UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 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) September 1, 2002
FLIGHT SAFETY TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 000-33305 95-4863690
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(State of Incorporation) (Commission File No.) (I.R.S. Employer ID No.)
28 Cottrell Street, Mystic, Connecticut 06355
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(Address of principal executive offices and Zip Code)
(860) 245-0191
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Registrant's telephone number, including area code)
REEL STAFF, Inc.
1069 South Alfred Street, Los Angeles, California 90035
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(Former name or former address, if changed since last report)
FORWARD-LOOKING STATEMENTS
Except for the historical information presented in this document, the
matters discussed in this Form 8-K, and specifically in the items entitled
"Changes in Control of Registrant", "Acquisition or Disposition of Assets",
"Other Events" and "Financial Statements and Exhibits", or otherwise
incorporated by reference into this document, contain "forward-looking
statements" (as such term is defined in the Private Securities Litigation Reform
Act of 1995). These statements are identified by the use of forward-looking
terminology such as "believes", "plans", "intend", "scheduled", "potential",
"continue", "estimates", "hopes", "goal", "objective", expects", "may", "will",
"should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. The safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933,
as amended, apply to forward-looking statements made by the Registrant. The
reader is cautioned that no statements contained in this Form 8-K should be
construed as a guarantee or assurance of future performance or results. These
forward-looking statements involve risks and uncertainties, including those
identified within this Form 8-K. The actual results that the Registrant achieves
may differ materially from any forward-looking statements due to such risks and
uncertainties. These forward-looking statements are based on current
expectations, and the Registrant assumes no obligation to update this
information. Readers are urged to carefully review and consider the various
disclosures made by the Registrant in this Form 8-K and in the Registrant's
other reports filed with the Securities and Exchange Commission that attempt to
advise interested parties of the risks and factors that may affect the
Registrant's business.
Item 1. Change In Control.
Effective September 1, 2002 (the "Closing Date"), the Registrant, then
known as Reel Staff, Inc., a Nevada corporation (the "Registrant") closed a
share exchange transaction (the "Transaction") pursuant to a Share Exchange
Agreement (the "Exchange Agreement") dated as of June 24, 2002, as amended July
15, 2002, by and among the Registrant, Flight Safety Technologies, Inc., a
Delaware corporation, which is a development stage company ("Delaware-FST") and
the Vendors as identified on Schedule A thereto. The Registrant filed a copy of
the Exchange Agreement as Exhibit 10 to its Form 8-K filed on July 18, 2002, the
contents of which are incorporated by reference.
In accordance with the terms of the Exchange Agreement, the Registrant
issued approximately 7,611,775 shares of its common stock, par value $.001 per
share (the "Common Stock") to the 49 participating Delaware-FST shareholders, in
exchange for approximately (89.49%) of the issued and outstanding capital stock
of Delaware-FST. The Registrant also simultaneously closed a private placement
of 850,000 shares of Common Stock that it sold and
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issued to qualified investors at $2.00 per share (the "Private Placement
Shares"). As a result of these transactions, the following table summarizes the
Registrant's capital structure as of September 1, 2002:
Number of Shares
of Common Stock % Ownership
Pre-Exchange Shareholders 5,695,376 40.23%
Private Placement Investors 850,000 6.00
Delaware-FST Shareholders 7,611,775 53.77
Accordingly, the 49 former shareholders of Delaware-FST as a group own, in
aggregate, approximately 53.77% of Registrant's issued and outstanding common
stock and possess control and influence over Registrant, giving them the
ability, among other things, to elect a majority of Registrant's Board of
Directors and approve significant corporate transactions. In connection with the
Transaction, the Registrant Board of Directors resigned and appointed in its
place the Delaware-FST Board of Directors, who have appointed the officers of
Delaware-FST as the officers of the Registrant, effective as of September 1,
2002. (See Item 6 below.) Such share ownership and control may also have the
effect of delaying or preventing any further change in control, impeding a
merger, consolidation, takeover or other business combination or discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of Registrant which could have a material adverse effect on the market
price of our common stock.
The following table sets forth, as of September 1, 2002, persons known to
Registrant to be the beneficial owner of more than five percent (5%) of its
Common Stock.
Shares Beneficially Percentage of Shares
Name Owned Beneficially Owned
Samuel A. Kovnat (1) 1,506,439 10.63%
Frank L. Rees 1,268,938 8.96
Spencer Trask, LLC 1,250,000 8.83
Investor Company 930,000 6.57
William B. Cotton 750,000 5.30
(1) Includes 237,500 shares owned by Sonia Esposito, Karen Nelligan,
Samuel Nelligan and Maurice Nelligan. Samuel Kovnat disclaims beneficial
ownership of the shares owned by the above-mentioned individuals beyond
the extent of his pecuniary interest.
Item 2. Acquisition or Disposition of Assets
In accordance with the terms and conditions of the Exchange Agreement, the
Registrant has acquired an aggregate of 2,743,500 shares of the issued and
outstanding common stock and 301,210 shares of Series A Preferred Stock, par
value $0.01 per share, of Delaware-FST in exchange for an aggregate of 7,611,775
shares of the Registrant's shares of Common Stock (the "Exchange Shares").
Following the closing of the Transaction:
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- The Registrant changed its name to Flight Safety Technologies, Inc.;
- Delaware-FST became a subsidiary of the Registrant and changed its
name to Flight Safety Technologies Operating, Inc. (hereinafter
"FSTO"); and
- The operations of FSTO became the primary operations of the
Registrant, which discontinued its prior business.
- All shares of FSTO Series A Preferred Stock were automatically
converted to shares of FSTO common stock and the shareholders
agreement among certain shareholders of FSTO was terminated by its
terms.
The share exchange under the Exchange Agreement is ongoing and the
Registrant anticipates that additional FSTO stockholders will tender their FSTO
stock for shares of the Registrant's Common Stock.
The Exchange Shares and the Private Placement Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Exchange Shares were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated
thereunder. The Private Placement Shares were issued pursuant to the exemption
available under Regulation S. The Exchange Shares and Private Placement Shares
are subject to restrictions on transfer and sale under the Securities Act and
may only be transferred or resold pursuant to an effective registration. In
connection with the Transaction, Samuel A. Kovnat, Frank L. Rees, E.I. Levie,
and Spencer Trask Intellectual Capital Company, Inc. each entered into an escrow
agreement which would prevent any hypothecation or distribution of their shares
for a term of one-hundred and fifty (150) days from the Closing Date. The terms
and condition of the Exchange Agreement were determined through arms-length
negotiations between the parties. Within 150 days from the Closing Date, the
Registrant has agreed to file an SB-2 for the purpose of registering the new
Private Placement Shares and 25% of the Registrant's shares of Common Stock
representing those exchanged for shares of FSTO Series A Preferred Stock.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Change in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
FORWARD SPLIT
On July 31, 2002, Registrant completed a 3.22:1 forward split which
increased the Company's issued and outstanding common stock from 5,643,775 to
18,269,478. There was no
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change in the par value or in any other rights and preference of the outstanding
stock as a result of this forward split. The plan to complete a forward split
was negotiated as one element of the proposed share exchange with Delaware-FST.
CANCELLATION OF SHARES
In connection with the Transaction and following the forward split
described above, the Registrant's two majority shareholders (Ms. Rene McCracken
and Ms. Carol McCracken) returned an aggregate of 12,574,100 shares of the
Registrant's common stock, representing all of the shares they owned, to the
Company for cancellation. As a result, including the Exchange Shares and Private
Placement Shares as defined below, the Registrant currently has 14,157,151
shares of common stock issued and outstanding which are held by 68 shareholders
of record. Of these outstanding shares, 5,695,376, adjusted for the forward
split, have been registered under the Securities Act of 1933.
NAME AND HEADQUARTERS CHANGE
On September 6, 2002, Registrant filed Articles of Amendment to its
Articles of Incorporation changing its name to Flight Safety Technologies, Inc.,
from Reel Staff, Inc. On September 7, 2002, the Registrant's ticker symbol on
the OTC Bulletin Board changed from RELS to FLST. As of the Closing Date, the
Registrant relocated its corporate headquarters to 28 Cottrell Street, Mystic,
Connecticut 06355 from 1069 South Alfred Street, Los Angeles, California 90035
PRIVATE PLACEMENT
On September 1, 2002, Registrant closed a private placement of 850,000
Units at $2.00 per Unit with each Unit consisting of one share of common stock
("Private Placement Shares") and one option warrant for the purchase of one
share of common stock at the price of $2.00 with a warrant expiration date of
two years ("Private Placement Warrants"). Said private placement was made
pursuant to Regulation S under the United States Securities Act of 1933, as
amended. Investors in the private placement have registration rights requiring
the Registrant to file a registration statement on Form SB-2 for registration of
the Units within one hundred and fifty (150) days of the Closing Date. The
private placement raised gross proceeds of $1.7 million for the Registrant and,
after deduction of expenses, net proceeds of approximately $1.5 million are
available to the Registrant for its future activities, including, but not
limited to, research and development, costs of operations, registration of
shares and ongoing legal and accounting compliance.
CHANGE IN BUSINESS
As a result of the Transaction, the Registrant's business has changed. The
following is a summary description of the new business of the Registrant, and
its subsidiary, FSTO, which are development stage companies.
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FSTO was incorporated in Wyoming in 1997 and reincorporated in Delaware in
2000. Registrant, and its subsidiary, FSTO, are developing advanced technologies
to enhance aviation safety and reduce airport delays. Using its patented
opto-acoustic technology, known as SOCRATES, it is currently working on
development of a system to detect and track air disturbances known as "wake
vortex turbulence," created by departing and arriving aircraft in the vicinity
of airports. Because of the potential safety hazard to following aircraft
presented by wake turbulence, the Federal Aviation Administration ("FAA") has
mandated a set of fixed spacings between arriving and departing aircraft, based
on the respective weights of leading and following aircraft. These spacing
rules, based on worst-case conditions, may result in unnecessary delays under
conditions in which wake turbulence dissipates quickly or is carried by wind out
of the flight corridors. Precise knowledge of the location and motion of the
wake vortices could give air traffic controllers the flexibility to safely
shorten the arrival and departure spacing intervals when conditions permitted,
potentially reducing passenger delays, taxiway queues, and aircraft fuel
consumption.
Registrant believes that its wake-vortex advisory system, upon completion
of development and in consort with NASA-developed, vortex-track prediction
technology, will:
- Improve the safety of aircraft arrivals and departures;
- Streamline the air traffic control process;
- Reduce passenger delays; and
- Generate substantial cost savings for airports and the airline
industry.
Recognizing the continuing need to avoid wake-vortex encounters and the
traffic delays that result from "worst-case" spacing rules, the U.S. Congress
has provided earmarked appropriations for the development and testing of FSTO
detection technology since 1997. The appropriations to FAA totaled of $9.6
million in fiscal years 1997 through 2000; and the National Aeronautics and
Space Administration (NASA) appropriations totaled $9 million in fiscal years
2000 through 2002. From these amounts, an aggregate of approximately $9 million
has been paid to FSTO over that period under a sole source contract for research
and development of its technology and constitute its only revenues.
A "proof of principle" test of a prototype system was conducted at JFK
International Airport in May of 1998. Controlled testing of an expanded and
improved system, using the NASA Boeing 757 as the source aircraft, was carried
out at Langley Air Force Base in December 2000. In view of these two tests,
Flight Safety expects to demonstrate the operational utility of the system in a
series of tests at one or more major airports over the next several years.
Registrant also is working on development of a collision avoidance and
ground proximity warning system for small aircraft based on a patented
technology it refers to as UNICORN.
The Registrant and FSTO are development stage companies whose business and
future success are subject to many risks, including, without limitation, the
following:
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WE ARE A DEVELOPMENT STAGE COMPANY, HAVE A LIMITED OPERATING HISTORY, AND MAY
INCUR LOSSES IN THE FORESEEABLE FUTURE
Since FSTO began operations in 1997, it has generated limited revenues solely
from SOCRATES technology research and development ("R&D") contracts with
agencies of the Federal government which currently fund, administer, and oversee
our contracts. The Federal government has awarded these contracts on a sole
source basis without competitive bidding. Under these contracts, we are
reimbursed for certain allowable R&D costs and paid a fee calculated as a
percentage of costs. We have not as yet received any revenue from the sale of
any products and do not anticipate receiving any such revenue unless and until
our technology becomes operational and is certified by the FAA, which could take
several years. Substantially all our revenues have been devoted to payment of
costs incurred in the research, development and testing of our SOCRATES
technology. Our ability to maintain and increase profitability will depend in
large part upon the successful further development and testing of our SOCRATES
technology and products, our ability to procure U.S. Congressional
appropriations for and obtain Federal R&D contracts, approval of our SOCRATES
products and systems by various agencies of the Federal government, acquisition
of our products and systems by airports, and availability of funding to finance
such acquisitions.
LACK OF FUTURE FUNDING FROM THE FEDERAL GOVERNMENT TO COMPLETE R&D OF OUR
PRINCIPAL PRODUCT COULD ADVERSELY AFFECT OUR BUSINESS
Prior to this offering, a substantial portion of our funding for the R&D of our
SOCRATES technology and development of a prototype Wake Vortex Advisory System
product has come from appropriations of the Federal government earmarked by
Congress, but not requested by the Federal agencies, such as FAA and NASA, which
are responsible for funding, monitoring and administering the development of
technology to enhance airport and airline safety. In October 2001, without
notice to, or opportunity for prior review by FSTO, the Volpe Center of the
United States Department of Transportation issued a report which recommended
curtailing further government expenditure on SOCRATES due to a high risk
assessment of achieving operational feasibility. FSTO only learned of this
negative report in March 2002 and, together with its major subcontractor,
Lockheed Martin, has vigorously disputed its assertions. The government
presently is considering the release of up to $2 million to FSTO to continue
related work with an immediate objective of better characterizing the wake
acoustics and background noise. A formal request to FSTO for price quotation was
issued by Volpe on August 21, 2002 and FSTO is in the process of responding.
The Federal government may hold, reduce or eliminate future funding for R&D of
SOCRATES as a result of a reduction in support or opposition from supervising
agencies, changes in budgetary priorities or decisions to fund competing
systems. If this occurs, it will reduce our resources available for R&D of our
proprietary technologies, new products or enhancements to SOCRATES or UNICORN
and to market our products. Reduction of funding from the Federal government
could delay increases in profitability, create a substantial strain on our
liquidity, resources and product development, and have a material adverse affect
on the progress of our R&D and our financial condition.
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL
Given the uncertainties of R&D, the availability and level of government
funding, the FAA approvals required for our product, and the long sales cycle
from initial customer contact to actual, if any, revenue generation, no
assurance can be given that we will be able to generate sufficient, if any,
revenue or investment capital to fund our operations over the period of years
required to commercialize our product. We will incur significant expenses for
R&D and testing of our SOCRATES and UNICORN technology, and, if and when we
commence production, sales and marketing efforts. If we are unable to generate
sufficient revenue from government funding or private contracts for these
purposes, we would need to seek additional capital. In addition, other
unforeseen costs and R&D costs of later generation SOCRATES products also could
require us to seek additional capital. We do not currently have any arrangements
or credit facilities in place as a source of funds and should this need arise
there can be no assurance that we will be able to raise sufficient, if any,
additional capital or raise such capital on acceptable terms. If we need to
raise additional debt or equity capital, it may include our entry into joint
ventures or issuance of additional stock, which may cause dilution to our
current capital structure and shareholders' ownership. Additional stock also
could have a greater priority as to dividends, distributions and other rights
than our Common Stock.
OUR SUCCESS DEPENDS ON OUR SUCCESSFUL PRODUCT DEVELOPMENT AND TESTING
The market for our products and services is characterized by complex emerging
technologies, evolving government and industry standards and new product
introductions. Our future success will depend upon our ability to successfully
complete the development and testing of and commercialize of our technology and
our ability to develop and introduce new products and services to meet industry,
government and client requirements. We are planning to eventually develop a
number of new products, based on SOCRATES technology and a collision avoidance
system based on UNICORN technology. The process of developing products such as
those we plan to offer is extremely complex and expensive. There can be no
assurance that we will successfully complete the development of any of our
products in a timely fashion or that our products will be commercially viable.
Failure of any such products to achieve market acceptance would have a material
adverse effect on our business, financial condition or results of operations. In
addition, certain of our products will require customized installation to
address unique characteristics of their environments. Customization could place
an additional burden on our resources or delay the delivery or installation of
products which, in turn, could materially adversely affect our relationship with
clients or otherwise could materially adversely affect our business, condition
or results of operations.
OUR BUSINESS RELIES ON A STRATEGIC ALLIANCE WITH LOCKHEED MARTIN CORPORATION
In May, 1997, we signed a Teaming Agreement with Lockheed Martin Corporation to
jointly develop and market SOCRATES based products. This agreement will expire
in May, 2007, unless certain earlier termination provisions occur. The agreement
stipulates that we will serve as prime contractor and Lockheed Martin as our
subcontractor for the full term of the agreement with respect to SOCRATES-based
products. Although the two companies to date have generally worked in close
cooperation, there is no assurance that this relationship will be sustained.
Future disagreements as to work scope, revenue share, and profit margins,
ownership of intellectual
8
property, or technical, marketing or management philosophy, could adversely
impact the relationship. Since we view our strategic partnership with Lockheed
Martin as a vital element of our business plan, any erosion of this relationship
could have a negative impact on the future value of our company.
OUR NEAR TERM SUCCESS DEPENDS ON FEDERAL GOVERNMENT APPROVAL OF ONE OF OUR
PRODUCTS
To introduce our first SOCRATES product (Wake Vortex Advisory System) for
commercial sale, we must successfully complete research, development and testing
of this product and obtain necessary governmental approvals for its permanent
installation in airports. Any factor that delays or adversely affects this
process, including delays in development or our inability to obtain Federal
government approval of the product, could have a material adverse effect on our
business, financial condition or results of operations.
OUR CUSTOMERS MAY NOT ACCEPT THE PRICE OF OR BE ABLE TO FINANCE OUR PRODUCTS
At present, we cannot precisely fix a price for the sale and installation of our
initial SOCRATES Monitor product at airports, but estimate that the cost of such
a system will be in the area of $10 to $20 million per typical airport
installation. Because we have not completed the research, development, and
testing of this product or received final approvals for it from the Federal
government, we have not commenced production, marketing efforts or unit sales to
domestic or international airports. We currently do not anticipate having this
product ready for commercial sale for several years. We therefore are not yet in
a position to gauge the reaction of potential buyers to the pricing of this
product or future products and whether such pricing will be accepted by
potential customers, which consist largely of domestic and international
airports. We believe the cost of our SOCRATES and UNICORN products spread over
the substantial volume of passengers who may ultimately benefit from the
increase in efficiency and safety to airports, airlines, and private aircraft
will justify the substantial anticipated cost of sales and installation of these
products. However, our customers' ability to afford such costs will depend, in
part, on the health of the overall economy, profitability of airports, airlines,
and aircraft manufacturers and the availability of funding to finance the sales
and acquisition of our product. While a variety of potential funding sources
presently exist, inability of airlines or airports to access or obtain funding
could have a material adverse impact on sales of the SOCRATES products or the
rate of such sales. Either impact on sales could have a material adverse effect
on our business, operating results and financial condition.
WE MAY EXPERIENCE LONG SALES CYCLES
We expect to experience long time periods between initial sales contacts and the
execution of formal contracts for our products and completion of product
installations. The cycle from first contact to revenue generation in our
business involves, among other things, selling the concept of our technology and
products; developing and implementing a pilot program to demonstrate the
capabilities and accuracy of our products; negotiating prices and other contract
terms; and, finally, installing and implementing our products on a full-scale
basis. We anticipate this cycle will entail a substantial period of time, on
average between seven and twelve months, and the lack of revenue experienced
during this cycle and the expenses involved in bringing new sales to the point
of revenue generation may put a substantial strain on our resources.
9
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO CREATE AN EFFECTIVE SALES, MARKETING,
PRODUCTION AND INSTALLATION FORCE
At present and for the near future, our Company will depend upon a relatively
small number of employees and subcontractors to complete the R&D of the SOCRATES
Wake Vortex Advisory System (and pursue R&D of other SOCRATES and UNICORN
products). The marketing and sales of these products will require us to find
capable employees or contractors who can understand, explain, market and sell
our technology and products to airports, airlines, and airplane manufacturers.
We also will need to assemble personnel and/or contractors for production and
installation of our products. Upon successful completion of R&D, these demands
will require us to rapidly increase the number of our employees, vendors and
subcontractors. There is intense competition for capable personnel in all of
these areas and we may not be successful in attracting, integrating, motivating
or retaining new personnel, vendors or subcontractors for these required
functions.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS FAIL TO PERFORM
PROPERLY
Products and systems as complex as ours may contain undetected errors or "bugs,"
which result in system failures, or failure to perform in accordance with
industry expectations. Despite our plans for quality control and testing
measures, our products including any enhancement may contain such bugs, errors
or exhibit performance degradation, particularly during the early stages of
installation, and deployment. Product or system performance problems could
result in loss of or delay in revenue, loss of market share, failure to achieve
market acceptance, adverse publicity, injury to our reputation, diversion of
development resources and claims against us by the Federal government, airlines,
and airline customers.
WE COULD BE SUBJECT TO LIABILITY CLAIMS RELATING TO MALFUNCTION OF OUR
TECHNOLOGY
Sale of our products will depend on their ability to improve airport, airline,
and airplane safety and efficiency. We will take great care to test our products
and systems after installation and before actual operation to insure accuracy
and reliability. However, unforeseen problems, misuse, or changing conditions
could cause our products and systems to malfunction or exhibit other operational
problems. Such problems could cause, or be perceived to cause, airplane
accidents, including passenger fatalities. We may receive significant liability
claims if the Federal government, airlines, airports, passengers and other
parties believe that our systems have failed to perform their intended
functions. Liability claims could require us to spend significant time and money
in litigation, pay substantial damages, or increase insurance premiums,
regardless of our responsibility for such failure. Although we plan to maintain
liability insurance, there can be no assurance that such coverage will continue
to be available on reasonable terms or will be available in amounts sufficient
to cover one or more large claims, or that the insurer will not disclaim
coverage as to any future claim.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
The airport and airline industry is subject to extensive government oversight
and regulation. As part of that industry and as a result of receiving funding
from the Federal government, our business and operations are subject to numerous
government laws and regulations. In the near
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term, and for so long as we receive funding from the Federal government, we will
be subject to many procurement and accounting rules and regulations of the
Federal government. These rules and regulations are complex in nature and
sometimes difficult to interpret or apply. Adherence to these rules is reviewed
by participating agencies of the Federal government. If such agencies suspect or
believe that violations of procurement or accounting rules and regulations have
occurred, they may refer such matters to other enforcement divisions of the
Federal government, such as the U.S. Attorney's Office or the Inspector
General's office. If we violate these rules and regulations, we may have to pay
fines and penalties or, in severe cases, could be terminated from receiving
further funding from the Federal government. If we market, sell and install our
products in foreign countries, the laws, rules and regulations of those
countries, as well as certain laws of the United States, will apply to us.
Existing, as well as new laws and regulations of the United States and foreign
countries, could adversely affect our business.
WE MAY FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES
The air safety systems and air traffic control industries are already highly
competitive. Other industry participants could develop or improve their own
systems to achieve the cost efficiencies and value that we believe our products
are capable of providing. Additional companies may enter the market with
competing systems as the size and visibility of the market opportunity
increases. Many of our potential competitors have longer operating histories,
greater name recognition and substantially greater financial, technical,
marketing, management, service, support and other resources than we do.
Therefore, they may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards or customer requirements.
New products or technologies will likely increase the competitive pressures that
we face. Increased competition could result in pricing pressures, reduced
margins or the failure of our products to achieve or maintain market acceptance.
The development of competing products or technologies by market participants or
the emergence of new industry or government standards may adversely affect our
competitive position. As a result of these and other factors, we may be unable
to compete effectively with current or future competitors. Such inability would
likely have a material adverse affect on our business operating results, and
financial condition.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR SYSTEMS OBSOLETE
Our business in general is characterized by rapid technological change, frequent
new product and service introductions and enhancements, uncertain product life
cycles, changes in customer requirements and evolving industry standards which
make us susceptible to technological obsolescence. The introduction of new
products embodying new technologies, the emergence of new industry standards, or
improvements to existing technologies could render our products and systems
obsolete or relatively less competitive. Our future success will depend upon our
ability to continue to develop and introduce a variety of new products and to
address the increasingly sophisticated needs of our customers. We may experience
delays in releasing new products and systems or enhancements in the future.
Material delays in introducing new products and systems or enhancements may
cause customers to forego purchases of our products and systems and purchase
products and systems of competitors instead.
FAILURE TO PROPERLY MANAGE GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
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In order to implement our strategy, we believe that we will have to grow
rapidly. Rapid growth may strain our management, financial and other resources.
To manage any future growth effectively, we must expand our sales, marketing,
production, installation and customer support organizations, invest in R&D of
new products or enhancements to existing systems that meet changing customer
needs, enhance our financial and accounting systems and controls, integrate new
personnel and successfully manage expanded operations. There is no assurance
that we will be able to effectively manage and coordinate our growth so as to
achieve or maximize future profitability.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our future success depends to a significant degree on the skills, experience and
efforts of our executive officers, Samuel A. Kovnat, Chairman of the Board,
President and Chief Executive Officer, William B. Cotton, President, and Frank
L. Rees, Executive Vice President and Technical Director. We anticipate hiring
additional executive officers in the future. There can be no assurance that we
will be able to complete the hiring of these additional officers in a timely
manner or at all. We also depend on the ability of our executive officers and
other members of senior management to continue to work effectively as a team.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET
Qualified personnel are in great demand throughout the high technology industry.
Our success depends in large part upon our ability to attract, train, motivate
and retain highly skilled employees, particularly sales and marketing personnel,
scientists, engineers and other technical support personnel. Our failure to
attract and retain the highly trained technical personnel that are integral to
our direct sales, product development and installation and support, and
professional services may limit the rate at which we can generate sales or
develop new products or system enhancements, which could have a material adverse
affect on our business.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY
Our success will depend to a significant degree upon our proprietary
technologies and our ability to protect the proprietary aspects of our products.
We have received United States patent protection for our SOCRATES technology. We
have pending patent applications abroad for our SOCRATES technology and in the
United States and abroad for our UNICORN technology. However, there can be no
assurance any patent will issue from these pending applications. Furthermore,
there can be no assurance that any patent we have obtained or will obtain will
not subsequently be invalidated for any of a variety of reasons. In addition,
even if we are issued a patent, there can be no assurance that we will be able
to gain any commercial advantage from such patent. Existing United States laws
afford only limited intellectual property protection. Our Company will use a
combination of patent, trade secret, copyright and trademark law, nondisclosure
agreements and technical measures to protect our proprietary technology. We
intend to enter into confidentiality agreements with all of our employees, as
well as with our clients and potential clients, and intend to limit access to
and distribution of our technology, documentation and other proprietary
information. However, there can be no assurance that the steps we take in this
regard will be adequate to deter misappropriation or independent third-party
development of our technology. In addition, the laws of some foreign countries
do not protect
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proprietary technology rights to the same extent as do the laws of the United
States. If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk to our proprietary rights if we are unsuccessful in such
proceedings. Moreover, our financial resources may not be adequate to enforce or
defend our rights in our technology. We are also subject to the risk of adverse
claims and litigation alleging infringement of the intellectual property rights
of others. There can be no assurance that third parties will not assert
infringement claims in the future with respect to our current or future products
or processes or that any such claims will not require us to enter into license
arrangements or result in protracted and costly litigation. No assurance can be
given that any necessary licenses will be available or that, if available, such
licenses could be obtained on commercially reasonable terms.
OTHER COMPANIES MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY OR
PROPRIETARY RIGHTS
If our proprietary technology violates or is alleged to violate third party
proprietary rights, we may be required to reengineer our technology or seek to
obtain licenses from third parties to continue offering our technology without
substantial reengineering. Any such efforts may not be successful or if
successful could require payments that could have a material adverse affect on
our profitability and financial condition. We have conducted patent searches to
determine whether the technology to be used in our planned products infringes
patents held by third parties and do not believe it does. However, patent
searches are inherently uncertain in a rapidly evolving technological
environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies.
OUR OFFICERS AND DIRECTORS WILL EXERCISE SIGNIFICANT CONTROL OVER THE COMPANY
Our current officers and directors and related parties, in the aggregate,
control approximately 36.37% of our outstanding Common Stock. As a result, these
stockholders acting together will be able to exert significant control over
matters requiring stockholder approval, including the election of directors and
approval of mergers and other significant corporate transactions. This
concentration of ownership could delay, prevent or deter a change in control,
and could deprive our stockholders of an opportunity to receive a premium for
their stock as part of a sale of our Company and could affect the market price
of our stock, if and when a public trading market develops for such stock.
LIQUIDITY RISKS OF OWNING OUR COMMON STOCK
No Dividends. We do not anticipate that we will pay any dividends on our stock
in the foreseeable future.
Limited Market. We have 14,157,151 shares of Common Stock issued and outstanding
and 5,695,376 of these shares are registered with the SEC under the Securities
and Exchange Act of 1934 and are eligible for public trading. Our registered
shares of Common Stock are not listed on an established exchange and only trade
on the OTC Bulletin Board.
It may be difficult or impossible for you to resell your shares of Common Stock
in the Company if you should desire to do so. There can be no assurance that you
will be able to resell your
13
shares at the purchase price you paid or at any other price. The price at which
our shares trade probably will fluctuate and such fluctuations may be frequent,
radical, and unpredictable.
Item 6. Resignation and Appointment of Registrant's Directors and Executive
Officers
On September 1, 2002, under the terms of the Exchange Agreement, Ms. Rene
McCracken and Ms. Carol McCracken resigned as the sole Directors and Officers of
the Registrant effective on the Closing Date. There were no disputes or
disagreements between the Registrant and either such resigning director.
Prior to resigning, the Registrant's former Board of Directors appointed
William B. Cotton, Samuel V. Vail, Alan K. Greene, Samuel A. Kovnat, Frank L.
Rees, Stephen P. Tocco and Jackson Kemper as the Board of Directors of the
Registrant. Accordingly, following the Closing Date the Registrant's Board of
Directors consists of Messrs. Cotton, Vail, Greene, Kovnat, Rees, Tocco and
Kemper.
By way of a written consent to corporate action, effective September 1,
2002, the Board made the following Executive Officer appointments:
William B. Cotton President
Samuel V. Vail Secretary
Samuel A. Kovnat Chairman of the Board and Chief Executive Officer
Frank L. Rees Executive Vice President and Technical Director
of the Registrant
Samuel A. Kovnat, age 70, founded our Company in 1997 and has been its President
and Chief Executive Officer since its inception. From 1995 to the present, Mr.
Kovnat was a consultant and program development manager for the parametric
Airborne Dipping Sonar at the Sonetech Corporation and the Kildare Corporation.
During that same period Mr. Kovnat was a venture partner of Allied Venture
Associates whose primary focus was in the Internet security and biotechnology
arenas. From 1993 to 1994, Mr. Kovnat was a Scientist and Program Manager at
Analysis & Technology, Inc. Prior to 1993 Mr. Kovnat was a co-founder and Senior
Vice President employed by Technology Applications and Service Co., which was
later acquired by DRS Technologies (AMEX), where he created and marketed a new
generation tactical Command, Control, Communication and Computer workstation and
display system concept that resulted in over $500 million in revenues. Prior to
his employment with Technology Applications and Service Company, Mr. Kovnat was
the Director of Business Development and the Director of Research & Advanced
Systems at the EDO Corporation (NYSE). While at EDO, Mr. Kovnat created and
marketed a tactical towed sonar system (SQR-18) which resulted in over $400
million in sales. Earlier, Mr. Kovnat held key technical and management
positions at Raytheon Corp. and the General Electric Company. From 1982 through
1988, Mr. Kovnat was a principle in Tower Capital Corp., an asset management
firm based in New York, New York. In 1987, Tower Capital Corp. and its
principals, including Mr. Kovnat, were sued by a client and the United States
Department of Labor for certain alleged civil violations of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). This suit was
settled in 1992 for a nominal monetary amount. As a part of the settlement, Mr.
Kovnat agreed not to act as a manager of ERISA funds in the future. Mr. Kovnat
graduated from the University of Miami with a B.S. degree in both math and
physics. Additionally, Mr. Kovnat received post graduate
14
training in Computer Sciences from the Massachusetts Institute of Technology and
was employed at MIT's Lincoln Labs. Mr. Kovnat currently holds a secret security
clearance from the U.S. Department of Defense. Although the primary business
focus of Mr. Kovnat is, and will continue to be, the overall direction and
hands-on management of our Company, he has certain outside business and
investment interests. These interests include a consulting relationship with
Sonetech Corporation, which is a subcontractor to the Company, for certain
strategic planning and business development services on a defense project
unrelated to any activity of the Company. In addition, Mr. Kovnat is a founder
and Chairman of Secure Financial Network, Inc., a New York corporation which has
an Internet security product.
Captain William B. Cotton, age 62, a Director and President of our Company, was
Manager of Air Traffic and Flight Systems at United Airlines. He held that
position for over 14 years, and has been a United Airlines Pilot for over 33
years. During his tenure as Manager of Air Traffic and Flight Systems, he has
led United Airlines' efforts to improve air traffic control industry-wide, as
well as initiatives to upgrade the company's aircraft for safety and efficiency.
Captain Cotton also served as Chairman of the Board, and formerly served as
President, of ATN Systems, Inc., a consortium of airlines developing
Aeronautical Telecommunications Network (ATN) products in cooperation with the
FAA. ATN is a worldwide data network intended to support data communication
connectively between mobile platforms, airlines, providers of aeronautical
communications services and government providers of air traffic control and
flight information services. While his duties at our company command his first
attention and most of his time, Captain Cotton also maintains non-conflicting
consulting agreements with Rockwell Collins, the Megadata Corporation and NASA.
Captain Cotton speaks frequently at symposia on aviation and air traffic
control. He received Bachelors and Masters degrees in Aeronautical and
Astronautical Engineering from the University of Illinois and the Massachusetts
Institute of Technology, respectively.
Frank L. Rees, age 70, joined our Company at its inception in June 1997 and is
presently the Executive Vice President and Technical Director of our Company as
well as the inventor of both SOCRATES as well as UNICORN. For three and a half
years prior to the formation of our Company, Mr. Rees was the founder and served
as the President of Rees Science and Technology, Ltd. This company is still in
existence based upon the ownership of accumulated intellectual properties in
scientific and technological ("S&T") areas not related to our Company's present
line of business. From January 1980 until January 1994, he was the cofounder and
Executive Vice President of GR Associates, Inc. ("GRA"). In 1985 he became the
President of this Maryland corporation engaged in laser-acoustic and
signal-processing S&T and systems areas. In 1972, Mr. Rees was employed by
Technology Service Corporation ("TSC"), a company that was involved in radar R&D
and related intensive technical courses. Before joining TSC, he managed and
technically directed the Undersea Weapons Advanced Development and Engineering
Sub-Division of the Westinghouse Electric Corporation's Defense and Space Center
in Baltimore, Maryland. Prior to emigrating from the UK in 1957 to become a US
citizen, Mr. Rees worked for five years in marine radar and early attempts at
airborne synthetic aperture radar as well as strain gauges and fish-finders at
Kelvin and Hughes, which later was acquired by Smith Industries. Mr. Rees
completed a M.A. in Mathematics at the University of Maryland in 1962. He also
completed a M.A. in Electronic Engineering at Borough Polytechnic in London,
England in 1956. Mr. Rees received a British equivalent of a B.S.E.E summa cum
laude in
15
Electronic and Electrical Engineering in 1954 from South East Essex Technical
College in Essex, England which, at that time, was affiliated with London
University. Mr. Rees has authored or co-authored papers and articles and taught
abbreviated, intensive seminars on a broad scope of S&T topics, many of which
relate to the basic development and design philosophies associated with both of
his SOCRATES and UNICORN inventions.
David D. Cryer, age 54, serves presently as Controller of our Company. Mr. Cryer
has more than twenty five years experience as a financial manager for a wide
variety of aerospace defense contractors and manufacturing concerns. For the
five years before he joined our Company, Mr. Cryer was an independent financial
consultant to numerous small businesses in the New London, Connecticut area.
From January 1992 through August 1993, Mr. Cryer was employed by Yardney
Technical Products, an aerospace/defense contractor, as a Controller. From
January 1988 through October 1991 he was the Chief Financial Officer of Ship
Analytics, Inc., a manufacturer of maritime training systems. Mr. Cryer
graduated from the University of Massachusetts with a B.S. degree in Accounting.
In addition, Mr. Cryer participated in graduate studies in accounting at the
University of Kentucky and received a Masters Degree in Management Science at
Ball State University. Mr. Cryer has certain outside business interests,
including serving as Chief Financial Officer with Integrated Medical Services,
Inc., a Wyoming corporation, and serves as the Controller to Kildare
Corporation.
Jackson Kemper, Jr., age 67, a Director of our Company, is the Chairman and
Chief Executive Officer of the Kemper Company LLC, a government relations
organization, located in Washington D.C., where he has worked since 1995. From
1979 through 1995, Mr. Kemper was the Corporate Vice President of Diagnostic
Retrieval Systems, Inc. (NYSE), a high technology defense industry firm. In that
capacity, Mr. Kemper was responsible for the planning, coordination and
execution of all government relations. Mr. Kemper also participated in the
acquisition of two other defense and high technology companies. Mr. Kemper was
an electrical engineer for the U.S. Navy's Air Development Center from 1959 to
1971. Mr. Kemper graduated from Drexel University with a B.S. degree. He also
participated in Master Degree Studies at the University of Pennsylvania.
Alan K. Greene, age 62, a Director of our Company, is a retired Office Managing
Partner of PriceWaterhouse Stamford, CT office where he worked from 1961 to 1995
in a variety of positions including the Corporate Finance Group, National
Director of Tax Service - Mergers and Acquisitions and the Stamford Office
Managing Tax Partner. In these positions, he advised and assisted major
investment banks on structuring acquisitions, divestitures or financings of
various entities. Since 1995, Mr. Greene has served on the board of directors of
several small high technology companies and conducted a consulting business
which provides advice to such companies on strategic planning and financing
alternatives, including the public markets. Mr. Greene has been appointed by the
Governor of the State of Connecticut to serve as a director of the Mezzanine
Capital Advisory Board, as Chairman of Connecticut's Technology Advisory Board
Finance Committee, and as a director of Connecticut Innovations, Inc., a
quasi-public corporation dedicated to investing in high technology companies. He
has served on the board of directors of the Science Park Development Corp. and
the Eli Whitney Investment Advisory Board. Mr. Greene is a graduate of the
University of Connecticut where he received a B.S. degree with a major in
accounting.
16
Stephen P. Tocco, age 55, a Director of our Company, is the President and CEO of
ML Strategies and currently serves as a Chairman of the Massachusetts Board of
Higher Education. Mr. Tocco was formerly the executive director and CEO of the
Massachusetts Port Authority and also served as Massachusetts Secretary of
Economic Affairs and Special Assistant to Governor William Weld. From August,
1993 to January, 1997, Mr. Tocco served as executive director and CEO of the
Massachusetts Port Authority. Prior to that, he was Massachusetts Secretary of
Economic Affairs. He also served as Special Assistant to Governor William Weld
and Governor Paul Cellucci. In this capacity, he coordinated the legislative
effort to consolidate several state college campuses into a unified University
of Massachusetts. During his years of service to the Commonwealth of
Massachusetts, he was involved in overseeing Logan International Airport, the
Port of Boston, the World Trade Center, the Black Falcon Cruise Terminal, the
Tobin Bridge, and Hanscom Airfield, and a host of major growth initiatives,
including the new Fleet Center, the state track facility and many bio-chemical
development projects. Mr. Tocco earned a B.S. degree in chemistry from the
Massachusetts College of Pharmacy. He completed graduate studies at Harvard
University in 1989 and was awarded a CSS in Administration and Management.
Samuel Vail, age 42, is a Director of our Company. Since 2000, Mr. Vail has
created and managed the Spencer Trask Corporate Partnering Group, after having
spent over 20 years in the Information Technology industry. Before joining
Spencer Trask, Mr. Vail spent more than nine years, from May 1991 to September
2000, at the Gartner Group, an information technology research and consulting
firm, as an executive in a variety of sales and marketing leadership roles. Most
recently, from October 1997 to September 2000, as Group Vice President, he
created and ran Gartner's Worldwide Strategic Account organization. Mr. Vail's
previous business experience includes over ten years at Unisys Corporation,
(previously Sperry Corporation), an information technology solutions provider,
in different sales management and account management roles. Mr. Vail holds a
Bachelor of Arts degree from Franklin & Marshall College and studied computer
science and business administration at The College of William & Mary. Mr. Vail
is a member of the Corporate Venture & Strategic Investing Association, a
frequent speaker at industry and company events and a certified facilitator in
the Pacific Institute's leadership curriculum.
Item 7. Financial Statement and Exhibits
(a) Financial Statements of Business Acquired
The financial statements responsive to this Item 7(a) shall be filed by an
amendment to this Current Report on Form 8-K.
(b) Exhibits
None.
Item 8. Change in Fiscal Year
17
Not applicable.
Item 9. Regulation FD Disclosure.
Not applicable.
18
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.
FLIGHT SAFETY TECHNOLOGIES, INC.
Date: September 10, 2002
/s/ Samuel A. Kovnat
------------------------------------
Samuel A. Kovnat, CEO
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