Company and its
stockholders.
Security holders may send communications to our board of directors by
writing to Xcorporeal, Inc., 11640 96A Avenue, Surrey, B.C., Canada V3V 2A1,
attention Board of Directors or any specified director. Any correspondence
receive at the foregoing address to the attention of one or more directors is
promptly forwarded to such director or directors.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF PRINCIPAL OFFICERS.
On August 31, 2006, Terren S. Peizer was appointed to our board of
directors. Mr. Peizer's background is described under Item 5.01 above. He has
entered into a Director Agreement pursuant to which he has agreed to serve as a
director for three years, and our standard form of director Indemnification
Agreement. Mr. Peizer is the sole managing member of Consolidated National, LLC,
our largest stockholder. There are no family relationships between Mr. Peizer
and any of our directors or other executive officers. Except as set forth above,
he has not had a material interest in any of our transactions.
ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAW.
On August 31, 2006, the Company's Board of Directors and its
stockholders representing a majority of the Company's voting securities approved
and adopted a Certificate of Amendment to Articles of Incorporation. Effective
upon filing of the Certificate of Amendment on August 31, 2006 with the Nevada
Secretary of State, the Company amended its Articles of Incorporation and
changed its name to "Xcorporeal, Inc."
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: September 1, 2006 XCORPOREAL, INC.
By: /s/ Peter Sotola
-----------------------
Peter Sotola
President
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