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EX-31.2 - RAPTOR RESOURCES HOLDINGS INC.v218259_ex31-2.htm
EX-31.1 - RAPTOR RESOURCES HOLDINGS INC.v218259_ex31-1.htm
EX-32.2 - RAPTOR RESOURCES HOLDINGS INC.v218259_ex32-2.htm
EX-32.1 - RAPTOR RESOURCES HOLDINGS INC.v218259_ex32-1.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM 10-K
 

[Mark One]
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2010

OR

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-53585

LANTIS LASER INC.

 (Exact name of registrant as specified in its charter)
 

 
Nevada
 
65-0813656
(State of jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
11 Stonebridge Court
Denville, New Jersey
 
07834
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (203) 300-7622
 

 
Securities Registered Pursuant to Section 12(b) of the Act.

Common Stock, par value $0.001 per share
 
N/A
(Title of each class)
 
(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None
 

 
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   ¨  No x

Indicate by check mark if registrant is not required to file reports pursuant to Rule 13 or Section 15(d) of the Act.   Yes   ¨   No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   x   No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
x

As of April 12, 2011, the aggregate market value of all voting and non-voting common equity held by non-affiliates was $636,394

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of April 12, 2011, 151,561,435 shares of common stock, $0.001 par value per share, were issued and outstanding.
 
Documents Incorporated by Reference: None

 
 

 
 
LANTIS LASER, INC.
 10-K ANNUAL REPORT
For the Fiscal Year Ended December 31, 2009
 
TABLE OF CONTENTS
 
   
Page
PART I
 
Item 1.
Business
 
Item 1A.
Risk Factors
 
Item 2.
Properties
  16 
Item 3.
Legal Proceedings
  16 
Item 4.
Submission of Matters to a Vote of Securities Holders
  16 
PART II
  16 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  16 
Item 6.
Selected Financial Data
  17 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  17 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
  23 
Item 8.
Financial Statements and Supplementary Data
  F-1 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  24 
Item 9A.
Controls and Procedures
  24 
Item 9B.
Other Information
  24 
PART III
  24 
Item 10.
Directors and Executive Officers of the Registrant
  24 
Item 11.
Executive Compensation
  26 
Item 12.
Security Ownership of Certain Beneficial Owners and Management
  26 
Item 13.
Certain Relationships and Related Transactions
  27 
Item 14.
Principal Accounting Fees and Services
  27 
PART IV
  28 
Item 15.
Exhibits, Financial Statement Schedules
  28 
EX-23.1 Consent of Independent Registered Public Accounting Firm
   
EX-31.1 Section 302 Certification of CEO
   
EX-31.2 Section 302 Certification of CFO
   
EX-32.1 Section 906 Certification of CEO
   
EX-32.2 Section 906 Certification of CFO
   

 
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PART I

You are urged to read this Annual Report on Form 10-K (“Form 10-K”) in its entirety. This Form 10-K contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the projected results discussed in these forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below and in Item 1A, “Risk Factors.” “We,” “our,” “ours,” “us,” or “the Company” when used herein, refers to Lantis Laser Inc., a Nevada corporation.

Forward-Looking Statements

Certain statements made in this Form 10-K and the information incorporated into this Form 10-K by reference contain “forward-looking statements,” including statements regarding our expectations, beliefs, plans or objectives for future operations and anticipated results of operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “estimates,” “plans,” “expects,” “may” and similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Our current plans and objectives are based on assumptions relating to the development of our business. Although we believe that our assumptions are reasonable, any of our assumptions could prove inaccurate. In light of the significant uncertainties inherent in the forward-looking statements made herein, which reflect our views only as of the date of this Form 10-K, you should not place undue reliance upon such statements. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Item 1.
Business

Overview

We were formed to commercialize the application of novel technologies in the dental industry. Our first product we are developing and plan to market, after we obtain FDA clearance, is a diagnostic dental imaging device, our OCT System, which uses light-based technology known as optical coherence tomography (“OCT”). We have the exclusive rights to OCT for certain diagnostic applications in dentistry in terms of our license agreement with Lawrence Livermore National Laboratories (“Livermore”). We had a license agreement with LightLab Imaging for a portfolio of enabling patents relating to the scanning of tissue until July 2010 when this license terminated and LightLab did not want to renew it at that time, as the company had recently been acquired.  They indicated that renewal could be reviewed once Lantis was closer to commercialization of its OCT System for dental application. We also have an exclusive license with University of Florida for a patented technology relating to the probe scanner which we may deploy in our OCT System.  In July 2008 we signed an exclusive agreement with The Regents of California for a patent pending technology called “Nearinfrared Transillumination for the Detection of Tooth Decay” or NIR System (“NIR”).  This technology is synergistic with OCT as both modalities operate at the same wavelength, can use the same light source and provide different views of oral structures. We expect to integrate NIR with our OCT System in the form of a chairside platform and also to sell it separately as a standalone diagnostic imaging aid, subject to obtaining sufficient capital to complete development of these modalities. Before we can market these devices we would need to obtain FDA.
 
In June 2008, we entered into a strategic agreement with Axsun Technologies, Inc. (“Axsun”) whereby Axsun would develop and supply the OCT engine for our OCT System, based on their advanced and patented technology. Due to lack of funding, in April 2009 we defaulted on a payment due in terms of the development agreement and were formally advised in writing on March 17, 2010 of termination of the agreement. Axsun indicated that they were willing to discuss a future relationship once the company obtains sufficient capital to complete the development program and is in a position to enter into a new supply agreement.
 
In December 2007, we entered into a joint venture with Laser Energetics, Inc., an Oklahoma corporation (“LEI”), pursuant to which we and LEI formed HyGeniLase, Inc., a Delaware corporation (“HyGeniLase”), with each party owning 50% of HyGeniLase. HyGeniLase was formed to develop, manufacture, market, sell and distribute to the dental markets worldwide a laser instrument, based on LEI alexandrite laser technology, for the treatment and removal of tartar and deposits from teeth.  As of December 31, 2009, the company has delayed the joint venture project with LEI due to failure on LEI’s part to comply with their end of the agreement as well as funding. As a result, the company reserved the remaining $81,332 of the investment on their books.

Our S-1 filing for our stock registration was deemed effective on February 17, 2009.  In 2009 we moved our stock quotation from the Pink Sheets to the Bulletin Board and since then we have been a fully reporting company.

 
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We defaulted in May 2009 and May 2010 on the interest payment due to noteholders on the 5% convertible note which was issued in 2007. In terms of the note, in the event of default the interest increased from 5% to 10%. Provision for the interest payable to December 31, 2010 amounting to $155,148 has been included in the financial statements.

As a result of the company’s failure to timely pay the interest, the convertible notes are in technical default.  Therefore, in 2009 the company has reclassified the debt to current liabilities. In an effort to reduce the liabilities of the company, on July 1, 2010 the company offered noteholders the opportunity to convert their notes to common stock at $0.05 per share including any and all outstanding interest that has been accrued from the original $0.15 conversion price.  In addition, the company offered to reset the exercise price of the warrants that were issued with the Notes to $0.075 from $0.25 and extend the warrants for a further three years from the original date of issue for all warrant holders. Through December 31, 2010, convertible notes of $1,942,000, including $386,687 of accrued interest was converted to 39,173,333 shares of common stock. The outstanding principal balance of unconverted notes as at December 31, 2010 is $459,500.

In June 2010, we announced that we had signed a Letter of Intent to merge with Perio-Imaging Inc., a company that was developing a complimentary dental imaging product for providing a patient periodontal profile.  Completion of the merger was subject to raising capital to implement the product development program of the merged companies.  The funding was not obtained and the merger was terminated after a 90 day period.

We have been and continue to seek for capital or a strategic partner to enable us to continue with the development of our OCT and NIR development program to move towards commercialization.  At this time we have no commitments to provide the company with needed capital.
 
Corporate History
 
Our company was incorporated in Nevada in February 1998 under the name Beekman Enterprises, Inc. In February 2001, our company changed its name to Virtual Internet Communications, Inc., and in April 2002, our company changed its name to Hypervelocity, Inc. Until September 2002, Hypervelocity was a consulting firm specializing in voice, data and video communications convergence, network design and integration. In September 2002, Hypervelocity dissolved its operating subsidiary and assigned its assets to an individual holding a note payable that was secured by the assets. From September 2002 until November 2004, Hypervelocity was non-trading public shell company, with no operations. In November 2004, we acquired Lantis Laser, Inc., a New Jersey corporation formed in January 1998 (“Lantis New Jersey”), in a reverse-triangular merger and succeeded to its business as our sole line of business. In connection with the merger, we changed our name to “Lantis Laser Inc.”
 
Market Opportunity
 
We believe our OCT and NIR Systems, when developed, will enhance the diagnostic capability of dentists to detect early, later stage and hidden disease in oral tissue and will have a significant and positive impact on the practice of dentistry. We expect that the enhanced diagnostic ability of OCT and NIR will be welcomed by dentists and will help early diagnosis capabilities catch up with early stage dental disease treatment modalities.
 
Management’s market analysis indicates that there are approximately 140,000 practicing dentists in 100,000 offices and 380,000 treatment rooms, or chairs, in the United States and at least 100,000 offices in Europe, Japan and other first world countries with an estimated 200,000 treatment rooms. Based on the assumption that each office would purchase one OCT System, management estimates the world market at 200,000 OCT Systems.  The potential market for NIR is at least of equal size based on the assumption that each office would purchase at least one NIR System.
 
Management expects that initially early adopters will form the majority of purchasers but that once the benefits of the OCT and NIR diagnostic systems become evident, we believe that a larger part of the dental professional body will embrace these safe and effective modalities as they have significant advantages over currently available competing diagnostic devices for the detection of decay.
 
About OCT and NIR Technology
 
OCT is a new intraoral, laser-light based diagnostic imaging technology with an axial resolution of up to 10 times that of conventional x-ray. OCT was invented in the early 1990’s at the Massachusetts Institute of Technology (“MIT”) and has been commercialized by Carl Zeiss Meditec for ophthalmology over the last 10 years. LightLab Imaging is commercializing OCT for cardiovascular imaging.
 
In dentistry, it is the first modality capable of imaging both “hard” tissue (teeth) and “soft” tissue (gums). The high-resolution images of dental structures are captured by the dental professional examining a patient’s mouth using a hand-held scanner and the images are displayed on a chairside monitor in real time.

 
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According to the ANSI Z136 laser classification, the superluminescent diode (“SLD”) to be used in our imaging Systems is a Class IIIB laser, which is considered harmless for diffuse light, although exposure to a direct beam may damage the retina of the eye. As a precaution, the FDA will require both patients and dental practitioners to wear safety glasses when our OCT System is being used. In addition, dental practitioners will be required to use our OCT System in a controlled area, which generally must be restricted to authorized, trained personnel, and must contain warning signs and comply with certain other precautionary safety requirements.

We believe OCT enhanced diagnostic capability has significant benefits for the practice of dentistry by its ability to detect early, later and hidden oral diseases such as decay and periodontal disease.   Early detection of disease will enable non-invasive or minimally intervention treatment to be deployed using an expanding array of techniques to arrest and even reverse disease. Less invasive early stage treatment is less traumatic, less painful and potentially less costly for patients and results in a higher standard of care. More loyal patients result in more regular visits and increase the opportunity for other services, such as tooth bleaching and cosmetic procedures, to be delivered.
 
OCT images can be used chairside to visually demonstrate to patients the need for prescribed treatment. Intraoral cameras are extensively used to show the patient a surface view of a particular problem and OCT can reinforce the diagnosis and treatment plan with a subsurface view of tissue.  The OCT System provides an image that can be used for insurance reimbursements when claims are made for treatment of early stage decay, as this is not visible on traditional x-ray and there is currently no means of documenting the need for early stage treatment with an easily readable image.
 
NIR Technology was discovered and developed at the University of California (San Francisco) School of Dentistry by doctors Fried and Jones.  They discovered that at the same wavelength of light used by OCT, the tooth enamel becomes highly transparent and decay and defects become visible.  NIR differs from OCT in that OCT captures reflected light whereas NIR captures light that is transmitted through the tooth by using optics opposite or adjacent to the light source to capture and transmit the information to the camera in the handpiece for display on a chairside computer monitor. This modality is suitable for imaging between teeth and also the occlusal (biting surfaces) where an estimated 80% of decay occurs and which x-ray cannot image. NIR is synergistic with OCT in that it can be used for screening the teeth and then OCT can provide the dentist with more detailed information as to severity and depth of a lesion, in the areas of interest.
 
Our Products
 
 The OCT System
 
We plan to make the OCT System available in a self-contained cart configuration that can be moved between treatment rooms.   Development has been slowed down in 2009 due to lack of adequate capital. In early 2010 we ceased development due to lack of funds. If we can obtain the required capital to complete our OCT System, we will complete the Beta systems, generate the required data for FDA submission to obtain marketing clearance, and thereafter begin the transition to manufacturing and marketing.
 
We are undertaking development in 3 phases:
 
Phase 1 of the technology deployment commenced with development of the software to enable scanning, capture and storage of images. The first generation demonstration system for bench use was built and operated to expectations. A prototype of the hand-held scanner for operation in the mouth was also designed and built. The Phase 1 Alpha OCT System prototype demonstrated depth penetration and characterization of dental structures.
 
Phase 2 development is in process with major components of the System being redesigned to provide the high scanning speed required in the System, based on Axsun OCT engine. A significant amount of time and resources was spent in upgrading components to function with the specification of this advanced System as against the earlier time domain system that we initially intended developing. The objective in this phase, if sufficient capital can be found, is to build 5 Beta2 Systems for clinical use and experience prior to completing the final specification for the pre-production System. These Beta Systems will be used to provide the data needed to support the FDA submission and to obtain clinical feedback for the development of the pre-production System.  We have received 3 Beta1 OCT Engines from AXSUN and upon resumption of development a further 5 Beta2 Engines are due to be delivered.
 
Phase 3 development is focusing on finalizing the specification of the pre-production OCT System and is being conducted concurrently with Phase 2 development. The industrial design and documentation commenced in 2008 but was suspended in March 2009 due to lack of funding.  The full documentation of the System for manufacturing will be completed in this phase. FDA device regulatory consultants need to be fully engaged to ensure that the System complies with FDA and CE (Europe) regulatory requirements and any other applicable standards and requirements to enable sales, worldwide. Validation of software and UL testing will be undertaken in this phase.

 
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A development facility was established in Pinellas Park, Florida under the direction of Mr. Doug Hamilton, VP Research and Development.  As development ceased by early 2010, the facility was closed in October 2010 and all the equipment and development components were placed in a storage facility in Tampa, Florida. In addition to Hamilton we employed a software programmer until February 2009 when the clinical software was completed.   We use specialized outside resources on a development and consulting basis to assist Mr. Hamilton in preparing the components for the OCT System.  A functional prototype of the digital board has been completed and a redesign and fabrication is necessary to produce a pre-production board to be used in the Beta2 Systems.
 
Upon completion of clinically usable Systems, estimated to be up to 12 months after obtaining funding, clinical data will be generated to support an FDA filing.  We anticipate obtaining FDA marketing clearance through a 510(k) filing as OCT has  previously been cleared for other biomedical applications.,
 
Our projected cost to complete Phase 2 and Phase 3 is $2 million and we anticipate that we can achieve this in an 18-24 month time frame from the time funding is available.
 
The NIR System
 
We can only commence development upon adequate funding being available.  We have identified a potentially suitable sensor technology which we believe can be deployed in the NIR System, however to achieve the product cost objective requires volume purchases.  We are currently reviewing with the vendor the price/volume sensitivity of this component to determine how a commercialization program could be effected. The first step will be to undertake a redesign and repacking of the camera to adapt to the handpiece we envisage for use in the dental application.  Development of the NIR System is expected to take up to 24 months at an estimated cost of $2.0 million.
 
Licenses and Patents
 
Under our exclusive agreement with Livermore we have rights to applications and methods, and to make, use and sell products, generally described as OCT, for use in the dental field incorporating technology covered by their respective patents. We licensed a portfolio of seven patents from Livermore. Our licenses from Livermore terminate upon expiration or abandonment of the patents. Livermore can terminate our licenses earlier if we materially breach the license agreement and fail to cure such breach. We paid Livermore an initial license fee of $175,000 and agreed to pay an annual royalty up to 6%.  Our minimum royalty payments are $20,000, $20,000, $20,000, $60,000, $100,000 and $250,000 for 2008, 2009, 2010, 2011, 2012 and from 2013 through expiration, respectively. We have paid the license fee due for 2008 and an amendment to the agreement requires us to pay the license fees for 2009 and 2010 by June 30, 2011. Our original license agreement with Livermore required a license fee payment with minimum royalties becoming payable in 2004. The development time took longer than anticipated due to the difficulty in obtaining an OCT engine that could scan at the desired speeds and at a cost that met our objectives. At the end of 2004, Livermore granted us a two-year moratorium on all payments to allow us to continue the commercialization process without undue pressure. By the end of the moratorium in October 2006, we had established a clear path forward and had raised a round of financing. In a meeting with Livermore in November 2006, it was mutually agreed to reset the royalty clock with minimum royalty payments to commence in 2008 instead of 2004, as originally intended. Consequently, the minimum royalty payments under the initial contract were forgiven and a new schedule to pay all other outstanding amounts was agreed upon. We have adhered to this schedule with amendments.
 
Patent Description
 
Patent No.
 
Date Issued/
Date of Expiration
         
Method for Detection of Dental Caries and Periodontal Disease Using Optical Imaging
    5,570,182  
October 29, 1996/
May 27, 2014
           
Dental Optical Coherence Domain Reflectometry Explorer
    6,179,611  
January 30, 2001/
May 19, 2019
           
Birefringence Insensitive Optical Coherence Domain Reflectometry System
    6,385,358  
May 7, 2002/
January 7, 2020
           
Optical Coherence Tomography Guided Dental Drill
    6,419,484  
July 16, 2002/
September 12, 2020
           
OCDR Guided Laser Ablation Device
    6,451,009  
September 17, 2002/
September 12, 2020
 
 
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Patent Description
 
Patent No.
 
Date Issued/
Date of Expiration
         
Optical Fiber Head for Providing Lateral Viewing
    6,466,713  
October 15, 2002/
June 18, 2021
           
Optical Detection of Dental Disease Using Polarized Light
    6,522,407  
February 18, 2003/
March 18, 2022

Our license for LightLab’s portfolio of patents relating to methods for scanning biomedical tissue terminated in July 2010 and LightLab advised us that they did not wish to undertake any further licensing at that time. They indicated that they would review the status regarding licensing as and when we get closer to OCT commercialization. We will also undertake a patent review at the appropriate time to ascertain what licenses might be necessary to market our OCT product.
 
We also have licensed from the University of Florida Research Foundation, Inc. (“UFRF”) Patent No. 6,940,630, entitled “Vertical Displacement Device,” issued September 6, 2005 and expiring April 29, 2024. We have licensed this patent for use in connection with the micromirror component of our products. This license expires when the patent expires or is no longer enforceable. UFRF may terminate the license earlier if we materially breach the agreement and fail to cure the breach, if the first commercial sale of a product developed from the patent does not occur on or before July 31, 2011 (as amended) or if the payment of earned royalties, once begun, ceases for more than five calendar quarters. We paid UFRF an initial license fee of $1,000 and agreed to pay an annual royalty equal to $5.00 per unit. Our minimum royalty payments are $180, $630 and $1,485 for 2008, 2011 and from 2012 through expiration, respectively. We are also responsible for undertaking certain development activities to bring to market a product developed from the patent, and we must provide UFRF periodic written reports of our progress, which we have done.
 
We have entered into a license agreement with The Regents of the University of California for exclusive rights to the patent, if and when issued, for a patent-pending technology known as “Near-infrared Transillumination for the Imaging of Early Dental Decay”. The patent application is currently on appeal with the patent office. Under the license agreement, we are obligated to spend at least $50,000 developing this technology by December 31, 2011 (as amended).  We have spent at least this amount in designing and completing the software that would enable scanning, capture, manipulation and saving of the images generated by this modality. If a patent is issued, we anticipate that the earliest we would commence any development activity would be in fiscal 2011 subject to adequate funding being available. Under terms of the agreement, we paid a $10,000 non-refundable license fee with further milestone payments of $15,000 and $25,000 to be paid if and when the patent is issued and when FDA clearance is obtained, respectively. The license bears an annual royalty of 5% on net sales and is subject to minimum earned royalties being payable commencing in 2012, as amended. Minimum royalties in years 2012, 2013, 2014, and 2015 and thereafter are $10,000, $50,000, $100,000, $150,000, and $200,000, respectively.
 
Government Regulation
 
Our proposed products and research and development activities are subject to regulation by numerous governmental authorities, principally, the FDA and corresponding state regulatory agencies. The FDCA, the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the preclinical and clinical testing, manufacture, safety, efficacy, labeling, storage, record keeping, advertising and promotion of medical devices and drugs, including our products currently under development. Product development and approval within this regulatory framework may take a number of years and involves the expenditure of substantial resources.
 
Medical devices are classified into three different classes, class I, II and III, on the basis of controls deemed necessary to reasonably ensure the safety and effectiveness of the device. Class I devices are subject to general controls which include labeling, pre-market notification and adherence to FDA’s GMPs and class II devices are subject to general and special controls which include performance standards, post-market surveillance, patient registries, and FDA guidelines. Generally, class III devices are those which must receive pre-market approval by the FDA to ensure their safety and effectiveness and include life-sustaining, life-supporting and implantable devices, or new devices which have been found not to be substantially equivalent to legally marketed devices.
 
Before a new medical device can be marketed, marketing clearance must be obtained through a pre-market notification under Section 510(k) of the FDCA (a “510(k) Notification”) or a pre-market approval (“PMA”) application under Section 515 of the FDCA. A 510(k) Notification will typically be granted by the FDA if it can be established that the device is substantially equivalent to a “predicate device,” which is a legally marketed class I or II device or a pre-amendment class III device (i.e. one that has been marketed since a date prior to May 28, 1976) for which the FDA has not called for PMAs. The FDA has been requiring an increasingly rigorous demonstration of substantial equivalence, and this may include a requirement to submit human clinical trial data. It generally takes three to nine months from the date of a 510(k) Notification to obtain clearance, but it may take longer. The FDA may determine that a medical device is not substantially equivalent to a predicate device, or that additional information is needed before a substantial equivalence determination can be made. A “not substantially equivalent” determination, or a request for additional information, could prevent or delay the market introduction of new products that fall into this category. For any devices that are cleared through the 510(k) Notification process, modifications or enhancements that could significantly affect the safety or effectiveness, or that constitute a major change in the intended use of the device, will require new 510(k) Notifications. We have been working with our FDA consultant to prepare our 510(k) Notification, which we expect to submit in the fourth quarter of 2009.

 
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A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed class I or class II device, or if it is a pre-amendment class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical trials, bench tests, and laboratory and animal studies. The PMA must also contain a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission must include the proposed labeling, advertising literature, and any training materials. The PMA process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing.
 
Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the PMA. The FDA review of a PMA application generally takes one to three years from the date the PMA is accepted for filing, but may take significantly longer. The review time is often significantly extended by the FDA asking for more information or clarification of information already provided in the submission. During the review period, an advisory committee, typically a panel of clinicians may be convened to review and evaluate the application and provide a recommendation to the FDA as to whether the device should be approved. The FDA accords substantial weight to the recommendation but is not bound by it. Toward the end of the PMA review process, the FDA generally will conduct an inspection of the manufacturer’s facilities to ensure compliance with applicable GMP requirements, which include elaborate testing, control documentation and other quality assurance procedures.
 
If the FDA evaluations of both a PMA application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter, authorizing marketing of the device for certain indications. If the FDA’s evaluation of the PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA application or issue a “non-approvable” letter. The FDA may determine that additional clinical trials are necessary, in which case the PMA may be delayed for one or more years while additional clinical trials are conducted and submitted in an amendment to the PMA. Modifications to a device that is the subject of an approved PMA, its labeling or manufacturing process may require approval by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require the submission of the same type of information required for an initial PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA. While we intend for our OCT System to qualify for the 510(k) Notification process, it is possible that a PMA may be required.
 
If human clinical trials of a device are required, either for a 510(k) Notification or a PMA, and the device presents a “significant risk,” the sponsor of the trial (usually the manufacturer or the distributor of the device) must file an investigational device exemption (“IDE”) application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards (“IRBs”), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a “non-significant risk” to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by one or more appropriate IRBs without the need for FDA approval. Submission of an IDE does not give assurance that FDA will approve the IDE and, if it is approved, there can be no assurance that FDA will determine that the data derived from the studies support the safety and efficacy of the device or warrant the continuation of clinical studies. Sponsors of clinical trials are permitted to sell investigational devices distributed in the course of the study provided such compensation does not exceed recovery of the costs of manufacture, research, development and handling. An IDE supplement must be submitted to and approved by the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness or the rights, safety or welfare of human subjects.
 
Among the additional requirements for product approval is the requirement that the prospective manufacturer conform to the FDA’s GMP regulations. In complying with the GMP regulations, manufacturers must continue to expend time, money and effort in product, record keeping and quality control to assure that the product meets applicable specifications and other requirements. The FDA periodically inspects device manufacturing facilities in the U.S. in order to assure compliance with applicable GMP requirements.
 
If we obtain clearance or approval, any device we manufacture or distribute will be subject to pervasive and continuing regulation by the FDA. We will be subject to routine inspection by the FDA and will have to comply with the host of regulatory requirements that usually apply to medical devices marketed in the United States, including labeling regulations, GMP requirements, the Medical Device Reporting (“MDR”) regulation (which requires a manufacturer to report to the FDA certain types of adverse events involving its products), and the FDA’s prohibitions against promoting products for unapproved or “off-label” uses.

 
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Because our OCT and NIR Systems incorporate the use of lasers, our products will be regulated under the Radiation Control for Health and Safety Act administered by the Center for Devices and Radiological Health of the FDA. The law requires medical and non-medical laser manufacturers to file new product and annual reports and to maintain quality control, product testing and sales records, to incorporate certain design and operating features in lasers sold to end users under a performance standard, and to comply with labeling and certification requirements. Various warning labels must be affixed to the laser, depending on the class of the product under the performance standard.
 
Competition
 
In the field of dental diagnostic imaging, the x-ray has been the most dominant modality. The adoption of digital x-ray has increased steadily over the last 15 years, since its introduction, and we believe that almost 50% of dentists in the United States are currently using this modality. The dental x-ray unit is limited in that it only images hard tissue (teeth or bone) and cannot image soft tissue such as gums. In addition, the resolution is such that decay can only be detected at a much later stage when more invasive procedures are required, usually with a drill. Most importantly, the dental x-ray cannot image occlusal (biting surfaces), where an estimated 80% of decay occurs.
 
Over the last 10 years, numerous small handheld devices have been introduced into dentistry for the early detection of decay. The first of these devices, “DIAGNOdent” from KaVo Dental GmbH (“KaVo”), has been readily embraced by the market and uses light fluorescence to indicate the presence of decay by emitting an audible and visual reading. The device does not provide an image.  A similar device, ID Caries was introduced by Dentsply and also does not provide an image.  Other devices using fluorescence, impedance and electrothermal methods have been introduced but these devices have been characterized as needing to be used very carefully and can be subject to false/positive readings. We believe that our OCT and NIR modalities fill the diagnostic void in every respect by providing high-resolution, quantitative and qualitative, imaging of dental tissue and with an image that can be stored in the patient file for monitoring treatment.
 
We believe that our light-based modalities can meet the highly important diagnostic requirements for detection of early, later and hidden dental disease symptoms and structural defects. Additionally, the OCT System provides detailed images of both teeth and gums and the captured information can be displayed chairside on a monitor, printed, digitally stored in the patient’s file and transmitted electronically for consultation or insurance claims, if and when applicable.  While other devices are typically being sold in the $3,000 to $6,000 price range, which is much lower than the price we anticipate for OCT and NIR, respectively, we do not believe that they would provide the same level of diagnostic information and be able to obtain a reimbursement code.  We believe that based on previous representations to the American Dental Association Code Revision Committee that OCT and NIR would have a better possibility of obtaining reimbursement codes as they provide more detail than x-ray, are safe and provide an image for diagnostic and insurance claim purposes that is easily read and interpreted.
 
Sales and Marketing
 
Subject to obtaining FDA clearance for marketing, we intend selling the OCT and NIR Systems through existing channels of distribution. The larger distribution companies have specialized personnel to sell, install and train users of high-technology equipment. We will support their sales efforts by placing our own company field representatives to assist in sales, training and installation of the equipment. We do not currently have any distribution agreement in place. In international markets, we expect to enter into exclusive agreements with distributors in each country or territory to undertake the sales, installation, training and support of the OCT and NIR Systems.
 
We expect the initial sales price to dentists to be approximately $30,000 for each OCT System and $38,000 for the combination OCT/NIR System, including all components packaged in a mobile cart with a computer and monitor. All Systems will undergo very stringent quality assurance testing as necessary for a medical device and also to meet the FDA Good Manufacturing Practices requirements. The NIR System would also be sold as a standalone device for use in each operatory as an adjunct to x-ray. Subject to obtaining funding, and obtaining FDA clearance, we anticipate being able to commence introduction of the OCT System into the dental market within an 18-24 month timeframe.  The NIR System, subject to successful development and obtaining FDA clearance, could also be ready for market introduction in the 18- 24 month timeframe after adequate development funding is obtained.
 
Research and Development
 
We have devoted substantially all of our operating resources towards research and development. Our research and development efforts to date have focused on developing the OCT System. Due to lack of funding our development of the OCT has slowed down in 2009 and we ceased development in February 2010.

 
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Employees
 
We have three employees, all of whom are management. None of them received salaries or other compensation in 2010. To the best of our knowledge, we are in compliance with local prevailing wage, contractor licensing and insurance regulations. None of our employees is represented by any collective bargaining agreement, and our relationship with our employees is good. Upon funding, we may seek to hire two additional employees, an optical engineer and a technician, to help us complete the development and preparation of the OCT Systems for clinical use, although we may decide to retain independent contractors in lieu of additional employees.
 
Item 1A. 
Risk Factors

Risks Related to Our Operating Results and Business
 
The likelihood of successfully implementing our business plan cannot be predicted from our limited operating history.
 
We have incurred losses since inception, and our accumulated deficit is approximately $10.41 million. We have not generated any revenue from the sale of our products to date. Therefore, there is limited historical basis on which to determine whether we will be successful in implementing our business plan. We expect that our annual operating losses will increase over the next few years as we expand our research, development and commercialization efforts. To become profitable, we must successfully develop and obtain regulatory approval for the OCT and NIR imaging Systems and effectively manufacture market and sell the products we develop. Accordingly, we may never generate significant revenues, and even if we do generate significant revenues, we may never achieve profitability.
 
The loss of our executive officers and certain other key personnel could hurt our business.
 
We are dependent on Stanley Baron, our Chairman, President & CEO, Craig Gimbel, DDS, our Executive Vice-President and Douglas Hamilton our head of Research and Development. Unlike larger companies, we rely heavily on a small number of officers to conduct a large portion of our business. The loss or unavailability of their services, along with the loss of their skills, numerous contacts and relationships in the industry, would have a material adverse effect on our product development and business prospects and/or potential earning capacity.
 
We have no Chief Financial Officer, which makes it more difficult for us to comply with our public company reporting obligations and prevents us from having an internal check on our financial reporting.
 
We have no Chief Financial Officer, and the duties of a Chief Financial Officer are currently performed by Mr. Baron, our Chairman, President & CEO. As a result, it will be more difficult for us to fully comply with our reporting obligations as a public company, and our ability to do so is uncertain. In addition, as our CEO is also acting as our Chief Financial Officer, we do not have any internal check on our financial reporting.
 
Our products are subject to an extensive government regulation and pre-approval process before our products may be marketed. Any unanticipated costs or delays in these processes, or any failure to obtain the necessary approvals, will have a material adverse affect on our ability to introduce and market our products.
 
We and our products are subject to extensive regulation by governmental authorities. Before any new medical device may be introduced to the market in the United States, the manufacturer generally must obtain FDA approval by filing a pre-market application (a “PMA”) under Section 515 of the Federal Food, Drug and Cosmetic Act (the “FDCA”) or a pre-market notification pursuant to Section 510(k) (a “510(k) Notification”) of the FDCA. Obtaining FDA approval requires substantial time, effort, and financial resources, and may be subject to both expected and unforeseen delays, and there can be no assurance that any approval will be granted on a timely basis, if at all, or that delays will be resolved favorably or in a timely manner. A 510(k) Notification generally receives pre-market clearance from the FDA approximately three to nine months from submission. Approval of a PMA generally takes two or more years from the date of submission to be approved. We believe that our OCT System requires only 510(k) Notification. However, the FDA may determine that our OCT System is not substantially equivalent to a predicate device, or that additional information is needed before a substantial equivalence determination can be made. A “not substantially equivalent” determination, or a request for additional information, would subject us to the lengthier PMA process and could prevent or delay the market introduction of our OCT System. Obtaining FDA approval for our products may require the submission of extensive preclinical and clinical data and supporting information to the FDA, and there can be no guarantee of ultimate clearance or approval. See “Business – Government Regulation.”
 
If the FDA does not approve our products in a timely fashion, or does not approve them at all, our business and financial condition may be adversely affected. We, our collaboration partners or the FDA may suspend or terminate human clinical trials at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. The FDA conducts its own independent analysis of some or all of the pre-clinical and clinical trial data submitted in a regulatory filing and often comes to different and potentially more negative conclusions than the analysis performed by the developer. Our failure to develop safe, commercially viable OCT and NIR Systems approved by the FDA would substantially impair our ability to generate revenues and sustain our operations and would materially harm our business and adversely affect our stock price. In addition, significant delays in clinical trials will impede our ability to seek regulatory approvals, commercialize the OCT and NIR Systems and generate revenue, as well as substantially increase our development costs.

 
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In addition, both before and after regulatory approval, we, our collaboration partners and our products may be subject to numerous FDA requirements covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, distribution and export. The FDA’s requirements may change and additional government regulations may be promulgated that could affect us, our collaboration partners or our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action. There can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon our business.

To obtain required government approvals, our technology must be shown to be efficacious and safe for use in humans. Our current and future technology for human application are subject to stringent government regulation in the United States by the FDA under the FDCA. The FDA regulates the preclinical and clinical testing, manufacture, safety, labeling, sale, distribution and promotion of medical devices. Included among these regulations are compliance with establishment registration and medical device listing, good manufacturing practices (or “GMP”) labeling, and promotional requirements.
 
Failure to comply with applicable regulatory requirements could result in, among other things, any of the following actions: warning letters; fines and other civil penalties; unanticipated expenditures; delays in approving or refusal to approve a product; product recall or seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions; and criminal prosecution.
 
Our products are subject to ongoing governmental regulation that could make it more expensive and time consuming for us to manufacture our products.
 
Our technology is subject to post-market reporting requirements for certain adverse events and device malfunctions, and correction and removal reporting and recordkeeping requirements for actions taken with respect to distributed devices to reduce a risk to health. Additionally, the FDA actively enforces regulations prohibiting marketing of devices for indications or uses that have not been cleared or approved by the FDA. If safety or efficacy problems occur after the product reaches the market, the FDA may take steps to prevent or limit further marketing of the product.
 
The manufacture of our products also is subject to periodic inspection by regulatory authorities and certain marketing partners, while manufacture of our products for human use is subject to regulation and inspection from time to time by the FDA for compliance with GMPs, as well as equivalent requirements and inspections by state and foreign regulatory authorities. There can be no assurance that we will satisfy these requirements for our technology. In addition, there can be no assurance that the FDA or other authorities will not, during the course of an inspection of our facilities, identify what they consider to be deficiencies in GMPs or other requirements and request, or seek, remedial action. Failure to comply with such regulations or any delay in attaining compliance may adversely affect our manufacturing activities and could result in, among other things, FDA refusal to grant pre-market approvals or clearances for pending or future products, warning letters, injunctions, civil penalties, fines, recalls or seizures of products, total or partial suspensions of production and criminal prosecution. Additionally, future modifications of our manufacturing facilities and processes may subject us to further FDA inspections and review before implementation of such modifications. There can be no assurance that we will be able to obtain necessary regulatory approvals or clearances on a timely basis, if at all. Delays in receipt of or failure to receive such approvals or clearances or the loss of previously received approvals or clearances will affect our ability to timely manufacture our products.
 
Uncertainties related to the early stage of our commercialization and development efforts may materially adversely affect our ability to commercialize our products.
 
Our OCT System is in Phase 2 and 3 development, with Systems expected to be deployed for clinical testing 6 months after the next round of funding, if it can be obtained.  Although we now intend to commercially introduce our OCT System to the dental market in the second half of 2013, subject to adequate funding being available, the timing of the commercial availability of our products is subject to a number of uncertainties. For example, our products cannot be marketed until cleared by the FDA. To date, we have not applied for or received marketing approval for any product from the FDA, but we plan to submit pre-market notification application with the FDA within approximately 6 months after completion of the Systems. In addition, we may experience unexpected delays in product development. For example, we had initially expected to deploy the OCT System in August 2008, but the vendor developing the optics components for the Systems has experienced delays. In addition, we have had to redesign and perform another round of fabrication of certain components of the System. The development and commercialization of new dental imaging products are highly uncertain and subject to a number of significant risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. Such reasons include the possibilities that the devices will fail to receive necessary regulatory approvals, be difficult to manufacture on a commercial scale, be uneconomical, fail to achieve market acceptance or be precluded from commercialization by proprietary rights of third parties. No assurance can be given that development of our OCT System will be successfully completed, that clinical trials will generate anticipated results or will commence or be completed as planned, that required regulatory approvals will be obtained on a timely basis, if at all, or that any products for which approval is obtained will be commercially successful. If our OCT System is not successfully developed, required regulatory approvals are not obtained, or products for which approvals are obtained are not commercially successful, our business, financial condition and results of operations would be materially adversely affected. The same risks apply for the development of the NIR System.

 
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The application rights and technology underlying our OCT and NIR System are being developed under license from third parties. The termination of any of our licenses likely would have a material adverse effect on our ability to commercialize our products.
 
Our OCT System is based upon technology that we are licensing from Lawrence Livermore National Laboratory and LightLab Imaging, LLC.  The LightLab license was terminated in July 2010 and a patent review at a time closer to OCT commercialization might show the need to renew the license with LightLab and there is no guarantee that LightLab will grant a patent if it is required to market our OCT product without possible litigation.  Our OCT engine is based on technology and product embodied in a development and supply agreement with Axsun Technologies.  This agreement was terminated in 2010 and Axsun have indicated a willingness to enter into a new agreement when we are in a position to do so, which is when sufficient capital is obtained to complete development of our OCT system. Our NIR System is based on a license we have with the Regents of The University of California and for which patent is still pending. If any of these licenses were to be terminated by the other party, under most circumstances we would lose our rights to develop, manufacture, market and sell any products based on the technology underlying the terminated license and agreement. Such a termination would likely require us to seek alternative technology, if available, which could impede or prevent delivery of our product; be time-consuming and expensive; divert attention away from our daily business; and possibly require us to pay significantly greater royalties and licensing fees.
 
If dental care providers are unable to obtain reimbursement for our products or the procedures in which they are used from third-party payors, our ability to sell or market the OCT and NIR Systems will be materially adversely affected.
 
Dental care providers that purchase medical devices such as our product generally rely on third-party payors, principally federal Medicare, state Medicaid and private health insurance plans, to reimburse all or part of the cost of dental imaging and procedures. We anticipate that in a prospective payment System, such as the System utilized by Medicare, and in many managed care Systems used by private health care payors, there will be no separate, additional reimbursement for our products. However, we have had a meeting with the American Dental Association Code Revision Committee to ask for inclusion of a new reimbursement code for non-radiological (non x-ray) dental imaging, which would cover our OCT and NIR Systems, and we cannot be assured that such a reimbursement code will be issued. Even if there is no procedure-specific reimbursement code, we anticipate that dental patients will justify the additional cost of accepting diagnostic imaging with our OCT and NIR Systems if we can demonstrate long-term cost savings due to improved clinical outcomes attributable to the use of our product.
 
There can be no assurance that reimbursement for our products will be available in the United States under either governmental or private reimbursement Systems. Furthermore, we could be adversely affected by changes in reimbursement policies of governmental or private health care payors. Failure by dental care providers to obtain sufficient reimbursement from health care payors for procedures in which our products are used or adverse changes in governmental and private third-party payors’ policies toward reimbursement for such procedures would have a material adverse effect on our business, financial condition and results of operations.
 
Our business may be also materially adversely affected by the continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means. For example, an increasing emphasis on managed care has put, and will continue to put, pressure on pharmaceutical and medical product pricing. Such initiatives and proposals, if adopted, could decrease the price that we receive for any products we may develop and sell in the future, and thereby have a material adverse effect on our business, financial condition and results of operations.
 
Furthermore, to the extent that such proposals or initiatives have a material adverse effect on other companies that are corporate partners or prospective corporate partners for certain of our products, our ability to commercialize our products may be materially adversely affected.
 
We have limited experience in marketing or selling our products, and we may need to rely on marketing partners or contract sales companies.
 
Even if we are able to develop our products and obtain necessary regulatory approvals, we have limited experience or capabilities in marketing or commercializing our products. We currently do not have a sales, marketing or distribution infrastructure. Accordingly, we are dependent on our ability to build this capability ourselves or to find collaborative marketing partners or contract sales companies for commercial sale of our internally-developed products. Even if we find a potential marketing partner, we may not be able to negotiate a licensing or distribution contract on favorable terms to justify our investment or achieve adequate revenues.

 
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Risks Related to Our Industry
 
The market for our products is new and evolving and a viable market may never develop or may take longer to develop than we anticipate.
 
Our products represent what we believe is a novel entry in an emerging market, and we do not know the extent to which our targeted customers will want to purchase them. The development of a viable market for our products may be impacted by many factors which are out of our control, including customer reluctance to try new products and the existence and emergence of products and services marketed by better-known competitors.
 
If a viable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we will have incurred to develop our products, and we may be unable to achieve profitability.
 
If dentists and patients do not accept our products, we may be unable to generate significant revenue, if any.
 
Our Systems may not gain market acceptance among dentists, health care payors, patients and the dental community. Dentists may elect not to purchase our products for a variety of reasons including:
 
 
timing of market introduction of competitive technologies;
 
 
lack of cost-effectiveness;
 
 
lack of availability of reimbursement from managed care plans and other third-party payors;
 
 
convenience and ease of administration;
 
 
other potential advantages of alternative treatment methods; and
 
 
ineffective marketing and distribution support.
 
 If our products fail to achieve market acceptance, we would not be able to generate sufficient revenue to fund our business plan.
 
Failure to meet customers’ expectations or deliver expected performance of our products could result in losses and negative publicity, which will harm our business.
 
If our products fail to perform in the manner expected by our customers, then our revenues may be delayed or lost due to adverse customer reaction or negative publicity about us and our products, which could adversely affect our ability to attract or retain customers. Furthermore, disappointed customers may initiate claims for substantial damages against us, regardless of our responsibility for such failure.
 
We operate in a competitive market which could constrain our future growth and profitability.
 
We operate in a competitive environment, competing for customers with biomedical device companies with varying degrees of specialization in dental devices. Many of our competitors offer complimentary products and/or services that we do not offer. Moreover, some of our competitors are much larger than we are, have proven products and may have the marketing and sales capabilities to commercialize competing products more effectively than we can.
 
If we cannot build and maintain strong brand loyalty our business may suffer.
 
We believe that the importance of brand recognition will increase as more companies produce competing products. Development and awareness of our brands will depend largely on our ability to advertise and market successfully. If we are unsuccessful, our brands may not be able to gain widespread acceptance among consumers. Our failure to develop our brands sufficiently would have a material adverse effect on our business, results of operations and financial condition.
 
We may not be able to hire and retain qualified technical personnel.
 
Competition for qualified personnel in the biomedical device industry is intense, and we may not be successful in attracting and retaining such personnel. Failure to attract qualified personnel could harm the proposed growth of our business.

 
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Product liability claims against us could be costly and could harm our reputation.
 
The sale of dental and medical devices involves the inherent risk of product liability claims against us. We cannot be certain that we will be able to successfully defend any claims against us, nor can we be certain that our insurance will cover all liabilities resulting from such claims. In addition, there is no assurance that we will be able to obtain such insurance in the future on terms acceptable to us, or at all. Any product liability claims brought against us could harm our reputation and cause our business to suffer.
 
We license patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.
 
We are party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful for our business. We may enter into additional licenses to third-party intellectual property in the future. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. In addition, our licensors may terminate their agreements with us in the event we breach the applicable license agreement and fail to cure the breach within a specified period of time.
 
Risks Related to Our Dependence on Third Parties
 
If a collaborative partner terminates or fails to perform its obligations under agreements with us, the development and commercialization of our products could be delayed or terminated.
 
If any of our collaborative partners or component suppliers do not devote sufficient time and resources to collaboration arrangements with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be adversely affected. In addition, if any existing or future collaboration partner were to breach or terminate its arrangements with us, the development and commercialization of our Systems could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization.
 
If third-party payors do not provide adequate reimbursements for the use of our Systems that are approved for marketing, our Systems might not be purchased or used, and our revenues and profits will not develop or increase.
 
Our revenues and profits will depend significantly upon the availability of adequate reimbursement for the use of our imaging Systems from governmental and other third-party payors. Reimbursement by a third party may depend upon a number of factors, including the third-party payors determination that use of a product is:
 
 
a covered benefit under its health plan;
 
 
safe, effective and medically necessary;
 
 
appropriate for the specific patient;
 
 
cost effective; and
 
 
neither experimental nor investigational.
 
Moreover, reimbursement rates may be based on payments allowed for lower-cost products that are already reimbursed, and/or may be incorporated into existing payments for other products or services producing lower than anticipated revenues.
 
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our Systems, we may not generate product revenue.
 
We have no commercial products, and currently have no established network for the sales and marketing. In order to successfully commercialize our products, we must build our sales and marketing capabilities or make arrangements with third parties to perform these services. We believe our Systems can be commercialized by specialty sales forces that market to the dental community. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

 
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Risks Related to Our Common Stock
 
Currently, there is a limited active trading market for our common stock, which may adversely impact your ability to sell your shares and the price you receive.
 
Although our common stock is quoted on the OTC:PK under the symbol “LLSR” there is a limited active trading market for our common stock and such a market may not develop or be sustained. We cannot assure you that an active public market will materialize as we are a development stage company and do not have revenue or profit. Furthermore, the OTC Bulletin Board is not a listing service or exchange, but is instead a dealer quotation service for subscribing members.
 
If our common stock ceases to be quoted on the OTC Bulletin Board or if an active market for our common stock does not develop, then you may not be able to resell the shares of our common stock that you have purchased, and you may lose all of your investment. If we establish an active market for our common stock, the market price of our common stock may be significantly affected by factors such as actual or anticipated fluctuations in our operating results, general market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the shares of developmental stage companies, which may materially adversely affect the market price of our common stock.
 
Furthermore, for companies whose securities are quoted on the OTC:PK, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.
 
Our common stock is deemed to be penny stock with a limited trading market.
 
The OTC Bulletin Board is generally considered to be a less efficient market than markets such as NASDAQ or other national exchanges. This may make it more difficult for you resell the shares of our common stock that you have purchased and more difficult for us to obtain future financing. Furthermore, our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or another national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock. Because our common stock is subject to the penny stock rules, you will find it more difficult to dispose of the shares of our common stock that you have purchased.
 
Shares eligible for future sale may adversely affect the market price of our common stock, exacerbate market price volatility and negatively impact our ability to raise capital in equity financings.
 
All of the current holders of our restricted common stock are or will be eligible to sell all or some of their shares of common stock, under certain conditions, pursuant to Rule 144 promulgated under the Securities Act (“Rule 144”). In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about our company. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the current public information requirement of Rule 144. In general, under Rule 144 as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of the effective date of our S-1 registration statement, a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding, or the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
 
The above summarization of Rule 144 notwithstanding, Rule 144 is not available for the resale of securities initially issued by a former shell company, such as us, until the following conditions are met:
 
 
the issuer of the securities has ceased to be a shell company;
 
 
the issuer is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act;
 
 
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the issuer has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; and
 
 
one year has elapsed since the issuer has filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer a shell company.
 
We have issued a total of 151,561,435 shares of which 90,913,435 are free trading or eligible to become free trading. This far exceeds the average daily trading volume for our common stock of approximately 26,470 shares. As a result of this imbalance, the sale or attempted sale of those formerly-restricted shares into the market can be expected to have a significant adverse effect on the market price of our common stock. This imbalance could also exacerbate volatility in the market price for our common stock – an increase in the market price could trigger an increased volume of sales or attempted sales, which could flood the market and cause the market price to decrease, resulting in price volatility.
 
A significant decrease in the market price of our common stock also could have a negative impact or our ability to raise capital in one or more equity financings on favorable terms, or at all.
 
We will need to raise additional capital in the future, but that capital may not be available.
 
Although we initially believed that the proceeds of our September 2006 and May 2007 private placements would be sufficient to support our Phase 2 and Phase 3 development plan, it has taken longer than we planned and cost more than we had forecast to complete our Beta Systems. As a result, we will need additional funding to complete the development of our OCT System and transition to manufacturing and begin marketing our Systems. We are in the process of seeking additional financing. Such additional financing may not be available when we need it or may not be available on terms that are favorable to us. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, or terminate our product development program.
 
We cannot assure you that we will be successful or that our operations will generate sufficient revenues, if any, to meet the expenses of our operations. Additionally, the nature of our business activities may require the availability of additional funds in the future due to more rapid growth than is forecast, and thus, we may need additional capital or credit lines to continue that rate of business growth. We may encounter difficulty in obtaining these funds and/or credit lines. Moreover, even if additional financing or credit lines were to become available, it is possible that the cost of such funds or credit would be high and possibly prohibitive.
 
If we were to decide to obtain such additional funds by equity financing in one or more private or public offerings, current stockholders would experience a corresponding decrease in their percentage ownership.
 
If we rely on stock issuances to fund any future acquisition activity, you may experience a dilution of your investment.
 
We intend to seek to acquire novel technologies in the dental field that we believe are commercially viable. Given our present financial and operational situation, it is likely that the purchase price in any such acquisition would be paid primarily in shares of our common stock. In the event of such an issuance, you would experience dilution of your percentage ownership of our common stock.
 
Our management controls a substantial percentage of our stock and therefore has the ability to exercise substantial control over our affairs.
 
As of December 31, 2010, our directors and executive officers beneficially owned 60,648,000 shares, or approximately 43.4%, of our outstanding common stock in the aggregate. Because of the large percentage of stock held by our directors and executive officers, these persons could influence the outcome of any matter submitted to a vote of our stockholders. This concentration of ownership may have the effect of:
 
 
delaying, deferring or preventing a change in control of our company;
 
 
entrenching our management and/or board;
 
 
impeding a merger, consolidation, takeover or other business combination involving our company; or
 
 
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
 
We have no independent directors and no committees of our Board of Directors composed of independent directors.
 
Currently, we have no independent directors or committees of directors. We cannot guarantee that our board of directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our controlling officers, stockholders or directors, including, without limitation, with respect to executive compensation, employment contracts and the like.
 
 
15

 
 
Prior to become a publicly reporting company we have not been required to comply with SEC reporting requirements, and future public reporting obligations may put significant demands on our financial, operational and management resources.
 
As a new public reporting company we are subject to the public reporting requirements of the Exchange Act and are required to implement an internal control structure and procedures for financial reporting, including those contemplated by Section 404 of the Sarbanes-Oxley Act, designed to enable us to produce consolidated financial statements and related disclosure within the time periods and in the form required under the Exchange Act. To comply with these requirements, we expect that we may need to hire additional accounting and finance staff and implement new financial Systems and procedures.
 
Our independent registered public accounting firm has expressed substantial doubt regarding our ability to continue as a going concern.
 
Our audited financial statements for the years ended December 31, 2010, December 31, 2009, and December 31, 2008 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their reports dated April 12, 2011, in connection with the audit of our financial statements for the year ended December 31, 2010 and December 31, 2009 that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern due to our having sustained operating losses and capital deficits from operations. The fact that we have received this “going concern opinion” from our independent registered public accounting firm will likely make it more difficult for us to raise capital on favorable terms and could hinder, to some extent, our operations. Additionally, if we are not able to continue as a going concern, it is likely that stockholders will lose all of their investment. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Item 2. 
Properties
 
We leased approximately 720 square feet of office space for our research and development activities at 8100 Park Boulevard, Pinellas Park, Florida pursuant to a month-to-month lease. Our lease for this space provided for rent of $695 per month. This lease was terminated at the end of October 2010 as the OCT development program had ceased due to lack of capital. Our Denville, New Jersey office is also the home of Dr. Gimbel, a director and our Executive Vice-President of Clinical Affairs. We do not have any formal agreement with Dr. Gimbel regarding the use of this address, and we pay no rent.
 
Item 3. 
Legal Proceedings
 
None
 
Item 4. 
Submission of Matters to a Vote of Securities Holders
 
No matters were submitted to a vote of stockholders during the fourth quarter of 2009.
 
PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information

Our common stock has been quoted on the Pink Sheets under the symbol “LLSR” from October 26, 2006 to November2009 when it commenced quotation on the OTC Bulletin Board.
 
The following table sets forth the high and low closing bid quotations for our common stock for each calendar quarter since January1, 2009, as reported by the Pink Sheets and the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not reflect actual transactions.
 
 
16

 
 
   
Bid Price Per Share
 
   
High
   
Low
 
2009
           
January 1 through March 31
  $ 0.14     $ 0.05  
April 1 through June 30
  $ 0.37     $ 0.07  
July 1 through September 30
  $ 0.09     $ 0.02  
October 1 through December 31
  $ 0.11     $ 0.03  
2010
               
January 4 through March 31
  $ 0.105     $ 0.034  
April 1 through June 30
  $ 0.045     $ 0.0102  
July 1 through September 30
  $ 0.0425     $ 0.0115  
October 1 through December 31
  $ 0.0225     $ 0.0036  

Number of Stockholders
 
As of March18, 2011 there were approximately 153 holders of record of our common stock and 146 beneficial owners of our common stock.
 
Dividend Policy
 
Historically, we have not paid any dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.
 
Item 6.
Selected Financial Data
 
Not required.
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The information set forth and discussed in this Management’s Discussion and Analysis is derived from our financial statements and the related notes.  You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes thereto included in this Annual Report on Form 10-K for the year ended December 31, 2010. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements, including those set forth in this Annual Report on Form 10-K.

Overview
 
Our company was incorporated in Nevada in February 1998 under the name Beekman Enterprises, Inc. In February 2001, our company changed its name to Virtual Internet Communications, Inc., and in April 2002, our company changed its name to Hypervelocity, Inc. Until September 2002, Hypervelocity was a consulting firm specializing in voice, data and video communications convergence, network design and integration. In September 2002, Hypervelocity dissolved its operating subsidiary and assigned its assets to an individual holding a note payable that was secured by the assets. From September 2002 until November 2004, Hypervelocity was non-trading public shell company, with no operations. In November 2004, we acquired Lantis Laser, Inc., a New Jersey corporation formed in January 1998 (“Lantis New Jersey”), in a reverse-triangular merger and succeeded to its business as our sole line of business. In connection with the merger, we changed our name to “Lantis Laser Inc.”
 
In the merger transaction, we issued a total of 63,859,250 shares of common stock, consisting of 60,648,000 shares issued to Lantis New Jersey shareholders and 3,211,250 shares issued to holders of convertible notes payable by Lantis New Jersey. The transaction was treated for accounting purposes as a reverse merger, with Lantis New Jersey being the accounting acquirer.
 
In September 2006, we completed a private placement of 5,850,000 shares of common stock at a price per share of $0.10. Investors received warrants to purchase one share of common stock at a price of $0.15 per share for each 1.8 shares of stock purchased. The placement agent received a warrant to purchase 178,750 shares of common stock at a price of $0.15 per share.
 
In May 2007, we completed a private placement of $2,526,500 of 5% Senior Convertible Notes. Investors received warrants to purchase four shares of common stock at a price of $0.25 per share for each $10 invested, and the placement agent received a warrant to purchase 2,947,583 shares of common stock at an exercise price of $0.25 per share.
 
All of the foregoing share amounts reflect a 1-for-2 reverse stock split that was effected in June 2006.

 
17

 

In an effort to reduce the liabilities of the Company, on July 1, 2010 the Company offered noteholders the opportunity to convert their Notes to common stock at $0.05 per share including any and all outstanding interest that has been accrued from the original $0.15 conversion price.  In addition, the Company offered to reset the exercise price of the warrants that were issued with the Notes to $0.075 from $0.25 and extend the warrants for a further three years from the original date of issue for all warrant holders. Through December 31, 2010, convertible notes of $1,942,000, including $386,687 of accrued interest, was converted to 39,173,333 shares of common stock.

We were formed to commercialize the application of novel technologies in the dental industry.  Our first product we are developing and plan to market, subject to FDA clearance being obtained, is our OCT System for dental diagnostic imaging.  We have the exclusive rights to OCT for certain applications in the dental field as defined in our license agreement with Lawrence Livermore National Laboratories (“Livermore”). We also have an exclusive license with University of Florida for a patented technology relating to the probe scanner which we intend deploying in the OCT System.  In July 2008 we signed an exclusive agreement with The Regents of California for a patent pending technology called “Near-infrared Transillumination for the Detection of Tooth Decay” or NIR.  This technology is synergistic with OCT as both modalities use the same light source and we expect to integrate it into the OCT System in the form of a chairside platform and sell it separately as a standalone imaging aid.  Research has shown the potential of the NIR and full development will commence upon the issue of the patent and adequate financial resources being available. Our development of the OCT System has taken place over the last five years with the objective of designing and building a System for dentistry that would meet two specific criteria: (1) sufficient resolution to enable the evaluation of oral tissue for the early detection of oral diseases; and (2) that the System would retail for approximately $30,000, making it accessible to almost all dentists for chairside use.
 
In Phase 1 development, we demonstrated that our System design provided adequate resolution for imaging oral structures. We are currently in Phase 2 and Phase 3 development with the objective of building 5 OCT Beta Systems for deployment in clinical use to generate feedback on the user interface and to provide data to support the FDA 510(k) application. We commenced Phase 3, the final pre-production phase, in June 2008 with industrial design, validation of the OCT System and FDA documentation and market introduction is targeted for the first quarter of 2013, subject to sufficient capital to complete development and commercialization being obtained..
 
Although we initially believed that the proceeds of our September 2006 and May 2007 private placements would be sufficient to support our Phase 2 and Phase 3 development plan, it has taken longer than we planned and cost more than we had forecast to complete development of our OCT System. We had anticipated that the development of the System would be completed by the fourth quarter of 2009, when transition to manufacturing will commence with product scheduled to be shipped in the first quarter of 2010.  However, we are unable to meet this timetable as our development program has been hampered by lack of funding.  In order to complete the Beta systems we need to redesign and fabricate two components of the System.  We are currently engaged in seeking funding and currently have no commitments for additional funding. We anticipate that from the time we obtain adequate we would be able to introduce the OCT System to dental market in an 18-24 month timeframe and subject to obtaining FDA clearance for marketing. We plan to outsource the manufacturing of the OCT System.
 
Fiscal Year Ended December 31, 2010 and 2009
 
Total Operating Revenues
 
We recognized $0 in revenue during the years ended December 31, 2010 and 2009. Revenues are anticipated to commence 24 months after financing is obtained to complete the OCT product development. Generation of sales can only commence upon FDA 510(k) clearance.
 
Total Operating Expenses
 
Total operating expenses for the year ended December 31, 2010 were $156,409 compared to $647,004 for the same period in 2009. This represented a decrease of $490,595, or 76%, primarily due to the reduced amount spent on research and development of $20,037 in 2010 compared to $173,116 in 2009.   The remaining decrease is attributable to the decrease in wages and related expenses from $200,000 in 2009 to $0 in 2010 as management did not have a management contract and did not receive any compensation in 2010. Other general and administrative expenses decreased from $162,462 in 2009 to $36,955 in 2010 due to the low level of activity due to lack of capital.
 
In June 2008, we initiated legal proceedings against two public relations consultants to recover the stock as a result of nonperformance. In October 2008, we settled the dispute, and the consultants agreed to return half of the stock they had received.  The stock, amounting to 3,000,000 shares, was returned to treasury in 2009 and cancelled.
 
We depreciate fixed assets. This resulted in an expense of $22,481 and $24,056 for the years ended December 31, 2010 and 2009, respectively. We determine the fair value of the undiscounted cash flows annually and sooner if circumstances change and determination is required, to value any impairment on our intangible assets and long-lived assets. As of December 31, 2010 and December 31, 2009, we determined there was no impairment charge.
 
 
18

 

Other Income (Expense)
 
Amortization of debt issuance costs of $30,618 for the year ended December 31, 2010 compares to $94,625 for the same period in 2009. The loss on investment of $81,332 relates to our share of the loss in the joint venture HyGeniLase, Inc., a development stage company. The difference in the interest expense - debt discount amounting to $125,729 and $344,585 in the years ended December 31, 2010 and 2009, respectively, relates to the 5% Senior Convertible Notes that were issued in May 2007. Interest expense, net of interest income, of $308,641 is the amount of interest payable on the notes for the year ended December 31, 2010 compared to interest of $208,123.  This increase is due to the increase in the interest rate payable from 5% to 10% as we defaulted by not having sufficient funds to pay the interest when interest payments were due.
 
Net Income (Loss)
 
We reported a net (loss) from operations of $(156,409) for the year ended December 31, 2010 versus $(647,004) for the year ended December 31, 2009. The decrease in the net loss is attributable to the decrease in total operating expenses, discussed above.
 
Provision for Income Taxes
 
There was no provision for income taxes for the year ended December, 2010 and 2009. There was no provision due to the carry forward of approximately $10,407,450 of net operating losses as of December 31, 2010 that we reserved in valuation allowances against this deferred tax asset.
 
Liquidity and Capital Resources
 
During the year ended, 2010, the balance in cash and cash equivalents increased by $9,382 from $0, representing a net increase of  $9,382 for the period, compared to a net decrease in cash and cash equivalents of $0 during the year ended December 31, 2009. The increase of $9,382 is reflective of cash used in operating activities of $65,450, includes a reduction in accounts payable and accrued expenses of $264,313, a decrease in prepaid expenses of $35,566 as well as adjustments to the net loss for non-cash interest expense relating to the debt discount amortization and beneficial conversion feature of $125,729. The Company also had cash provided for financing activities for the year ended December 31, 2010 in the amount of $74,832, from the proceeds of a $50,000 convertible loan and from the related party loans made by the principals in 2010 in the amount of $30,000.
 
As of December 31, 2010, we had current assets of $9,382 consisting of cash.
 
As of December 31, 2010, we had $2,183,754 in current liabilities, consisting of accrued interest payable on the 5% convertible note of $155,148; accounts payable of $438,946; the balance outstanding on the convertible 5% note payable which was reclassified from a long term liability to a current liability due to default in the second interest payment, amounting to $489,118; notes payable to management amounting to $1,100,542 for loans to provide the company with working capital.
 
We had a working capital deficit of $2,174,372 as of December 31, 2010.
 
As a development stage company, financial resources have been directed to product development and no revenue has yet been generated. This has caused significant doubt about our ability to continue as a going concern for a period of twelve months. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Critical Accounting Policies
 
Critical accounting polices include the areas where we have made what we consider to be particularly subjective or complex judgments in making estimates and where these estimates can significantly impact our financial results under different assumptions and conditions.
 
We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimate, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statement and the reported amounts of revenue and expenses during the periods presented. Actual results could be different than those estimates.
 
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:
 
 
19

 

Principles of Consolidation
 
Our consolidated financial statements include our accounts and the accounts of all of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Fair Value of Financial Instruments (other than Derivative Financial Instruments)
 
The carrying amounts reported in our consolidated balance sheets for cash and cash equivalents and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to us for similar borrowings.
 
Research and Development
 
We annually incur costs on activities that relate to research and development of new technology and products. Research and development costs are expensed as incurred. Certain of these costs would be reduced by government grants and investment tax credits where applicable. We have expensed our payments in connection with license agreements as research and development costs.
 
Revenue Recognition
 
We have not yet generated revenue. We anticipate recognizing revenue in accordance with the contracts we enter into for the distribution of the products that are currently in development.
 
Income Taxes
 
Under ASC 740 the liability method is used in accounting for income taxes.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
 
Uncertainty in Income Taxes
 
Under ASC 740-10-25 recognition and measurement of uncertain income tax positions is required using a “more-likely-than-not” approach.  We evaluate our tax positions on an annual basis and have determined that as of December 31, 2010 no additional accrual for income taxes is necessary.

Advertising Costs
 
We expense the costs associated with advertising as incurred. Advertising expenses for the years ended December 31, 2010 and the years ended December 31, 2009 are included in professional, consulting and marketing fees in the consolidated statements of operations.
 
Fixed Assets
 
Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets; computer and medical equipment – 5 years, and furniture and fixtures – 5 years.
 
When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.
 
Impairment of Long-Lived Assets
 
Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. We do not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, we recognize an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amounts and estimated fair value.
 
 
20

 

Earnings (Loss) Per Share of Common Stock
 
Basic net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (“EPS”) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. The common stock equivalents were not included in the computation of diluted earnings per share on the consolidated statement of operations due to the fact that we reported a net loss and to do so would be anti-dilutive for the periods presented.
 
Stock-Based Compensation
 
In 2006, we adopted the provisions of ASC 718-10 “Share Based Payments”. The adoption of this principle had no effect on the Company’s operations.
 
ASC 718-10 requires recognition of stock-based compensation expense for all share-based payments based on fair value.  Prior to January 1, 2006, we measured compensation expense for all of its share-based compensation using the intrinsic value method.

We have elected to use the modified-prospective approach method.  Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values.  Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values.  We recognize these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award.  We consider voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

We measure compensation expense for non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services".  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.  The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.  For common stock issuances to non-employees that are fully vested and are for future periods, we classify these issuances as prepaid expenses and expenses the prepaid expenses over the service period.  At no time have we issued common stock for a period that exceeds one year.

Debt Issuance Costs
 
Debt issuance costs relate to the fees paid in connection with our outstanding convertible notes. These fees are being amortized over the life of the convertible notes, which is three years. Should the notes be converted prior to the maturity date of three years, then the debt issuance costs will be amortized sooner.
 
Beneficial Conversion Features
 
ASC 470-20 applies to convertible securities with beneficial conversion features that must be settled in stock and to those that give the issuer a choice in settling the obligation in either stock or cash.  ASC 470-20 requires that the beneficial conversion feature should be valued at the commitment date as the difference between the conversion price and the fair market value of the common stock into which the security is convertible, multiplied by the number of shares into which the security is convertible.  ASC 470-20 further limits this amount to the proceeds allocated to the convertible instrument
 
Recent Issued Accounting Standards
 
In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on our financial statements.

In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

 
21

 

In December 2007, the ASC issued ASC 810-10-65, Noncontrolling Interests in Consolidated Financial Statements. ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment.

ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is determining the impact that the adoption of ASC 810-10-65 will have on the Company’s financial position, results of operations or cash flows.

In December 2007, we adopted ASC 805, Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.

ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted and the ASC is to be applied prospectively only. Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of ASC 805 is not expected to have a material effect on our financial position, results of operations or cash flows.
 
In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not believe that ASC 815 will have an impact on their results of operations or financial position.

In April 2008, ASC issued ASC 350, “Determination of the Useful Life of Intangible Assets”. This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. We do not believe ASC 350 will materially impact their financial position, results of operations or cash flows.

ASC 470-20, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”) requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. We do not believe that the adoption of ASC 470-20 will have a material effect on its financial position, results of operations or cash flows.

ASC 815-40, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC 815-40”), provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative., ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock. We are determining what impact, if any, ASC815-40 will have on our financial position, results of operations and cash flows

ASC 470-20-65, “Transition Guidance for Conforming Changes to, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“ASC 470-20-65”). ASC 470-20-65 is effective for years ending after December 15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency in application of the standard. We have computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and do not believe that ASC 470-20-65 will have a material effect on that accounting.

 
22

 

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on our results of operations or financial condition.

In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the rollforward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements.

Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

Not applicable.
 
 
Item 8.
Financial Statements and Supplementary Data
 
 
23

 
 
LANTIS LASER INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 AND 2009
 
 
 

 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   
Page(s)
     
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
2
     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
3
     
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2010 AND 2009
 
4
     
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
 
5
     
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
   
FOR THE PERIOD JANUARY 14, 1998 (INCEPTION) THROUGH DECEMBER 31, 2010
 
6
     
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)
 
7
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009.
 
F-8-F-29
  
 
F-2

 
  
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Lantis Laser Inc.
Denville, NJ

We have audited the accompanying consolidated balance sheets of Lantis Laser Inc. (the “Company”) as of December 31, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years ended December 31, 2010 and 2009 with cumulative totals since the Company’s inception.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lantis Laser Inc. as of December 31, 2010 and 2009, and the results of its consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years ended December 31, 2010 and 2009, with cumulative totals since January 14, 1998, the commencement of the development stage in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company is a development stage company and has sustained operating losses and capital deficits that raise substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KBL, LLP
New York, NY
April 12, 2011
 
 
F-3

 
 
LANTIS LASER INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009

   
DECEMBER 31,
   
DECEMBER 31,
 
   
2010
   
2009
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 9,382     $ -  
Prepaid expenses and other current assets
    -       35,566  
                 
Total Current Assets
    9,382       35,566  
                 
Fixed assets, net of depreciation
    24,590       47,071  
                 
Other Assets:
               
Debt issuance costs, net of amortization
    -       30,618  
                 
Total Other Assets
    -       30,618  
                 
TOTAL ASSETS
  $ 33,972     $ 113,255  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
LIABILITIES
               
Current Liabilities:
               
Accrued interest - convertible notes
  $ 155,148     $ 287,530  
Accounts payable and accrued expenses
    438,946       383,118  
Related party payable
    1,100,542       1,064,292  
Convertible notes payable, net of discount and beneficial conversion feature
    489,118       2,291,594  
                 
Total Current Liabilities
    2,183,754       4,026,534  
                 
Total Liabilities
    2,183,754       4,026,534  
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, $.001 Par Value; 10,000,000 shares authorized and 0 shares issued and outstanding
    -       -  
Common stock, $.001 Par Value; 990,000,000 shares authorized and 139,874,905 and 100,118,238 shares issued and outstanding
    139,874       100,201  
Additional paid-in capital
    6,949,807       4,604,586  
Additional paid-in capital - warrants
    1,167,987       1,167,987  
Deficits accumulated during the development stage
    (10,407,450 )     (9,786,053 )
                 
Total Stockholders’ Equity (Deficit)
    (2,149,782 )     (3,913,279 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 33,972     $ 113,255  

The accompanying notes are an integral part of the consolidated financial statements
 
 
F-4

 
 
LANTIS LASER INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)

               
CUMULATIVE
 
               
TOTALS SINCE
 
   
YEARS ENDED
   
INCEPTION
 
   
DECEMBER 31,
   
JANUARY 14,
 
   
2010
   
2009
   
1998
 
                   
OPERATING REVENUES
                 
Sales
  $ -     $ -     $ -  
                         
OPERATING EXPENSES
                       
                         
Research and development
    20,037       173,116       2,129,906  
Wages and wage related expenses
    -       200,000       979,981  
Professional, consulting and marketing fees
    76,936       88,945       4,433,937  
Other general and administrative expenses
    36,955       162,462       577,674  
Depreciation
    22,481       22,481       113,729  
Total Operating Expenses
    156,409       647,004       8,235,227  
                         
LOSS BEFORE OTHER INCOME (EXPENSE)
    (156,409 )     (647,004 )     (8,235,227 )
                         
Amortization of debt issuance costs
    (30,618 )     (94,625 )     (287,571 )
Loss in investment under equity method
    -       (81,332 )     (167,664 )
Interest expense - debt discount
    (125,729 )     (344,585 )     (1,017,246 )
Interest income (expense), net
    (308,641 )     (208,123 )     (699,742 )
Total Other Income (expense)
    (464,988 )     (728,665 )     (2,172,223 )
                         
NET LOSS BEFORE PROVISION FOR INCOME TAXES
    (621,397 )     (1,375,669 )     (10,407,450 )
Provision for Income Taxes
    -       -       -  
                         
NET LOSS APPLICABLE TO COMMON SHARES
  $ (621,397 )   $ (1,375,669 )   $ (10,407,450 )
                         
NET LOSS PER BASIC AND DILUTED SHARES
    (0.01 )     (0.01 )     (0.27 )
                         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    108,351,161       99,122,394       39,250,166  

The accompanying notes are an integral part of the consolidated financial statements

 
F-5

 
 
LANTIS LASER INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2010
WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)

                                       
Deficits
       
                                 
Additional
   
Accumulated
       
                           
Additional
   
Paid-in
   
During the
       
   
Preferred Stock
   
Common Stock
   
Paid-in
   
Capital-
   
Development
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Warrants
   
Stage
   
Total
 
                                                 
Balance - January 14, 1998
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
                                                                 
Shares issued to founders
    -       -       200       200       87       -       -       287  
                                                                 
Net loss for the period January 14, 1998 through December 31, 2003
    -       -       -       -       -       -       (408,404 )     (408,404 )
                                                                 
Balance January 1, 2004
    -       -       200       200       87       -       (408,404 )     (408,117 )
                                                                 
Shares issued in reverse merger
    -       -       81,788,563       81,589       (81,876 )     -       -       (287 )
                                                                 
Shares issued in conversion of notes
    -       -       3,211,250       3,211       256,318       -       -       259,529  
                                                                 
Net loss for the year
    -       -                               -       (251,734 )     (251,734 )
                                                                 
Balance December 31, 2004
    -       -       85,000,013       85,000       174,529       -       (660,138 )     (400,609 )
                                                                 
Net loss for the year
    -       -       -       -       -       -       (347,397 )     (347,397 )
                                                                 
Balance December 31, 2005
    -       -       85,000,013       85,000       174,529       -       (1,007,535 )     (748,006 )
                                                                 
Shares and warrants issued in private placement, net of placement fees
    -       -       5,850,000       5,850       307,507       208,143       -       521,500  
                                                                 
Shares issued for services rendered
    -       -       1,500,000       1,500       148,500       -       -       150,000  
                                                                 
Warrants issued to former noteholders
    -       -       -       -       -       159,610       -       159,610  
                                                                 
Warrants issued to consultant in private placement
    -       -       -       -       -       17,769       -       17,769  
                                                                 
Adjust fair value of warrants issued in private placement
    -       -       -       -       -       114,930       -       -  
                                                                 
Royalty fees forgiven by Lawrence
                                                               
Livermore
    -       -       -       -       380,000       -       -       380,000  
                                                                 
Net loss for the year ended December 31, 2006 as previously reported
    -       -       -       -       -       -       (771,352 )     (771,352 )
                                                                 
Prior period adjustment - correction of an error see Note 10
    -       -       -       -       -       (114,930 )     114,930       -  
                                                                 
Net loss for the year ended December 31, 2006 as restated
    -       -       -       -       -       -       (656,422 )     (656,422 )
                                                                 
Balance December 31, 2006
    -       -       92,350,013       92,350       1,010,536       385,522       (1,663,957 )     (175,549 )
                                                                 
Warrants issued to placement agent
    -       -       -       -       -       292,518       -       292,518  
                                                                 
Warrants issued to convertible noteholders
    -       -       -       -       -       513,132       -       513,132  
                                                                 
Beneficial conversion feature on convertible notes
    -       -       -       -       505,300       -       -       505,300  
                                                                 
Shares issued for services rendered (including prepaid services)
    -       -       6,460,000       6,460       2,528,090       -       -       2,534,550  
                                                                 
Exercise of warrants
    -       -       163,375       163       40,584       (16,241 )     -       24,506  
                                                                 
Net loss for the year ended December 31, 2007
    -       -       -       -       -       -       (2,174,069 )     (2,174,069 )
                                                                 
Balance December 31, 2007
    -       -       98,973,388       98,973       4,084,510       1,174,931       (3,838,026 )     1,520,388  
                                                                 
Exercise of warrants
    -       -       69,850       70       17,352       (6,944 )     -       10,478  
                                                                 
Shares issued for services rendered (including prepaid services)
    -       -       1,075,000       1,075       228,425       -       -       229,500  
                                                                 
Net loss for the year ended December 31, 2008
    -       -       -       -       -       -       (4,572,358 )     (4,572,358 )
                                                                 
Balance December 31, 2008
    -       -       100,118,238       100,118       4,330,287       1,167,987       (8,410,384 )     (2,811,992 )
                                                                 
Exercise of warrants
    -       -       -       -       -       -       -       -  
                                                                 
Shares returned to treasury and retired
                    (3,000,000 )     (3,000 )     3,000       -       -       -  
                                                                 
Shares issued upon conversion from note payable
                    833,334       833       111,049       -       -       111,882  
                                                                 
Shares issued for services rendered (including prepaid services)
    -       -       2,250,000       2,250       160,250       -       -       162,500  
                                                                 
Net loss for the year ended December 31, 2009
    -       -       -       -       -       -       (1,375,669 )     (1,375,669 )
                                                                 
Balance December 31, 2009
    -     $ -     $ 100,201,572     $ 100,201     $ 4,604,586     $ 1,167,987     $ (9,786,053 )   $ (3,913,279 )
                                                                 
Shares issued for services rendered (including prepaid services)
    -       -       500,000       500       19,500       -       -       20,000  
                                                                 
Shares issued upon conversion from note payable
    -       -       39,173,333       39,173       2,289,514       -       -       2,328,687  
                                                                 
Beneficial conversion feature on convertible notes
    -       -       -       -       36,207       -       -       36,207  
                                                                 
Net loss for the year ended December 31, 2010
    -       -       -       -       -       -       (621,397 )     (621,397 )
                                                                 
Balance December 31, 2010
  $ -     $ -     $ 139,874,905     $ 139,874     $ 6,949,807     $ 1,167,987     $ (10,407,450 )   $ (2,149,782 )

The accompanying notes are an integral part of the consolidated financial statements

 
F-6

 
 
LANTIS LASER INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
WITH CUMULATIVE TOTALS SINCE JANUARY 14, 1998 (INCEPTION)

               
CUMULATIVE
 
   
YEARS ENDED
   
TOTALS SINCE
 
   
DECEMBER 31,
   
INCEPTION
 
   
2010
   
2009
   
JANUARY 14, 1998
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (621,397 )   $ (1,375,669 )   $ (10,407,450 )
                         
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation
    22,481       22,481       113,729  
Amortization of debt issuance costs
    30,618       94,625       287,571  
Interest expense - debt discount
    55,389       173,648       504,606  
Interest expense - beneficial conversion feature
    70,340       170,938       512,641  
Loss on investment under equity method
    -       81,332       167,664  
License fees payable for research and development
    -       -       605,000  
Warrants issued to former noteholders and consultants
    -       -       469,897  
Common stock issued for consulting services
    20,000       150,000       879,050  
                         
Changes in assets and liabilities
                       
Decrease (increase) in prepaid expenses
    35,566       (30,566 )     2,205,000  
Increase (decrease) in accounts payable and and accrued expenses
    60,999       325,312       1,564,782  
Accrued interest on convertible notes
    260,554       205,581       465,789  
Total adjustments
    555,947       1,193,351       7,775,729  
                         
Net cash used in operating activities
    (65,450 )     (182,318 )     (2,631,721 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Acquisitions of fixed assets
    -       -       (138,319 )
Investment under equity method
    -       -       (167,664 )
                         
Net cash used in investing activities
    -       -       (305,983 )
                         
CASH FLOWS FROM FINANCING ACTIVITES
                       
Proceeds from notes payable
    -       -       197,000  
Proceeds from exercise of warrants
    -       -       34,984  
Increase (decrease) in bank overdraft
    (5,168 )     5,168       -  
Proceeds from convertible notes and warrants, net of debt issuance costs
    50,000       -       2,284,310  
Payments of license fee payable
    -       -       (225,000 )
Proceeds from private placement, net of fees
    -       -       521,500  
Proceeds (payments) from related parties
    30,000       104,292       134,292  
                         
Net cash provided by financing activities
    74,832       109,460       2,947,086  
                         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    9,382       (72,858 )     9,382  
                         
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    -       72,858       -  
                         
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 9,382     $ -     $ 9,382  
                         
CASH PAID DURING THE YEAR FOR:
                       
Income taxes
  $ -     $ -     $ -