UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from --------- to ---------
Commission file number: 0-27840
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CELL ROBOTICS INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
Colorado 84-1153295
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(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
2715 Broadbent Parkway N.E., Albuquerque, New Mexico 87107
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (505) 343-1131
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class
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Common Stock, $.004 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
[ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 1996 were
$594,071.
As of March 31, 1997, the aggregate market value of the Common Stock of the
Registrant based upon the closing bid price of the Common Stock as quoted on
the OTC Electronic Bulletin Board held by non-affiliates of the Issuer was
$9,409,257. As of March 31, 1997, 5,013,414 shares of Common Stock of the
Issuer were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant hereby incorporates herein by reference the following
documents:
PART III
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Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The foregoing are incorporated by reference from the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders,
which will be filed in an amendment within 120 days of December 31, 1996.
PART IV - EXHIBITS
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1. Incorporated by reference from the Registrant's Current Report on Form
8-K dated February 23, 1995, as filed with the Commission on March 10,
1995.
2. Incorporated be reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2, which was declared
effective by the Commission on February 14, 1996.
3. Incorporated by reference from the Registrant's Current Report on Form
8-K dated May 18, 1995, as filed with the Commission on May 25, 1995.
4. Incorporated be reference from the Registrant's Post-Effective Amendment
No. 1 to Registration Statement on Form SB-2, filed with the Commission
on July 15, 1996.
<PAGE>
ITEM 1. BUSINESS
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HISTORY
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Cell Robotics was organized in 1988 under the laws of the State of New
Mexico to develop and commercialize the discoveries embodied in the AT&T
patent described below, as well as related technologies. In 1989, it obtained
an exclusive license from the Los Alamos National Laboratory ("LANL") covering
3 patented technologies. In 1991, it obtained a non-exclusive license
covering the AT&T patent and, using funding provided by Mitsui Engineering &
Shipbuilding Co., Ltd. ("Mitsui"), began developing instruments using those
technologies. In 1994, the license with AT&T was converted from non-exclusive
to exclusive. In February 1995, Cell Robotics undertook a reorganization with
Intelligent Financial Corporation, a Colorado corporation (the
"Reorganization" and "IFC," respectively), pursuant to which IFC acquired 100%
of the issued and outstanding shares of Common Stock of Cell Robotics in a
transaction accounted for as a reverse merger and subsequently changed its
name to "Cell Robotics International, Inc."
In 1995, the Company completed a $2.875 million private placement of its
securities through Paulson Investment Company, Inc., the Representative in
this Offering which served as Placement Agent. In connection with that
offering, the Company issued to the Representative a Placement Agent's
Warrant, which is exercisable for a period of five (5) years to purchase 11.5
Units at a price of $25,000 per Unit, each Unit consisting of 20,000 shares of
Common Stock and 10,000 Class A Warrants. The Company utilized the capital
raised in the private offering and in the subsequent exercise of Class A
Warrants sold in the private offering to complete the acquisition of its new
core technology related to medical laser devices and the development of its
initial three products utilizing that technology.
OVERVIEW
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Cell Robotics is currently developing a series of advanced laser research
instruments and medical laser devices utilizing two basic physics patents with
worldwide coverage in all material potential markets that form the basis of
its two core technologies. The Company has recently refocused its strategic
plan to concentrate on the development of its laser medical devices while
concurrently continuing to market its modularized scientific workstations to
the microbiological research community.
LASER MEDICAL DEVICES
---------------------
In 1996, the Company acquired exclusive worldwide patent rights for a
multi-faceted crystal resonator ("MCR") that permits the design and
manufacture of compact, robust, solid-state or crystal lasers at highly
competitive prices. Using that core technology, the Company devoted a
substantial amount of its effort during 1996 to develop new laser medical
devices.
The first newly developed product is a laser finger perforator, the
Lasette(-TM-), which permits the nearly painless sampling of capillary blood
for diabetic patients to test their blood sugar and for other blood
measurements. The Company has been granted an investigational device
exemption ("IDE") by the U.S. Food and Drug Administration ("FDA") for the
Cell Robotics Lasette(-TM-) and clinical trials are being completed. In
December, 1996, the Company submitted to the FDA its 510(k) application to
begin marketing the Lasette(-TM-) for professional and hospital use.
The second newly developed laser medical device allows the production of
a low-cost skin resurfacing laser that can be used for the rapidly growing
wrinkle removal market. The skin resurfacing laser technology has additional
applications in scar revision, burn debridement, hair removal and other
dermatological applications.
The In Vitro Fertilization Workstation(-TM-), a direct spin-off of the
Company's laser research instruments, has the potential of bringing improved
success and precision to the in vitro fertilization ("IVF") process. The In
Vitro Fertilization Workstation(-TM-) permits the mechanical injection of
sperm into the egg for couples that have sperm or male fertility problems and
permits computer-controlled laser-assisted-hatching in women whose egg's zona
or shell is too tough for the embryo to hatch out of once the embryo is
inserted into the mother.
The Company plans to concentrate its efforts in 1997 on the launch and
marketing of its three laser medical devices which are currently under
development.
LASER RESEARCH INSTRUMENTS
--------------------------
In 1996, the Company introduced the computer-controlled Cell Robotics
workstations for optical trapping, micromanipulation and microdissection. The
workstations' modularized design allows a customer to select among the
Company's proprietary instruments to customize a workstation for their
particular use. Sales of the scientific workstations were disappointing
during 1996; and while the Company believes that future sales will improve and
hopes that the scientific instruments division can reach break-even operations
in the future, the Company does not expect those products to contribute
materially to its goal of achieving future profitability. As a result, while
the Company is committed to continuing to serve the scientific community to
which it was initially dedicated, the principal focus of the Company's efforts
and resources in the future will be upon the development and commercialization
of its medical instruments.
CORE TECHNOLOGIES
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MEDICAL LASER DEVICE TECHNOLOGY
-------------------------------
On January 10, 1996, Cell Robotics acquired the intellectual property of
Tecnal Products, Inc., a subsidiary of Lovelace Scientific Resources, Inc.
This included acquiring a U.S. patent, a world patent office application
(which has since been allowed by the world patent office) and a strategic
agreement with the New Technology Engineering Center in Russia. The U.S.
patent and world patent office patent cover the multifaceted crystal resonator
(MCR) technology. MCR allows for the manufacture of low-cost, rugged, high-
powered solid-state lasers, without many of the delicate optical components
typically required in conventional solid-state lasers. The license agreement
with New Technology Engineering Center (NTEC) of Russia grants the Company the
right to jointly develop, refine and distribute newly developed laser
technologies developed by NTEC of Russia.
The patented laser technology consists of a low cost, solid-state laser
that is an improvement on conventional solid-state lasers and may allow Cell
Robotics to offer functionally equivalent medical lasers considerably below
the current market price for similar lasers. The advanced MCR laser design of
these laser products can be used in multiple applications including a laser
perforator (used for taking nearly painless capillary blood samples from
diabetics), skin resurfacing (facial wrinkle removal), pigmented lesions (leg
veins, spider veins), laser dentistry, and other medical and industrial
procedures.
OPTICAL TRAPPING TECHNOLOGY
---------------------------
The patent-protected technology of Cell Robotics' current research
product, LaserTweezers(-Registered Mark-), was initially developed by research
scientists at AT&T who discovered that by using a highly focused laser beam,
one could hold, or trap, and manipulate biological material. The patent was
issued to AT&T in 1989, and was licensed to Cell Robotics on an exclusive
basis in 1994. It covers all optical trapping using light having a wavelength
greater than 800 nanometers. The patent provides the Company with a
competitive advantage because light at wavelengths of less than 800 nanometers
has been shown not to be benign to biological material. The technology is
patented in the U.S., Canada, Japan, Australia, Hong Kong and the European
Community.
Microdissection with LaserScissors(-TM-) can be accomplished through the
use of lasers with shorter wavelengths of light. This process is not
protected by any patent, although combining the LaserScissors(-TM-) with the
LaserTweezers(-Registered Mark-) provides a powerful tool for biomedical and
biotechnology research. These two technologies are combined with other Cell
Robotics products under computer control in the Cell Robotics Workstation(-
TM-).
PRODUCTS
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MEDICAL LASER DEVICES
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Lasette(-TM-) -
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The Lasette(-TM-) is used to produce a small hole in a patient's
fingertip, allowing the collection of a few drops of capillary blood for
analysis. The Lasette(-TM-) is designed to take nearly painless capillary
blood samples from the finger and is believed to be a cleaner process than the
pinprick method now in use. The Company hopes the Lasette(-TM-) can replace
the use of stainless steel lancets which contribute to large quantities of
sharp, blood-infected medical waste and pose a cross contamination risk to
both the clinician as well as the patient.
Capillary blood collection from fingertips is a procedure that is
performed about a billion times each year in homes and hospitals. Many
diabetic patients are required to perform this procedure up to 10 times daily
in order to measure and manage blood sugar levels. Use of the Lasette(-TM-)
promises to decrease sharp medical waste, and to improve patient comfort by
reducing the pain and residual soreness associated with stainless steel
lancets.
On August 8, 1996 the U.S. Food and Drug Administration (FDA)
granted a conditional Investigational Device Exemption (IDE) to the Cell
Robotics Lasette(-TM-), with final approval granted in October 1996. This
allowed the Company to conduct clinical testing of the new miniature Lasette(-
TM-) laser device to support the evaluation of safety and efficacy prior to
market release. The initial clinical trial compared the effectiveness of the
laser device to that of conventional stainless steel blood lancets for 100
diabetic patients. The clinical trial is essentially complete, and the 510(k)
application for professional and hospital use was submitted to the FDA on
December 23, 1996.
Skin Resurfacing Laser -
----------------------
It is widely believed that skin resurfacing is the fastest growing
sector of the rapidly growing medical laser market. The Company's first
generation prototype for an erbium:YAG (Er:YAG) skin resurfacing laser for
wrinkle removal and other dermatological applications has been completed.
Technology currently on the market using the CO2 laser for wrinkle
removal may cause some burning of the skin and a considerable healing time can
be associated with the treatment. Cell Robotics will offer a new generation
of skin resurfacing lasers that use a wavelength which has been recognized by
the scientific community as minimizing damage to the skin.
The Cell Robotics skin resurfacing laser will be an Er:YAG laser,
which the Company believes is a better wavelength for the procedure. The
target selling price for this laser is below $40,000, which is considerably
below the selling price of most of the currently available CO2 lasers.
Additional dermatology lasers for hair removal and tattoo removal
may be added later to expand the product line.
The laser skin resurfacing product 510(k) was submitted to the FDA
on February 5, 1997. A response from the FDA is expected in May, 1997.
Current planning places this product on the market by late 1997.
In Vitro Fertilization Workstation(-TM-) -
----------------------------------------
The In Vitro Fertilization Workstation(-TM-) will offer laser-
assisted sperm injection and will introduce laser-assisted hatching as an
option to improve pregnancy rates in IVF procedures. IVF is a rapidly growing
area of human infertility treatment, however success rates with current
procedures are quite varied among IVF clinics. In a research setting, CRI's
technology has been successfully applied to animal models, and a similar
laser-assisted hatching device developed by a member of the Company's board of
technical advisors has produced over 50 healthy babies in Austria. There are
currently over 1,200 IVF clinics worldwide, with approximately 100,000 IVF
cycles performed annually. The In-Vitro Fertilization Workstation(-TM-) was
unveiled at the American Society for Reproductive Medicine on November 2-6,
1996 and was very well received by the physicians and other professionals in
attendance. If all regulatory approvals are obtained, this product is
expected to be on the U.S. market in approximately one year, but may be
introduced earlier in selected international markets.
A draft of the Investigational Device Exemption (IDE) application
for clinical trials of the In Vitro Fertilization Workstation(-TM-) was
submitted to the FDA for initial review, and comments from the FDA were
received in mid-September 1996. Based on these comments, Cell Robotics
submitted a second draft of the IDE protocol to the FDA in December 1996. The
IDE was approved by the FDA in March, 1997. Plans are currently underway to
begin clinical trials in five (5) clinics.
RESEARCH PRODUCTS
-----------------
In 1996, the Company introduced the computer-controlled Cell Robotics
workstations for optical trapping, micromanipulation and microdissection.
These workstations are based on the Company's core LaserTweezers(-Registered
Mark-), LaserScissors(-TM-), CellSelector(-TM-) and SmartStage(-TM-)
technologies. The functionality of these workstations has been improved
through the addition of computer control, providing more powerful and user-
friendly features such as interactive software with mouse or keyboard control,
unique motorized stage and motorized focus drive providing motion in three
directions.
Microscope Workstation -
----------------------
The Microscope Workstation serves as the platform for the on-screen
computer control of Cell Robotics' LaserTweezers(-Registered Mark-),
LaserScissors(-TM-), and CellSelector(-TM-) and SmartStage(-TM-) modules. It
includes an electronic controller, motorized stage, computer, motorized focus
drive, instrument control software, and video camera. It features precise,
easy-to-customize computer control, and allows performance and observation of
experiments entirely on the computer screen. Video capture capabilities allow
push button image and video clip capture. The Workstation software can be
integrated with other commonly used laboratory software packages. The
Microscope Workstation sells for a retail price of $25,000.
Cell Robotics Workstation(-TM-) -
-------------------------------
The Cell Robotics Workstation(-TM-) integrates the Company's
research instruments into a complete computer-controlled optical trapping and
ablation workstation. The Workstation provides and improves upon functions
that are routinely used in research microscopy and micromanipulation. With
the Microscope Workstation, instruments are controlled via an easy-to-use
software program. Performance and observation of experiments are entirely on
screen. Video and image capture capabilities allow the storage of images
while experiments are in progress for use in papers, reports, and
presentations. The Cell Robotics Workstation(-TM-) includes the
LaserTweezers(-Registered Mark-), LaserScissors(-TM-), and CellSelector(-TM-)
modules, an electronic controller, a motorized stage, computer, motorized
focus drive, instrument control software, and video camera. The Cell Robotics
Workstation(-TM-) sells for a retail price of $80,940.
LaserTweezers(-Registered Mark-) Workstation -
--------------------------------------------
The LaserTweezers(-Registered Mark-) Workstation includes the
Microscope Workstation which provides computer control of the LaserTweezers(-
Registered Mark-) optical trapping module and CellSelector(-TM-). It converts
an inverted research microscope into an optical trapping instrument, allowing
unprecedented control in the manipulation of living cells, chromosomes,
microbeads, and liposomes. The LaserTweezers(-Registered Mark-) Workstation
sells for a retail price of $52,250, depending on options and features.
LaserScissors(-TM-) Workstation -
-------------------------------
The LaserScissors(-TM-) Workstation also includes the Microscope
Workstation which provides computer control of the LaserScissors(-TM-) 390/20
module. This laser-based microdissection system functions as a microscalpel
for the dissection of cells, chromosomes, and neurons. The LaserScissors(-TM-
) Workstation sells for a retail price of $52,440, depending on options and
features.
APPLICATIONS OF CORE TECHNOLOGY
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The Company's multifaceted crystal resonator ("MCR") technology allows
for the production of a low-cost high-powered solid-state laser, and has a
broad range of applications, including skin ablation and resurfacing.
Currently, the Company is incorporating the MCR in its Lasette(-TM-) and skin
resurfacing laser products.
Cell Robotics' revolutionary microrobotic technology allows scientists to
manipulate objects in microspace, upgrading the microscope from simply an
instrument for observation to an interactive micro-laboratory. The technology
enables researchers to use Cell Robotics' products for cell separation, cell-
cell interaction, microdissection, and intercellular manipulation of living
cells. The Company has either demonstrated itself or is aware of others using
its products in cancer research and immunology, neurobiology, assisted
reproductive techniques and genome research.
MARKETS
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MEDICAL DEVICES
---------------
The Company has adopted a strategy to initially address three separate
markets for its advanced laser medical instruments.
The Lasette(-TM-) is a product that addresses the collection of capillary
blood from fingertips, which according to industry data is a procedure that is
performed over one billion times a year in homes and hospitals. Diabetics
throughout the world must use lancets daily at home or in the hospital to
monitor blood sugar levels. The recurring needle sticks become extremely
painful when performed on a daily basis, causing approximately 70% of
diabetics not to take daily blood samples. The Company believes that its
Lasette(-TM-) will reduce the pain involved in this procedure and reduce the
risk of inadvertent infection in both the clinician and the patient.
The second market the Company plans to enter with its patented MCR solid-
state Er:YAG laser is the skin resurfacing market. The skin resurfacing
market was estimated to be approximately $1.5 billion by Laser Focus World in
August 1995. Skin resurfacing is the fastest growing field in dermatology,
with approximately 25,000 dermatologists, plastic surgeons and general
physicians that can perform skin resurfacing procedures in the U.S.
The In Vitro Fertilization Workstation(-TM-) will offer both sperm
injection as well as the innovative feature of laser-assisted hatching as an
option to improve pregnancy rates in in vitro fertilization procedures. IVF
is a rapidly-growing area of human fertility treatment; however, success rates
of current procedures are quite varied among IVF clinics. It is estimated
that approximately 100,000 IVF cycles are performed annually worldwide.
Assuming the Company is able to maintain its arrangement for the
manufacture of low-cost MCR crystals through its Russian supplier, the Company
believes that it has the ability to develop high-performance, low-cost laser-
based products to respond to existing and future market demands for clinical
instruments that offer technologically advanced and low-cost solutions to
ongoing medical needs.
RESEARCH INSTRUMENTS
--------------------
The initial market for Cell Robotics' research workstations is the
national and international biology research community. In the United States,
the research market consists of approximately 108,000 research biologists
working in 2,400 institutions. The Company specifically targets inverted
microscopes, for which there are 10,000 existing users and approximately 1,000
new purchases made annually in the U.S. and Canada. Worldwide, the installed
base of inverted microscopes is approximately 33,000, with 3,000 additional
new sales annually. Another potential market, and a form of competition to
the Company's products, is the mechanical micromanipulator market. A
micromanipulator consists of a very thin needle, or micropipette, that
performs many of the same functions as the Company's LaserTweezers(-Registered
Mark-), CellSelector(-TM-) and SmartStage(-TM-), but is operated manually and
often compromises the sterility of the specimen. Annual sales of
micromanipulators total approximately 800 in the U.S. and 2,000 worldwide.
Principal markets for the Company are researchers using inverted
microscopes in universities, research laboratories, biotechnology and
pharmaceutical companies, and commercial laboratories currently conducting
biological research. The Company's marketing strategy is to identify key
scientists who are engaged in specific research applications for which the
Company's instruments are particularly well suited. By introducing leading
scientists in different branches of science to the Company's technology,
market penetration can be accelerated.
MARKETING AND SALES STRATEGY
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MEDICAL INSTRUMENTS
-------------------
The Company has only limited experience in the marketing of advanced
laser medical instruments. However, with the assistance of its newly-retained
Vice-President of Marketing and Sales, the Company intends to launch an
aggressive domestic and international marketing program for its Lasette(-TM-),
Skin Resurfacer and In Vitro Fertilization Workstation(-TM-) through a
combination of direct sales and strategic alliances with larger organizations,
including dealers and representatives, who can market such products through
their already-developed distribution network.
The Company has entered into a License and Development Agreement with GEM
Edwards, Inc. ("GEM Edwards"), one of the largest distributors of products to
the diabetic home market, to develop, manufacture and distribute the Lasette(-
TM-) in the United States. As part of that arrangement, GEM Edwards will pay
the Company a royalty on sales with minimum annual performance requirements.
Internationally, the Company intends to explore distribution relationships
with some of the prominent medical distribution companies that would be best
positioned to penetrate the existing markets for the Company's advanced
products. While the Company expects to be able to establish one or more of
these strategic alliances, in the absence of such an arrangement, the Company
will have to rely upon sales through existing networks of dealers and
manufacturer's representatives.
In the course of developing its medical instruments, the Company will
make decisions regarding potential development and distribution alliances
depending upon several factors, including the expense of obtaining regulatory
approval, the size of the target market for the product, and the potential
difficulties in marketing the product. Nevertheless, it is likely that all
international distribution of its products will be through licensing
arrangements and various forms of strategic alliances, as the complexities of
various regulatory and marketing procedures in foreign countries make it
inadvisable for the Company to undertake those efforts without assistance. If
the Company enters into strategic alliances or licensing arrangements with
respect to any of its products, it may retain the rights to co-market certain
of these products in certain defined geographical areas.
RESEARCH INSTRUMENTS
--------------------
While the Company intends to focus its marketing efforts on the
distribution and sale of its medical devices, it will continue to promote and
market its scientific instruments through dealers, representatives and
distribution arrangements.
Prior to 1996, the Company offered and sold its LaserTweezers(-Registered
Mark-), LaserScissors(-TM-) and other scientific instruments as stand-alone
products which could be bundled on a single workstation but were not designed
to be modularized, as are the current workstations. To current users of the
Company's prior product, the Company offers a trade-in arrangement whereby the
user can upgrade to the Company's current modularized workstations and receive
credit for a portion of the initial investment. The Company's existing user
base of scientific instruments, consisting of approximately fifty (50)
customers, is a prime target for the Company's future marketing efforts with
respect to its improved modularized workstation product line.
The Company previously had an exclusive distribution arrangement with
Carl Zeiss, Inc., one of the largest worldwide manufacturers of microscopes
and lenses. However, due to disappointing performance by Zeiss under the
Agreement, the Company chose not to renew the exclusive arrangement upon its
expiration on December 31, 1996, electing, instead, to convert the agreement
from an exclusive distribution arrangement to a non-exclusive arrangement.
The Company has decided that direct marketing of its scientific instrument
products will provide a more effective and lucrative strategy for this
industry segment. However, the Company will continue to use a variety of
distribution sources on a non-exclusive basis.
The Company also has a distribution agreement with Mitsui Engineering and
Shipbuilding Company, Ltd., an early investor in the Company's technology,
granting Mitsui exclusive distribution rights for the Company's products in
Japan for a term of ten years.
During 1996, Cell Robotics also expanded its international distribution
channels, and now has distributors in United Kingdom, Germany, Sweden,
Singapore/Malaysia, Hong Kong, Netherlands, Korea, India, Taiwan, and Israel.
Advertising and promotional efforts are both direct and indirect.
Specifically, the Company advertises in trade journals and attends both
national and international trade shows where its scientists frequently present
papers and lectures on the Company's technological advances and proprietary
instruments. Trade shows, in particular, give the Company the kind of face-
to-face exposure to end users that the Company believes will be its best means
to increase sales.
The Company's ongoing scientific research forms the subject matter of
papers which are published in scientific journals and magazines. The
publication and circulation of these papers has the effect of exposing the
scientific community to the Company's technology and proprietary instruments.
The Company has generated only limited sales to date and, while it has
engaged in initial marketing efforts, there can be no assurance that its
analysis of the potential markets for its products will be confirmed by actual
experience.
MANUFACTURING
- -------------
Cell Robotics currently leases an office, development and manufacturing
facility in a 12,000 square-foot building in Albuquerque, New Mexico. The
Company believes that its facility will suit its needs over the next two years
and is large enough for its current production levels. The facility contains
production and testing equipment, a small inventory of its core products,
presentation space and executive offices. Cell Robotics uses the final
assembly and testing (FAT) approach to manufacturing. Cell Robotics' FAT
approach attempts to minimize the capital outlay by outsourcing parts to
machine shops and to circuit board companies, but completing all final
assembling and testing at the Company's facility to ensure the quality of the
final products. The Company plans to continue to use the FAT approach with
the current products.
On August 12, 1996, Cell Robotics announced a strategic alliance with Big
Sky Laser Technologies, a major OEM manufacturer and developer of medical
laser products. This alliance gives the Company an FDA compliant
manufacturing facility and medical laser product development capability for
the Company's new medical laser products. However, both companies will retain
the ability to independently develop new products and provide for the
manufacturing of those products. In addition, Cell Robotics will aggressively
pursue meeting the FDA Medical Device Quality System requirements, European
permission to market, and ISO 9000 certification. The alliance with Big Sky
Laser provides the ability to have them provide the manufacturing in the rapid
ramp-up in the production of the Lasette(-TM-) which must be done under FDA
"Medical Device Quality System" procedures. Cell Robotics will be
implementing the FDA Medical Device Quality System at its facility over the
next few months. The Company will also be pursuing European permission to
market and ISO 9000 certification.
COMPETITION
- -----------
The industry in which the Company competes with its medical instruments
is characterized by rapidly-evolving technology and intense competition. Many
companies of all sizes, including both large organizations as well as several
specialized biotechnology companies are engaged in activities similar to that
of the Company. The Company's larger competitors include Coherent, Sharplan
and Laserscope. In addition, colleges, universities, governmental agencies
and other public and private research institutions will continue to conduct
research and are becoming more active in seeking patent protection and
licensing arrangements to collect license fees, milestone payments and
royalties in exchange for license rights to technologies that they have
developed, some of which will be directly competitive with that of the
Company. Most of the Company's competitors have substantially greater
financial, research and development, human and other resources than the
Company.
Insofar as they integrate the Company's patented MCR laser, the Lasette(-
TM-) and the Skin Resurfacing Laser possess a competitive advantage due to the
compact, low-cost laser design that allows improved price/performance
characteristics. However, the Company's cost advantage is dependent upon its
ability to maintain its relationship with its Russian manufacturer, the
continuation of which cannot be assured. Alternative sources of supply for
the crystals, while available, would require the Company to substantially
increase the cost of its product and thereby lose a significant competitive
feature.
For example, currently the market for Skin Resurfacing CO2 Lasers has a
number of established companies, such as Coherent, Spectrum Medical, Tissue
Technologies, and Sharplan, producing lasers for dermatological purposes.
Carbon dioxide laser systems currently dominate the skin resurfacing market,
with prices ranging from over $120,000 for top-end systems to around $50,000
for low-end systems and weigh from 250-260 pounds. Cell Robotics believes
that its patented MCR Er:YAG laser could sell for around $35,000-$40,000,
weighing from 60-80 pounds. A portable, light-weight design should be a major
selling feature for this instrument, as many physicians desire the ability to
move a system between offices or clinics.
Cell Robotics' solid-state laser system will consist of a portable,
Er:YAG laser with a variable power supply, cooling system and disposable
delivery tip. The most striking feature of the system will be the location of
the laser in the handpiece, which will eliminate the need for the expensive
delivery systems, such as optical fibers or articulated arms, that make the
competing systems so heavy and expensive. In addition, the erbium wavelength
of the laser may enhance healing and reduce thermal damage to the skin.
The Company believes that its success is highly dependent upon its
gaining broad market recognition with its existing products, developing new
applications for its core technology and expanding that technological base
with new developments and discoveries to enhance existing products and develop
new products to respond to changing customer requirements and emerging
industry standards. There can be no assurance that the Company can achieve
these goals.
The Company believes that the principal factor effecting its competitive
position is the suitability of its instruments for a particular application.
Because of the highly specialized nature of its markets, such traditional
competitive factors as price, performance, delivery, upgradability and support
are less significant. The Company believes that it currently has the
potential of enjoying a favorable position in the existing and potential
emerging markets for its products primarily as a result of its proprietary
technology. However, the Company faces potential competition from a number of
established domestic and international companies, all of which have vastly
greater engineering, manufacturing, marketing and financial capabilities than
the Company. The ability of the Company to compete successfully in existing
and future markets will depend on elements both within and outside its
control, including, but not limited to, its success in market penetration,
protection of its products by effective utilization of intellectual property
laws, including full exercise of its patent rights, improvements in product
quality and reliability, ease of use and price, diversity of product line,
efficiency of production, the rate at which customers incorporate the
Company's instruments into their products, product introductions by the
Company's competitors and general domestic and international economic
conditions.
<PAGE>
INTELLECTUAL PROPERTY
- ---------------------
PATENTS AND LICENSES
--------------------
The Company licenses one (1) patent from AT&T currently issued in the
U.S., European Community, Japan, Canada, Australia and Hong Kong, three (3)
U.S. patents from the Regents of the University of California, Los Alamos
National Laboratory ("LANL"), holds two (2) additional patents, and has two
(2) patent applications pending.
Tecnal Patents -
--------------
On January 10, 1996, the Company acquired from Tecnal Products,
Inc., a subsidiary of Lovelace Scientific Resources, Inc., one U.S. patent,
one U.S. and one foreign patent applications and a strategic license. These
acquisitions comprised a package of technological assets covering two laser
products: a low-cost, high-power solid-state laser that eliminates many of
the delicate optical requirements of conventional solid-state lasers, and a
laser perforator (Lasette(-TM-)) that will permit a nearly painless method of
obtaining capillary blood samples for monitoring the blood sugar levels of
diabetic patients. The U.S. application acquired from Tecnal has resulted in
the issue of a U.S. patent covering certain aspects of a laser skin perforator
using special crystal designs to achieve improved performance. A continuance
of this application seeking to expend the coverage is currently pending before
the U.S. Patent and Trademark Office.
The international application acquired from Tecnal has resulted in an
issued world patent covering CRI's advanced solid-state laser technology.
Subsequent applications based on this patent are pending in the European
Community, Canada, China, Australia and Japan.
The license agreement which was acquired is with New Technology
Enterprise Center (NTEC) of Russia which was originally responsible for the
development of the technologies acquired from Tecnal Products, Inc.
The advanced laser design can be used in a large variety of laser
applications, including skin resurfacing (facial wrinkle removal), laser
dentistry, eye surgery and other medical and industrial procedures. The
Company intends to augment its recently-announced Cell Robotics Workstation(-
TM-) and its LaserTweezers(-Registered Mark-) and LaserScissors(-TM-) with new
products based upon this advanced design.
The Company acquired the technological assets in consideration of
cash payments in the amount of $15,000, the issuance of an aggregate of 17,500
shares of Common Stock and the grant of 1% royalty on future sales based upon
the technology, with a lifetime maximum of $20,000.
AT&T License -
------------
The Company has entered into a license agreement with AT&T pursuant
to which the Company has been granted a worldwide exclusive license to
manufacture, use and sell products and processes covered by the claims of one
(1) U.S. patent held by AT&T related to "Optical Traps." The patent expires
in 2007. The inventions covered by the AT&T patent and license apply to the
Company's LaserTweezers(-Registered Mark-) and include not only a patent
issued in the United States but also in Canada, Japan, Australia, Hong Kong
and the European Community. Under the terms of the license, the Company is
required to pay a royalty equal to five percent (5%) of the value of each
product sold utilizing the patents, subject to minimum annual royalties of
$50,000 per year at December 31, 1996 and increasing by an additional $50,000
per year to as high as $500,000 per year, regardless of actual sales. As of
the date of this Annual Report on Form 10-KSB, the Company is current in its
minimum royalty payment obligations under the AT&T license. However, the
Company recognizes that the minimum royalty will escalate to a substantial
annual capital commitment, and there can be no assurance that its future
financial condition or results of operations will be able to support that
commitment.
LANL License -
------------
The Company has executed a license with LANL pursuant to which it
has been granted the exclusive worldwide rights to manufacture, use and sell
products and processes covered by the claims of two (2) U.S. patents held by
LANL expiring between 2007 and 2014, relating to various aspects of laser
technology, including laser transport and spectral imaging. Under the terms
of the recently renegotiated LANL license, the Company is obligated to pay an
annual license maintenance fee of $5,000. In addition to the license
maintenance fee, the Company will pay a royalty of 4% on sales derived from
one patent and a royalty of 2% from sales derived from another patent.
Royalties on sales are credited against the annual license maintenance fee.
The Company no longer believes that the technology covered by these patents is
needed for future product development and intends to terminate the license.
CRI's Patents -
-------------
The Company has also been issued two (2) patents and has two (2)
patent applications pending. The patents have been issued for the United
States only, one covering three dimensional mechanical staging and the other a
specialized chamber for the LaserTweezers(-Registered Mark-).
Because of rapid technological developments in the industries in
which the Company competes and the broad and rapidly developing patent
coverage, the patent position of the Company is subject to certain
uncertainties and may involve complex legal and factual issues. Consequently,
although the Company holds certain patents, is licensed under other patents
and is currently prosecuting additional patent applications, there can be no
assurance that patents will issue from any pending or future applications or
that claims allowed by any existing or future patents issued or licensed to
the Company will not be challenged, invalidated or circumvented, or that any
rights granted thereunder will provide adequate protection to the Company.
Moreover, the Company may be required to participate in interference
proceedings to determine the priority of inventions, which could result in
substantial costs to the Company.
Other Intellectual Property -
---------------------------
In addition to its patent rights, the Company relies upon certain
proprietary know-how in its manufacturing process and has entered into
employee and third party nondisclosure agreements to protect its proprietary
technology.
Although the Company has not received any claims that its products
infringe on the proprietary rights of third parties and believes that there
exists no basis for such a claim, there can be no assurance that third parties
will not assert infringement claims against the Company in the future with
respect to current or future products or that any such assertion may not
require the Company to enter into royalty arrangements or result in protracted
or costly litigation.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company's success will depend in large part upon its ability to
enhance existing products and to continue developing new products
incorporating the latest improvements in laser technology. Accordingly, the
Company is committed to investing significant resources in research and
development activities.
During the year ended December 31, 1996, the Company spent $600,000 on
internal research and development programs. As of December 31, 1996, three
(3) of the Company's scientists and engineers were engaged primarily in
research and development activities. The majority of funds expended by the
Company for its internal research and development activities was derived from
sales of capital stock and short-term borrowings from its principal
shareholder, Mitsui and the sale of securities in 1996. The Company does not
have any research arrangements with outside R&D firms and does not anticipate
entering into development arrangements with third parties in the foreseeable
future. The Company has, however, been awarded three (3) Small Business
Innovation Research ("SBIR") grants from various agencies of the U.S.
Government.
While the Company is actively engaged in long-term research projects and
the development of potential future applications for its core technology,
these projects are in the very preliminary stage and there can be no assurance
that any of these programs will be continued or completed. Even if these
programs are successful, the Company does not expect to introduce any
resulting products for at least six (6) months, and there can be no assurance
that any such products will be commercially successful.
GOVERNMENT REGULATION--PRODUCT APPROVAL PROCESS
- -----------------------------------------------
The Company is subject to a variety of government regulations pertaining
to various aspects of its manufacturing processes. For research applications,
the Company's current products are not subject to regulation by the United
States Food and Drug Administration. However, the Company's medical device
products do require extensive regulatory approval.
In the United States, the Company's medical instruments are subject to
rigorous regulation under federal and state statutes and regulations governing
the testing, manufacture, safety and efficacy, labeling, recordkeeping,
approval, advertising and promotion of the Company's products. Product
development and approval within this regulatory framework takes many months
and involves the expenditure of substantial resources. In addition to
obtaining FDA clearance of each product, each manufacturing establishment must
be registered with, and cleared for marketing by the FDA.
Each clinical product must engage in a lengthy regulatory review and
clearance process. During the pre-clinical testing stage, laboratory and
animal studies are conducted to show efficacy and safety. Thereafter, the
Company must apply for and obtain an investigational device exemption to
conduct clinical testing to support the evaluation of safety and efficacy
prior to market release. Clinical testing is undertaken under the supervision
of the FDA which prescribes the nature and scope of such testing, as well as
its duration. Once clinical testing is complete, if the results warrant, the
Company must apply for clearance to market and sell the products for a
clearly-defined use or application. Review of this final application and for
each additional application for the Company's product takes between four and
eight months.
For marketing outside of the United States, the Company or its
prospective licensees will be subject to foreign regulatory requirements
governing marketing approval for the products. The requirements governing
product licensing, pricing, and reimbursement vary from country to country,
with all European countries falling under the same guidelines. The Company's
efforts to comply with the ISO 9000 standards will greatly enhance its efforts
to enter the world market. The Company does not currently have any facilities
or employees outside of the United States, and intends to rely on its
strategic alliances in foreign markets to satisfy the regulatory requirements
imposed by other jurisdictions.
EMPLOYEES
- ---------
At March 31, 1997, the Company had fourteen (14) full-time employees and
three (3) part-time employees. Of the full-time employees, 4 were principally
engaged in research and development, 3 in manufacturing, 3 in marketing and
sales and the balance in administration and finance. None of the Company's
employees is represented by a labor union or covered by a collective
bargaining agreement. The Company has experienced no work stoppages and
believes that its employee relations are good. The Company believes that its
success will depend, in part, on its continuing ability to attract and retain
qualified technical, marketing and management personnel.
ITEM 2. DESCRIPTION OF PROPERTY
- ---------------------------------
The Company leases its offices and manufacturing facility in Albuquerque,
New Mexico. The facility consists of 12,132 square feet which contains the
corporate offices and houses production, testing and inventory. The lease
requires monthly payments of approximately $7,900 and expires November 30,
1997. The Company subleases 3,000 square feet of the facility at the rate of
$1,950 per month, which sublease expires upon sixty (60) days' notice. The
Company currently intends to continue its occupancy of its existing facility
and believes that this facility is adequate for its present and near-term
requirements. The equipment, fixtures and other assets of the Company located
within the facility are adequately insured against loss.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
The Company is not engaged in any pending or threatened material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
The Company did not submit any matters to a vote of its security holders
during the fourth quarter of its fiscal year ending December 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ---------------------------------------------------------------------------
The outstanding shares of Common Stock are traded over-the-counter
and quoted on the OTC Electronic Bulletin Board on a limited and sporadic
basis under the symbol "CRII." The reported high and low bid and asked prices
for the Common Stock are shown below for the period through March 31, 1997.
<TABLE>
<CAPTION>
Bid Ask
---------------- ---------------
Low High Low High
----- ------ ----- ------
<S> <C> <C> <C> <C>
1995
- ----
First Quarter $ 2.75 $ 3.625 $ 3.25 $ 4.00
Second Quarter 2.25 3.000 3.00 3.75
Third Quarter 1.00 3.125 2.25 3.50
Fourth Quarter 1.75 2.875 2.00 3.25
1996
- ----
First Quarter $ 1.375 $ 2.750 $ 1.625 $ 3.250
Second Quarter 1.875 3.875 2.125 4.125
Third Quarter 1.375 3.000 1.625 3.125
Fourth Quarter 1.375 2.875 1.563 1.938
1997
- ----
First Quarter $1.750 $2.688 $2.000 $2.000
- ------------------------------------
</TABLE>
The bid and ask prices of the Company's Common Stock on March 31, 1997
were $2.4375 and $2.5625, respectively, as quoted on the OTC Electronic
Bulletin Board. The prices presented are bid and ask prices which represent
prices between broker-dealers and do not include retail mark-ups and mark-
downs or any commissions to the broker-dealer. The prices do not reflect
prices in actual transactions.
As of March 31, 1997, there were approximately 195 holders of record of
the Company's Common Stock.
DIVIDENDS
- ---------
The Company has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. It is anticipated that any
earnings generated from operations of the Company will be used to finance its
ongoing operations. No restrictions exist upon the Company's ability to pay
dividends.
<PAGE>
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
- -------------------------------------------------------------------------
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
On February 23, 1995, the Company consummated the acquisition of Cell
Robotics in a tax-free reorganization (the "Reorganization") accounted for as
a reverse merger. As part of the Reorganization, the Company's historical
operations were discontinued and for accounting purposes the historical
operations of Cell Robotics became those of the Company. The following
discussion related to the financial condition and results of operations of
Cell Robotics without regard to the discontinued operations of the predecessor
business of the Company.
LIQUIDITY AND CAPITAL RESOURCES - DECEMBER 31, 1996 COMPARED TO DECEMBER 31,
1995
- ----------------------------------------------------------------------------
The Company experienced an improvement in capital resources and
liquidity, primarily the result of additional infusions of equity capital.
However, the Company's ongoing operating losses continue to erode the
Company's capital resources. This erosion is likely to continue until the
Company is able to establish and sustain profitable operations.
The Company's total assets increased $570,839 (28.5%) from $2,000,113 at
December 31, 1995, to $2,570,952 at December 31, 1996. Current assets
accounted for $469,107 (82.2%) of this increase. The remainder is accounted
for by increases in property, equipment, and other assets, net.
The increase in the Company's current assets of $469,107, or 26.8%,
resulted primarily from a $559,719 (48%) increase in cash and cash equivalents
and a $239,097 (141.4%) increase in inventory. The exercise of 100% of the
Company's Class A Common Stock Purchase Warrants generated net proceeds of
$2,002,312, which was the major factor behind the increase in cash and cash
equivalents. The increase in inventory was due to lower than expected sales
during the three month period ended December 31, 1996. Somewhat offsetting
the increases in cash and inventory were decreases in accounts receivable of
$319,763 (82.1%) and other current assets of $9,946 (34.2%). The decrease in
the balance of accounts receivable was also due to lower than expected sales
during the three month period ended December 31, 1996.
Property and equipment, net, increased $43,188 (20.2%), the result of new
purchases of $144,163, less the effects of depreciation. Other assets, net,
increased $58,544 (172.4%). This increase was the net result of three
factors: (i) the Company's acquisition of certain technological assets from
Tecnal Products, Inc.; (ii) the capitalization of costs related to internally
developed software, which are amortized as an element of cost of goods sold,
based on units sold which incorporate the software; and (iii) the write-off by
the Company of certain capitalized license issue fees relating to technologies
not incorporated in the Company's current product line, nor anticipated future
product lines.
Liabilities of the Company increased moderately from $310,167 at December
31, 1995, to $363,722 at December 31, 1996, an increase of $53,555 (17.3%).
Slight increases in accounts payable, payroll related liabilities, and other
current liabilities were partially offset by a decrease in royalties payable.
The Company did not have any long term liabilities on December 31, 1995 or
December 31, 1996.
Working capital as of December 31, 1996 was $1,858,088, as compared to
$1,442,536 on December 31, 1995, representing an increase of $415,552 (28.8%).
This enhancement of working capital was due largely to the exercise of the
Company's Class A Common Stock Purchase Warrants, and was partially offset by
the effects of the Company's operating loss during the twelve (12) month
period ended December 31, 1996. Management expects that the Company's working
capital will be sufficient to cover the reasonably anticipated operating
deficits of the Company during fiscal 1997.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the liquidity and capital
resources of the Company.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995.
- ---------------------------------------------------------------------------
The Company's gross revenues for the twelve (12) month period ended
December 31, 1996 were $594,071, a decrease of $338,690 (36.3%) over revenues
for the comparable period in 1995. During the fourth quarter of fiscal 1996,
the Company converted its exclusive distribution agreement with Zeiss to a
non-exclusive arrangement. Management believes this will allow the Company to
more aggressively market and sell its research based instruments through its
own internal efforts, as well as through other microscope companies. However,
the Company's ability to substantially increase future revenue is heavily
dependant upon the successful introduction and subsequent market acceptance of
its next generation product line consisting of laser based medical devices.
The gross margin realized by the Company on revenues generated during
fiscal 1996 was 28.1%, as compared to a gross margin of 22.3% realized during
fiscal 1995. This improvement in gross margin stems from the Company's
efforts to redesign its core optical trapping, cutting, and manipulating
research instruments into a "workstation-based" product line, resulting in a
more efficient and cost effective design. The Company began selling the re-
designed products during the second quarter of fiscal 1996.
Operating expenses incurred during fiscal 1996 were $1,840,291, an
increase of $637,863 (53.0%) over fiscal 1995 operating expenses of
$1,202,428. Accounting for the majority of this change was a 117.0% increase
in other operating expenses, from $298,397 in fiscal 1995, to $647,617 in
fiscal 1996. This increase reflects the Company's efforts expended on the re-
design of its core optical trapping research product line, as well as the
efforts to develop its next generation product line consisting of laser based
medical devices which leverage the Company's existing patented technology.
Also contributing to the increase in operating expenses was a $157,422 (37.3%)
increase in salaries and a $142,622 (153.2%) increase in professional fees.
The increase in salaries was driven by the hiring of additional personnel, and
an increase in the compensation of existing employees. Payroll taxes and
benefits increased correspondingly. Expenses related to the testing of the
Company's research instrument line to ensure compliance with certain federal
and international regulations contributed to the increase in professional
fees, as did fees related to the filing of international patents on the
Company's recently acquired proprietary technology and the new products
incorporating that technology. Slight decreases in rent and utilities,
travel, and depreciation and amortization served to partially offset the
overall increase in operating expenses.
Other income and expenses increased from a net deduction from income of
$372,576 during fiscal 1995 to a net contribution to income of $60,281,
accounted for primarily by a $344,364 (100.0%) reduction in interest expense,
which is the result of the conversion of a shareholder's note payable to
equity, thereby greatly reducing the Company's outstanding debt.
The foregoing resulted in the Company experiencing a net loss for the
twelve (12) months ended December 31, 1996 of $1,544,090, or $0.37 per
weighted average share. This compares to a net loss of $1,351,150, or $0.66
per weighted average shared, incurred during the comparable period of fiscal
1995. As a result of the exercise of Class A Common Stock Purchase Warrants,
the weighted average shares outstanding increased from 2,039,280 at December
31, 1995, to 4,197,499 at December 31, 1996.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the Company's results of
operations.
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The following financial statements and schedules are filed as a separate
section of this Report and attached hereto:
1. Independent Auditor's Report;
2. Balance Sheet - December 31, 1996 and December 31, 1995;
3. Statements of Operations - for the years ended December 31, 1996 and
1995;
4. Statements of Stockholders' Equity - for the years ended December
31, 1996 and 1995;
5. Statements of Cash Flows - for the years ended December 31, 1996 and
1995; and
6. Notes to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
On May 15, 1995 the Company's Board of Directors approved a change in the
Company's certifying accountant. The change was effective May 15, 1995.
The independent accountant who was previously engaged as the principal
accountant to audit the Company's financial statements was Schumacher &
Associates, Inc., Certified Public Accountants. None of Schumacher &
Associates, Inc.'s reports over the past two (2) years or the financial
statements of the Company contained any adverse opinion or disclaimer of
opinion, or was qualified or was modified as to uncertainty, audit scope of
accounting principles. Nor have there been any disagreement with the Company
and Schumacher & Associates, Inc. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure
during the past two (2) years and through the date of this report on Form 10-
KSB other than initial disagreements with respect to the appropriate carrying
value of the Company's investment in a portfolio security, which were
subsequently resolved to the satisfaction of the Company and Schumacher &
Associates, Inc.
The Company has retained the accounting firm of KPMG Peat Marwick LLP to
serve as the Company's principal accountant to audit the Company's financial
statements. This engagement was effective May 15, 1995. KPMG Peat Marwick
LLP has acted as principal independent accountant for Cell Robotics, Inc., a
New Mexico corporation ("CRI") which currently operates as a wholly-owned
subsidiary of the Company.
Prior to its engagement as the Company's principal independent
accountant, KPMG Peat Marwick LLP has not been consulted by the Company either
with respect to the application of accounting principles to a specific
transaction or the type of audit opinion that might be rendered on the
Company's financial statements.
<PAGE>
<PAGE>
PART III
Part III, Items 9, 10, 11 and 12 are incorporated herein by reference from the
Registrant's definitive proxy statement relating to its Annual Meeting of
Shareholders which will be filed in an amendment within 120 days of December
31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibits
- --------
** 3.1 Amended and Restated Articles of Incorporation
** 3.2 Amended and Restated Bylaws
** 3.3 Articles of Amendment to the Articles of Incorporation dated
May 23, 1995
** 4.1 Specimen Certificate of Common Stock
** 4.2 Specimen Class A Common Stock Purchase Warrant
** 4.3(a) Placement Agent's Common Stock Purchase Warrant for 6.8 Units
** 4.3(b) Placement Agent's Common Stock Purchase Warrant for 4.7 Units
** 4.4 Warrant Agreement
* 10.1 Placement Agency Agreement
* 10.2 Agreement and Plan of Reorganization between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel,
Inc., Bridgeworks Investors I, L.L.C., and Ronald K.
Lohrding.
* 10.3 Employment Agreement of Ronald K. Lohrding.
* 10.4 Employment Agreement of Craig T. Rogers.
* 10.5 Financing and Capital Contribution Agreement between and
among Cell Robotics, Inc., Intelligent Financial Corporation,
MiCel, Inc., and Bridgeworks Investors I, L.L.C.
* 10.6 Irrevocable Appointment of Voting Rights by Dr. Lohrding to
MiCEL, Inc.
* 10.7 Stock Pooling and Voting Agreement
** 10.8 Royalty Agreement dated September 11, 1995 between the
Registrant, Cell Robotics, Inc., and Mitsui Engineering &
Shipbuilding Co., Ltd.
** 10.9 Agreement of Contribution and Mutual Comprehensive Release
dated September 11, 1995 between the Company, Cell Robotics,
Inc. and Mitsui Engineering & Shipbuilding Co., Ltd.
** 10.10 Distribution Agreement dated April 6, 1995, between Carl
Zeiss, Inc. and the Registrant
** 10.11 Distribution Agreement dated December 15, 1994, between
MiCEL, Inc. and the Registrant
** 10.12 Revised License Agreement dated January 5, 1996 between the
Registrant and the Regents of the University of California
** 10.13 Purchase Agreement with Tecnal Products, Inc.
** 10.14 License Agreement with NTEC
***** 10.15 Employment Agreement of Travis Lee
**** 10.16 License Agreement dated May 13, 1996, between the Registrant
and GEM Edwards, Inc.
***** 11.1 Calculation of Loss Per Share for the for the twelve months
ended December 31, 1996 and 1995
*** 16.00 Letter of Schumacher & Associates, Inc., Certified Public
Accountants, filed pursuant to Item 304(a)(3) of
Regulation S-B
** 21.0 Subsidiaries
________________________________
* Incorporated by reference from the Registrant's Current Report on Form
8-K dated February 23, 1995, as filed with the Commission on March 10,
1995.
** Incorporated be reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2, which was declared
effective by the Commission on February 14, 1996.
*** Incorporated by reference from the Registrant's Current Report on Form
8-K dated May 18, 1995, as filed with the Commission on May 25, 1995.
**** Incorporated be reference from the Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form SB-2, filed with the
Commission on July 15, 1996.
***** Filed herewith.
CURRENT REPORTS ON FORM 8-K
- ---------------------------
The Company did not file any Current Report on Form 8-K during the
quarter ended December 31, 1996.
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Cell Robotics International, Inc.:
We have audited the accompanying consolidated balance sheets of Cell Robotics
International, Inc. and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cell
Robotics International, Inc. and subsidiary as of December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for the
years then ended in conformity with 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 12 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows from operations. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in note 12.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
February 21, 1997
Albuquerque, New Mexico
<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,724,671 $ 739,952
Restricted cash (note 5) - 425,000
Accounts receivable, net of allowance for
doubtful accounts of $1,841 and $2,500
in 1996 and 1995, respectively 69,845 389,608
Inventory 408,173 169,076
Other 19,121 29,067
------------ -----------
Total current assets 2,221,810 1,752,703
Property and equipment, net (note 3) 256,635 213,447
Other assets, net (note 4) 92,507 33,963
------------ -----------
$ 2,570,952 $ 2,000,113
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 160,824 $ 129,483
Payroll related liabilities 128,932 99,226
Royalties payable 42,029 56,587
Other current liabilities 31,937 24,871
------------ -----------
Total current liabilities 363,722 310,167
------------ -----------
Stockholders' equity (note 5):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, no shares issued and
outstanding - -
Common stock, $.004 par value. Authorized
12,500,000 shares, 5,003,414 and 3,825,914
shares issued and outstanding in 1996 and
1995, respectively 20,014 15,304
Additional paid-in capital 13,327,672 11,271,008
Accumulated deficit (11,140,456) (9,596,366)
------------ -----------
Total stockholders' equity 2,207,230 1,689,946
Commitments and contingencies (notes 9 and 11)
------------ -----------
$ 2,570,952 $ 2,000,113
============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended December 31, 1996 and 1995
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Product sales $ 594,071 $ 932,761
Research and development grants 69,190 9,906
------------ ------------
Total revenues 663,261 942,667
Cost of goods sold 427,341 718,813
------------ ------------
Gross profit 235,920 223,854
------------ ------------
Operating expenses:
Salaries 579,864 422,442
Payroll taxes and benefits 78,466 51,086
Rent and utilities 119,371 122,484
Travel 68,499 100,211
Depreciation and amortization 110,752 114,708
Professional fees 235,722 93,100
Other operating expenses 647,617 298,397
------------ ------------
Total operating expenses 1,840,291 1,202,428
------------ ------------
Loss from operations (1,604,371) (978,574)
------------ ------------
Other income (deductions):
Interest income 40,645 17,160
Interest expense (1,413) (345,777)
Other 21,049 (43,959)
------------ ------------
Total other income (deductions) 60,281 (372,576)
------------ ------------
Net loss $(1,544,090) (1,351,150)
============ ============
Average common shares outstanding $ 4,197,499 $ 2,039,280
============ ============
Net loss per common share $ (.37) $ (.66)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1996 and 1995
<CAPTION>
Cell Robotics, Inc. Cell Robotics International, Inc. Accumu-
Common Class A Common Class B Preferred Stock Common Stock Paid-in lated
Shares Amount Shares Amount Shares Amount Shares Amount capital deficit
--------- --------- ------- ------- ------ ------ --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 1,101,279 $1,602,967 58,239 $81,174 - - - - $1,202,665 $(8,245,216)
Forfeiture of shares at
$.00 per share (note 5) (491,499) - - - - - - - - -
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Cell Robotics, Inc.
(note 5) (609,780) (1,602,967) (58,239)(81,174) - - 668,019 2,672 1,681,469 -
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Intelligent Financial
Corporation (note 5) - - - - - - 300,008 1,200 248,800 -
Sale of shares at $1.00
per share (note 5) - - - - - - 380,000 1,520 378,480 -
Sale of shares at $1.25
per share, less costs
of offering (note 5) - - - - - - 2,300,000 9,200 2,251,968 -
Payment to a stockholder
(note 5) - - - - - - - - (250,000) -
Conversion of a
stockholder's debt to
equity (note 5) - - - - - - - - 5,758,338 -
Issuance of shares at
$0.00 per share
(note 5) - - - - - - 177,887 712 (712) -
Net loss for 1995 - - - - - - - - - (1,351,150)
--------- --------- ------- ------- ------ ---------------------- ----------- -------------
Balance at
December 31, 1995 - - - - - - 3,825,914 15,304 11,271,008 (9,596,366)
Issuance of shares for
asset acquisition
(note 4) - - - - - - 17,500 70 41,492 -
Exercise of warrants - - - - - - 1,150,000 4,600 1,997,712 -
Issuance of shares at
$1.75 per share - - - - - - 10,000 40 17,460 -
Net loss for 1996 - - - - - - - - - (1,544,090)
--------- --------- ------- ------- ------ ---------------------- ----------- -------------
Balance at
December 31, 1996 - $ - - $ - - $ - 5,003,414 $20,014 $13,327,672 $(11,140,456)
========== ========== ======= ======= ====== ====================== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 and 1995
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,544,090) $(1,351,150)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 126,096 114,708
Decrease (increase) in accounts receivable 319,763 (327,913)
Decrease (increase) in inventory (239,097) 39,422
Decrease (increase) in other current assets 9,946 (21,231)
Increase in other long-term assets (42,103) (11,120)
Increase (decrease) in accounts payable and
payroll related liabilities 61,047 (104,935)
Increase in accrued interest payable - 329,508
Increase (decrease) in other current
liabilities and royalties payable (7,492) 64,791
------------ ------------
Net cash used by operating activities (1,315,930) (1,267,920)
------------ ------------
Cash flows from investing activities - purchase
of property and equipment (144,163) (84,659)
------------ ------------
Cash flows from financing activities:
Proceeds from loans - 70,010
Repayments of loans - (172,400)
Payment to stockholder - (250,000)
Proceeds from issuance of common stock 2,030,000 3,345,000
Costs of offering common stock (10,188) (613,832)
Restricted proceeds released (received)
from issuance of common stock 425,000 (425,000)
------------ ------------
Net cash provided by financing activities 2,444,812 1,953,778
------------ ------------
Net increase in cash and cash equivalents 984,719 601,199
Cash and cash equivalents:
Beginning of year 739,952 138,753
------------ ------------
End of year $ 1,724,671 $ 739,952
============ =============
Supplemental information:
Interest paid $ - $ 12,659
Noncash financing activity: ============ =============
Note payable to a stockholder and
accrued interest contributed
to paid-in capital (note 5) $ - $ 5,758,338
============ =============
Stock issued in exchange for
asset acquisition (note 4) $ 41,562 $ -
============ =============
Short-term borrowings repaid with
common stock $ - $ 160,000
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) ORGANIZATION AND ACTIVITIES
---------------------------
(a) Organization
------------
Cell Robotics International, Inc., a Colorado corporation ("CRII"),
was organized on September 28, 1988 as Intelligent Financial
Corporation ("IFC"). As described in note 5, in 1995 the Company
acquired Cell Robotics, Inc. ("CRI"), a New Mexico corporation, in a
transaction which resulted in the stockholders of CRI owning 62.3
percent of IFC. Accordingly, the transaction was recorded as a
reverse purchase of IFC by CRI. Therefore, the historical financial
information in the accompanying financial statements is that of CRI
adjusted to reflect the capital structure of IFC. The consolidated
financial statements include the accounts of CRII and CRI (the
"Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
On May 19, 1995, IFC changed its name to Cell Robotics
International, Inc.
(b) Business
--------
The Company is developing and preparing to manufacture and market a
series of laser-based medical devices with applications in the blood
sample collection, skin resurfacing, and in vitro fertilization
markets. Currently, the Company also develops, produces and markets
a line of advanced scientific instruments which increase the
usefulness and importance of the conventional laboratory microscope.
The Company markets its scientific instruments in both domestic and
international markets. Currently, approximately two-thirds of the
Company's sales are in the United States, with Japan being the
largest international market.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) Financial Statement Estimates
-----------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(b) Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
all short-term investments with original maturities of three months
or less to be cash equivalents.
(c) Inventory
---------
Inventory is recorded at the lower of cost, determined by the first-
in, first-out method, or market.
Inventory at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Parts and components $ 267,273 $ 161,311
Sub-assemblies 140,900 7,765
------------ ------------
$ 408,173 $ 169,076
============ ============
</TABLE>
(d) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is
calculated on a straight-line basis over the estimated useful lives
of the assets, which range from five to seven years. Leasehold
improvements are amortized over the life of the lease.
(e) Licenses
--------
Licenses are recorded at cost and are amortized on a straight-line
basis over the shorter of economic or legal lives of the underlying
patents.
(f) Other Assets
------------
Certain legal fees and other related costs associated with start-up,
organization, license fees, software development costs, patents and
noncompete agreements have been capitalized. Start-up and
organization costs are amortized on a straight-line basis over five
years, loan acquisition costs are amortized over the life of the
respective loan, license fees are amortized over the life of the
license, and software development costs are amortized as sales occur
based on the estimated total number of units to be sold.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
--------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of this Statement did not have a material
impact on the Company's financial position, results of operations,
or liquidity.
(h) Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, royalties payable and accrued liabilities are
reflected in the financial statements at fair value because of the
short-term maturity of these instruments.
(i) Income Taxes
------------
The Company follows the asset and liability method for accounting
for income taxes whereby deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis
of existing assets and liabilities.
(j) Revenue
-------
The Company recognizes revenue on sales of its products when the
products are shipped from the plant and ownership is transferred to
the customer.
Total export sales, primarily in the Far East, were $248,278 and
$443,653 for the years ended December 31, 1996 and 1995,
respectively. Sales revenues to individual customers, each of which
accounted for 10 percent or more of total sales, are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Mitsui, a related party (note 5) $ 201,314 $ 229,043
Customer A 105,421 230,200
Customer B - 149,494
Customer C 92,821 -
============ ============
</TABLE>
(k) Research and Development
------------------------
Research and development costs related to both present and future
products are expensed as incurred. Research and development costs
consist primarily of salaries, materials and supplies.
(l) Warranties
----------
The Company warrants their microrobotic laser systems against
defects in materials and workmanship for one year. The warranty
reserve is reviewed periodically and adjusted based upon the
Company's historical warranty costs and its estimate of future
costs.
(m) Stock Option Plan
-----------------
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(n) Net Loss Per Common Share
-------------------------
Net loss per common share is based on the weighted average shares of
common stock and, if dilutive, common equivalent shares (options and
warrants) outstanding during the period. None of the common stock
equivalents were dilutive during the periods presented.
(o) Reclassification
----------------
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Furniture and fixtures $ 8,028 $ 8,028
Computers 299,894 250,164
Equipment 366,672 272,239
Leasehold improvements 48,150 48,150
------------ ------------
722,744 578,581
Accumulated depreciation (466,109) (365,134)
------------ ------------
Net property and equipment $ 256,635 $ 213,447
============ ============
</TABLE>
(4) OTHER ASSETS
------------
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Software development costs $ 59,019 $ 11,120
Patents 48,246 -
License and prepaid royalties - 36,320
Start-up and organization costs 33,116 33,116
Noncompete agreements 8,116 -
------------ ------------
148,497 80,556
Accumulated amortization (55,990) (46,593)
------------ ------------
Net other assets $ 92,507 $ 33,963
============ ============
</TABLE>
On January 10, 1996, the Company acquired certain technological assets
and covenants not to compete from Technal Products, Inc. for a
consideration of approximately $15,000 cash, 17,500 shares of the
Company's common stock and the grant of a 1 percent royalty on future
sales, with a lifetime maximum of $20,000.
During 1996, the Company expensed the remaining net costs relating to the
license and prepaid royalty on specific technology. That technology is
not currently incorporated into the Company's product lines and it is not
anticipated that it will be used in future products.
During 1995, the Company expensed the remaining net costs relating to the
acquisition of notes payable since all the principal and interest has
been forgiven and contributed to capital (note 7).
During 1996 and 1995, the Company capitalized $47,899 and $11,120 of
software development costs relating to a project whose technological
feasibility has been established. During 1996, the Company recorded
amortization of $15,345 as cost of goods sold.
(5) CAPITAL TRANSACTIONS
--------------------
In February 1995, IFC acquired 100 percent of CRI's issued and
outstanding shares of Class A and B common stock (the "Reorganization").
In connection with the acquisition, IFC issued 668,019 shares of IFC
common stock to shareholders of CRI, which represents 62.3 percent of the
issued and outstanding IFC common stock immediately following the
transaction. In addition, the options to purchase CRI's common stock
described in note 6 were exchanged for options to purchase the same
number of IFC shares of common stock with identical terms. This
acquisition was accounted for using the purchase method of accounting,
treating the merger as a reverse purchase of the assets and liabilities
of IFC by CRI. Immediately prior to the acquisition, all operations,
assets and liabilities of IFC, except $250,000 of receivables from CRI
and cash, were transferred to a separate entity ("IFHC"). The assets,
liabilities and results of operation of IFHC are excluded from the
accompanying financial statements. Pro forma results of operations of
the combined entities are substantially identical to the results of
operations of CRI presented in the accompanying statements of operations.
On September 19, 1995, the Company successfully closed a private equity
offering to selected qualified investors at a price of $25,000 per Unit
(the "Private Offering"). Each Unit consisted of 20,000 shares of Common
Stock and Class A Warrants exercisble to purchase an additional 10,000
shares of common stock at an exercise price of $1.75 per share. Proceeds
of the offering, net of offering costs, were $2,261,168 of which $425,000
was held in escrow until the Company's SB-2 was declared effective on
February 14, 1996 at which time the funds were released. During 1996,
100 percent of the Class A Warrants were exercised generating net
proceeds of $2,002,312. As part of the Private Offering the placement
agent was issued warrants to purchase 230,000 shares of common stock at
$1.25 per share and, if these placement agent warrants are exercised, the
placement agent will receive up to 115,000 additional Class A Warrants,
exercisable at $1.75 per share.
At December 31, 1994, CRI had outstanding notes payable of $5,400,000 due
to a wholly owned subsidiary of Mitsui Engineering and Shipbuilding
Company ("Mitsui"), a Japanese corporation, and majority stockholder of
CRI's Class A common stock at the time. Immediately prior to the
Reorganization, Mitsui voluntarily surrendered to CRI, for cancellation,
a total of 491,499 shares of common stock of CRI. During 1995, in
conjunction with the Private Offering and in accordance with agreements
entered into prior to the Reorganization, the Company paid to Mitsui the
sum of $250,000, issued to Mitsui 177,887 shares of CRII common stock,
increasing their ownership to approximately 8 percent, and Mitsui
contributed to the capital of the Company the $5,400,000 of notes payable
together with unpaid interest totaling $358,338.
(6) STOCK OPTIONS
-------------
The Company has adopted a Stock Incentive Plan ("the Plan") pursuant to
which the Company's Board of Directors may grant to eligible participants
options in the form of Incentive Stock Options ("ISO's") under Section
422 of the Internal Revenue Code of 1986, as amended, or options which do
not qualify as ISO's (Non-Qualified Stock Options of "NQSO's"). An
aggregate of 1,000,000 shares of the Company's Common Stock is reserved
for issuance under the Plan. Generally, stock options granted under the
Plan have five year terms and become fully exercisable after three or
four years from the date of grant.
During 1995, 97,579 options were re-priced to an exercise price of $1.75,
all vesting requirements were eliminated and the expiration date was
extended to December 31, 2003. The exercise price of $1.75 is only
effective if the options are exercised after January 1, 2000. If the
options are exercised before that date, the exercise price reverts back
to the original grant with an exercise price range of $2.39 to $2.50.
During 1996, the vesting requirements were eliminated on 360,000 options
having original, and in some cases amended, exercise prices of $1.75.
The following is a summary of the stock options granted under the Plan:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
------------------------
<S> <C> <C> <C>
Options at December 31, 1994 102,594 $ 2.39
Options expired (19,115) 2.39
Options granted 672,100 1.85
Options repriced (97,579) 2.41
Options repriced 97,579 1.75
-------- ------
Options at December 31, 1995 755,579 1.83
Options expired (34,753) 1.75
Options granted 175,000 2.17
Options exercised (10,000) 1.75
-------- ------
Options at December 31, 1996 885,826 $ 1.91
========== =======
</TABLE>
At December 31, 1996, range of exercise prices and weighted-average
remaining contractual life of outstanding options were $1.75 - $2.875,
and 4.20 years, respectively.
At December 31, 1996, the number of options exercisable was 665,826 and
the weighted average exercise price of those options was $1.77.
During 1995, the Board of Directors and stockholders approved an Employee
Stock Purchase Plan ("ESPP"). As of December 31, 1996 and 1995, no
shares of Common Stock have been issued under the ESPP and there have
been no subscriptions of employees to participate in the plan.
At December 31, 1996, there were 104,174 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock
options granted and modified during 1996 and 1995 was $239,818 and
$908,019, respectively, on the date of grant or amendment using the Black
Scholes option-pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield 0 percent, risk-free interest
rate of 6.6 percent, expected life of 4 years, and an expected volatility
of 80 percent; 1995 - expected dividend yield 0 percent, risk-free
interest rate of 6.0 percent, expected life of 4 years for original
grants and 7 years for modified grants, and an expected volatility of 80
percent.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the date of grant for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Reported net loss $(1,544,090) $(1,351,150)
Pro forma net loss (1,997,271) (1,751,909)
Pro forma net loss per share (.48) (.86)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
amounts presented above because compensation cost is reflected over the
options' vesting period and compensation cost for options granted prior
to January 1, 1995 is not considered.
(7) EMPLOYMENT AGREEMENTS
---------------------
At the closing of the Reorganization, the Company executed written
employment agreements, having terms of five years each, with two officers
of the Company. The employment agreement with one officer provides that
he will serve the Company as its Chairman, President and CEO, on a full-
time basis, for a minimum base salary of $100,000 per year. The
employment agreement with the other officer provides for his serving as
Vice President of Finance, on a part-time basis, for a minimum base
salary of $27,000 per year. No other officer receives any compensation
or is subject to any agreement or arrangement to receive compensation in
the future.
In December 1996, the Company executed a written employment agreement,
with a new officer of the Company. The employment period ends upon
discharge or resignation of the employee. The employment agreement
provides that the officer will serve the Company as Vice President of
Marketing, on a full-time basis, for a minimum base salary of $110,000
per year.
(8) OPERATING EXPENSES
------------------
For the years ended December 31, 1996 and 1995, operating expense
consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
General and administrative $ 710,330 $ 488,972
Marketing 420,976 262,799
Research and development 708,985 450,657
------------ ------------
$ 1,840,291 $ 1,202,428
============ ============
</TABLE>
(9) ROYALTY AGREEMENTS
------------------
The Company is party to four royalty agreements under which it must make
payments to the original holders of patents on components used in its
products. Such royalties are generally due upon sale of products
containing patented components.
The first royalty agreement pertains to the Company's exclusive license
agreement which continues until February 14, 2007. The royalty is
calculated as either (a) $1,000 for each patentable item included on a
product sold for an amount in excess of $75,000, or (b) one percent of
the selling price of a product sold for less than $75,000 which includes
a patentable item. Minimum annual royalty payments required to retain
the license are $15,000 each year. This royalty agreement was
renegotiated on January 5, 1996. Pursuant to the renegotiation, the
licensor agreed to accept $15,000 for full satisfaction of the old
license agreement. The new agreement consists of two underlying patents.
The new agreement continues until the expiration of the last underlying
patent which is February 14, 2007. Under the terms of the new agreement,
the Company agrees to pay a royalty equal to 4 percent of the net selling
price of products utilizing one patent and two percent of the net selling
price of products utilizing the other patent. Minimum annual royalty
payments required to retain the license are $5,000 per year. The Company
currently feels the technology covered in this license agreement is no
longer needed for future product development and intends to terminate the
license.
The second royalty agreement requires a royalty payment equal to 5
percent of revenue generated from sales by the Company's products and
pertains to the Company's major, worldwide, exclusive license agreement
which continues until March 31, 2016. Minimum royalty payments required
to retain this license are as follows:
<TABLE>
<CAPTION>
Twelve month period
ended March 31
<S> <C> <C>
1998 $ 150,000
1999 200,000
2000 250,000
2001 300,000
2002 400,000
Thereafter 4,550,000
------------
$ 5,850,000
============
</TABLE>
The third royalty agreement is with Mitsui (note 5). Under the terms of
the agreement, which continues until September 11, 2005, the Company
agrees to pay Mitsui a royalty equal to 1 percent of the aggregate net
sales of certain products.
The fourth royalty agreement requires quarterly royalty payments equal to
1 percent of the net revenues from sales of a certain product. The
royalty agreement stipulates that lifetime maximum royalty payments will
not exceed $20,000. The Company has the option to relieve itself of this
obligation by paying an amount equal to the difference between royalties
previously paid and the lifetime maximum of $20,000.
(10) INCOME TAXES
------------
No provision for federal or state income tax expense has been recorded
due to the Company's losses. The Company has net operating loss
carryforwards and temporary differences that give rise to the following
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,400,000 $ 2,800,000
Inventory capitalization 104,000 63,000
Obsolete inventory reserve 15,000 8,000
Vacation and sick leave payable 27,000 31,500
Allowance for doubtful accounts 625 625
Legal fees 9,000 11,000
------------ ------------
3,555,625 2,914,125
Less valuation allowance (3,536,625) (2,897,925)
============ ===========
Net deferred tax asset 19,000 16,200
Deferred tax liabilities:
Depreciation (19,000) (16,200)
------------ ------------
Net deferred income taxes $ - $ -
============ ============
</TABLE>
The net deferred taxes have been fully offset by a valuation allowance
since the Company cannot currently conclude that it is more likely than
not that the benefits will be realized. The net operating loss
carryforward for income tax purposes of approximately $10,000,000 expires
beginning in 2006. Ownership changes resulting from the Reorganization
(note 5) will limit the use of this net operating loss under applicable
Internal Revenue Service regulations.
(11) COMMITMENTS
-----------
The Company is obligated under a noncancelable operating lease for
building facilities which require minimum rental payment of $86,196 in
1997. Rent expense for 1996 and 1995 was $104,336 and $108,054,
respectively.
The Company is obligated under a noncancelable purchase agreement to
purchase 1,000 units of a particular inventory component at $125 per unit
for a total commitment of $125,000 during 1997.
(12) CAPITAL RESOURCES
-----------------
Since inception, the Company has incurred operating losses which have
resulted in an accumulated deficit of $11,140,456 and operations using
net cash of $1,315,930 in 1996.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Although the Company believes future sales of its scientific instrument
line will improve, it does not expect these products to materially
contribute to its goal of achieving future profitability. Accordingly,
the Company has begun development on, and is preparing to manufacture and
market a series of laser-based medical devices which leverage the
Company's existing base of patented technology. The Company believes the
markets for these new products are broader than that of the scientific
instrumentation market and, as such, offer a greater opportunity to
significantly increase sales. In addition, the Company is pursuing
development and marketing partners for several of its new medical
products. These partnerships will enhance the Company's ability to
rapidly ramp-up its marketing and distribution strategy, and possibly
offset the products' development costs.
Although the Company has refocused its strategy to concentrate on the
development of its laser based medical devices while continuing to market
its scientific instrument line, it does not anticipate achieving
profitable operations during fiscal 1997. As a result, the Company's
working capital surplus is expected to erode over the next twelve months.
Nevertheless, the Company expects that its present working capital
surplus will be sufficient to cover its expected operational deficits
during fiscal 1997.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. The ultimate
continuation of the Company is dependent on attaining profitable
operations.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: CELL ROBOTICS INTERNATIONAL, INC.
By (Signature & Title): /s/ Ronald K. Lohrding
-------------------------------------
Ronald K. Lohrding, President
Date: 4/15/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Signature & Title) /s/ Ronald K. Lohrding
-------------------------------------------
Ronald K. Lohrding
Chairman of the Board, President, and Chief
Date: 4/15/97 Executive Officer
(Signature & Title) /s/ Craig T. Rogers
-------------------------------------------
Craig T. Rogers
Date: 4/15/97 Secretary, Treasurer, Director
(Signature & Title) /s/ John Hanlon
-------------------------------------------
John Hanlon
Date: 4/15/97 Chief Financial Officer, Principal
Accounting Officer
(Signature & Title) /s/ Mark Waller
-------------------------------------------
Mark Waller, Director
Date: 4/15/97
(Signature & Title) /s/ Raymond Radosevich
-------------------------------------------
Raymond Radosevich, Director
Date: 4/15/97
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of December _____, 1996, is made and entered
into by and between CELL ROBOTICS, INC., a New Mexico corporation ("Company")
and H. TRAVIS LEE ("Employee"). For the definition of certain terms used in
this Agreement, see Section 6 below.
The Company and Employee agree as follows:
SECTION 1. EMPLOYMENT.
- ----------------------
1.1. ENGAGEMENT. The Company will employ Employee, and Employee
will accept employment, as an Employee of Company for the Term, subject to and
in accordance with the provisions of this Agreement.
1.2. DUTIES. During the Term, Employee will serve Company in the
capacity of Vice President for Sales and Marketing or such other capacity as
may be designated by the President. Employee's duties as an Employee of
Company include all of the duties normally associated with such capacity.
Employee's duties will also include such other activities, responsibilities
and duties as may reasonably be assigned from time to time by the President.
If Employee is elected or appointed by the Board as an officer or other
position with Company, Employee will perform the duties of such position as
described in the Company's bylaws or as determined from time to time by the
Board.
1.3. ATTENTION AND EFFORT. During normal business hours, for such
periods of time as the Company has specific projects assigned to Employee,
Employee will devote Employee's best efforts, entire productive time, ability
and attention to the business of Company. For such periods of time as there
are no specific projects assigned to Employee, Employee shall only be required
to devote such time, effort and attention to the affairs of the Company as may
from time to time be requested by the President or Board, subject to the
agreement of Employee. Further, during the Term, Employee will not, without
Company's prior written consent, directly or indirectly engage in any
employment, consulting or other activity which would interfere or conflict
with the performance of Employee's duties or obligations to Company or which
would directly or indirectly compete with Company.
SECTION 2. COMPENSATION.
- ------------------------
2.1. MOVING EXPENSE PAYMENT. In order to reimburse Employee for
expenses reasonably incurred by Employee to change his primary residence and
domicile to the State of New Mexico, the Company agrees to pay to Employee the
sum of Twenty Thousand Dollars ($20,000.00) on a non-accountable basis upon
execution of this Agreement. Such payment shall be deemed a loan from the
Company to Employee and shall be evidenced by a Promissory Note to be executed
and delivered by Employee in favor of the Company in the principal amount of
Twenty Thousand Dollars ($20,000.00). Notwithstanding the execution and
delivery of such Promissory Note, the Company agrees that the Promissory Note
shall be cancelled and be null, void and unenforceable, and Employee released
from any liability thereunder, in the event Employee remains in the continuous
employ of the Company for a period of twelve (12) months from the date of this
Agreement or such employment is terminated prior to the expiration of such
twelve (12) month period pursuant to paragraphs 3.4, 3.6 or 3.7 hereof.
2.2. BASE SALARY. During the Term, Company will pay Employee a base
salary equal to Nine Thousand One Hundred Sixty-Seven Dollars ($9,167.00) per
month, payable bi-weekly.
2.3. INCENTIVE COMPENSATION. In addition to base salary described
in paragraph 2.2, Employee may be entitled to receive such bonuses and other
compensation as may be determined by the Board or the President (e.g.,
pursuant to such bonus, stock and other incentive compensation plans as may be
adopted and maintained by Company during the Term).
2.4. BENEFITS. During the Term, Employee will be entitled to
participate in such fringe benefit programs (e.g., medical, dental,
disability, life insurance and vacation programs) as may be provided from time
to time by the Board or any person or committee appointed by the Board to
determine fringe benefit programs, all subject to and in accordance with the
eligibility and other requirements of such programs.
2.5. STOCK INCENTIVE PLAN. Employee shall be eligible to
participate in the Stock Incentive Plan of the Company and shall be entitled
to receive a grant of incentive stock options exercisable to purchase, in the
aggregate, _________ shares of the Company's Common Stock at an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant. Such incentive stock options shall vest ratably over a period of three
(3) years, with an equal number of options vesting on each successive
anniversary of the commencement date hereof during the vesting period.
2.6. EXPENSES. During the Term, Company will reimburse Employee for
reasonable out-of-pocket expenses incurred by Employee in performance of
service for Company under this Agreement (e.g., transportation, lodging and
food expenses incurred while traveling on Company business), all subject to
such policies and other requirements as Company may from time to time
establish for its Employees generally.
2.7. WITHHOLDING AND OFFSET. Payment of the base salary and any
other amounts to Employee will be subject to such withholding and offset as
may be provided by applicable law (e.g., for income tax purposes) or consented
to by Employee.
2.8. INDEMNIFICATION. Subject to applicable law, the Company shall
indemnify and hold Employee harmless from any and all loss, judgments or
claims Employee may suffer in the proper discharge of Employee's duties
hereunder, including, but not limited to attorney's fees and court costs.
SECTION 3. TERM AND TERMINATION.
- --------------------------------
3.1. COMMENCEMENT. The Term will commence on the date of this
Agreement.
3.2. TERMINATION. The Term will terminate upon the first of the
following to occur: (a) Company's termination of Employee's Employment for
Cause pursuant to paragraph 3.3; (b) Company's termination of Employee's
employment without Cause pursuant to paragraph 3.4; (c) Employee resigns from
employment as an Employee of Company pursuant to paragraph 3.5; (d) Employee
terminates his employment for Cause pursuant to paragraph 3.8; (e) the death
of Employee; or (f) the disability of Employee resulting from injury, illness
or disease, whether of a mental or physical nature, which substantially
impairs or prevents the ability of Employee to satisfactorily perform
Employee's duties and obligations under this Agreement for a period of
90 days; (g) the Change in Control of the Company or (h) upon thirty (30) days
prior written notice by either party. If the Employee is terminated pursuant
to subparagraphs 3.2(a), (c), (e), (f) or (h), the Employee shall be entitled
to no additional compensation under Section 2 herein. However, if an Employee
is terminated pursuant to subparagraph 3.2(g), Employee shall be entitled to
receive the Termination Payments provided for in Section 3.9 below.
3.3. TERMINATION FOR CAUSE. Company may at any time terminate
Employee's employment for Cause without prior notice.
3.4. TERMINATION WITHOUT CAUSE. Company may at any time terminate
Employee's employment without Cause by giving Employee notice of the same at
least thirty (30) days prior to the effective date of such termination.
3.5. RESIGNATION. Employee may at any time resign from employment
with Company by giving Company notice of thirty (30) days prior to the
effective date of such termination.
3.6. TERMINATION FOR CAUSE BY EMPLOYEE. Employee may at any time
terminate Employee's employment for Cause without prior notice.
3.7. TERMINATION DUE TO CHANGE IN CONTROL. Employee may terminate
Employee's employment due to a Change in Control without prior notice.
3.8. DISABILITY. If in the event of a disability described in
paragraph 3.2(e) Company decides not to terminate Employee's employment and
Employee is entitled to receive payments (i.e., in lieu of wages or other
compensation for employment) on account of such disability under any fringe
benefit program provided by Company, then the base salary described in
paragraph 2.2 will be reduced to the extent of such entitlement.
3.9. TERMINATION PAYMENTS. In the event the Employee's employment
is terminated pursuant to paragraph 3.7, the Company shall be obligated to pay
to Employee Termination Payments equal to, in the aggregate, the Employee's
then prevailing annual total compensation under this Agreement, including base
salary, incentive compensation, commissions, bonuses, fringe benefits and
other forms of compensation. Such Termination Payments shall be due and
payable in twelve (12) equal monthly installments commencing one month after
the Termination Date.
3.10. RETURN OF COMPANY PROPERTY. Upon termination of the Term,
Employee will deliver to Company any and all property of Company which is in
Employee's possession or control (including, but not limited to, any and all
Materials).
3.11. SURVIVAL. Sections 4 and 5, together with all other
provisions of this Agreement that may reasonably be interpreted or construed
to survive any termination of the Term, will survive any termination of the
Term.
SECTION 4. CONFIDENTIALITY.
- ---------------------------
4.1. CONFIDENTIAL INFORMATION. In the course of Employee's
employment with Company, Employee will have access to certain Confidential
Information. Employee will use and disclose Confidential Information solely
for the purposes for which it is provided and will take reasonable precautions
to prevent any unauthorized use or disclosure of the same. Employee will not
use or disclose any Confidential Information (a) other than as required in the
course of Employee's employment with Company, (b) for Employee's own personal
gain, or (c) in any manner contrary to the best interests of Company.
4.2. PROPRIETARY INFORMATION OF OTHERS. Employee will not use in
the course of Employee's employment with Company, or disclose or otherwise
make available to Company any information, documents or other items which
Employee may have received from any other person (e.g., a prior employer) and
which Employee is prohibited from so using, disclosing or making available
(e.g., by reason of any contract, court order, law or obligation by which
Employee is bound).
4.3. WORK PRODUCT. All Work Product which Employee conceives,
develops or first reduces to practice, either alone or with others, during the
Term will be the sole and exclusive property of Company, together with any and
all related Intellectual Property Rights. The foregoing applies to all Work
Product which relates to Employee's performance of services under this
Agreement, Company's Field of Business or Company's actual or demonstrably
anticipated research or development and whether or not such Work Products are
conceived, developed or first reduced to practice during normal business hours
or with the use of any equipment, supplies, facilities, personnel,
Confidential Information or other resource of Company.
4.4. DISCLOSURE AND PROTECTION OF WORK PRODUCTS. Employee will
disclose all Work Products described in paragraph 4.3 to Company, promptly and
in writing. At Company's request and at Company's expense, Employee will
assist Company or its designee in efforts to protect such Work Products. Such
assistance may include, but is not necessarily limited to, the following:
(a) making application in the United States and in foreign countries for a
patent or copyright on any Work Products specified by Company; (b) executing
documents of assignment to Company or its designed of all Employee's right,
title and interest in and to any Work Product and related Intellectual
Property Rights; and (c) taking such additional action (including, but not
limited to, the execution and delivery of documents) to perfect, evidence or
vest in Company or its designed all rights, title and interest in and to any
Work Product and any related Intellectual Property Right.
4.5. MATERIALS. All Materials and related Intellectual Property
Rights will be the sole and exclusive property of Company, whether or not such
Materials are marked with any Intellectual Property Right notice of Company or
Employee. All such Materials authored, made, conceived or developed by
Employee or made available to Employee (or any copies or extracts thereof)
will be held by Employee in trust solely for the benefit of Company. Employee
will use such Materials only as required in the course of Employee's
employment with Company or as otherwise authorized in writing by Company.
4.6. NOTICE. This Agreement does not apply to any invention for
which no equipment, supplies, facility or trade secret information of Company
was used, and which was developed entirely on Employee's own time, unless:
(a) the invention relates (i) directly to the Company or (ii) to Company's
actual or demonstrable anticipated research or development; or (b) the
invention results from any work performed by Employee for Company.
SECTION 5. NONCOMPETITION AND NONSOLICITATION.
- ----------------------------------------------
5.1. NONCOMPETITION. During the Term and for a period of two (2)
years after the end of the Term, Employee will not directly or indirectly be
employed by, own, manage, operate, join, control or participate in the
ownership, management, operation or control of or be connected with any
business activity which is within Company's Field of Business within a radius
of 100 miles from any geographical territory or location where the Company
transacts business. For purposes of the foregoing, Employee will be deemed to
be connected with such business if the business is carried on by: (a) a
partnership in which the Employee is general or limited partner; (b) a
corporation of which Employee is a shareholder(other than a shareholder owning
less than 5% of the total outstanding shares of the corporation), officer, or
director; or is an employee, consultant, agent, member or other
representative.
5.2. NONSOLICITATION. During the Term and for a period of two (2)
years after the end of the Term, Employee will not directly or indirectly
solicit or entice any of the following to cease, terminate or reduce any
relationship with Company or to divert any business from Company; (a) any
employee, consultant or representative of Company; (b) any contractor or
supplier of Company; (c) any customer or client of Company; or (d) any
prospective customer or client from which Employee solicited business within
the last year of the Term. Further, Employee will not directly or indirectly
disclose the names, dresses, telephone numbers, compensation, or arrangements
between Company and any person or entity described in (a), (b) or (c) above to
any competitor of Company.
SECTION 6. DEFINITIONS.
- ------------------------
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following specified meanings:
6.1. "Board" means Company's Board of Directors.
6.2. "Cause" for purposes of paragraph 3.3, shall include the
occurrence of any of the following:
a. The Employee commits a material breach of the terms of
this Agreement, which shall remain uncured for a period of thirty (30) days
after written notice by the Company of such breach.
b. The Employee is shown to have engaged in any act of
dishonesty detrimental to the Company, or fraud upon the Corporation, any of
its affiliated companies, or any of its customers or clients;
c. The Employee fails to devote his full time, attention and
efforts to the business and affairs of the Corporation or its affiliated
companies which condition remains uncured for a period of thirty (30) days
after written notice by the Company; or
d. The Employee has been grossly negligent in the performance
of his employment duties or responsibilities which condition remains uncured
for a period of thirty (30) days after written notice by the Company.
6.3. "Cause," for purposes of paragraph 3.6, shall include the
occurrence of any of the following:
a. The breach or violation by the Company of the any of the
material terms of this Agreement, which shall remain uncured for a period of
thirty (30) days of written notice by Employee of such breach;
b. Any significant change in position, duties and
responsibilities of Employee to which the Employee does not consent;
c. Any move of the Company or its principal officers
resulting in or any other requirement that the Employee, without his consent,
change his principal residence.
d. The Company has shown to have engaged in any active
material dishonesty or fraud upon the Employee.
e. There shall occur a Change of Control of the Company.
6.4. "Change of Control" means any transaction of the Company
involving (i) the merger or consolidation of the Company into or with another
entity where the Company's shareholders receive less than 50% of the
outstanding voting securities of the new or continuing entity, (ii) the sale
of all or substantially all of the Company's assets, (iii) any person not
already a stockholder of the Company becoming a beneficial owner, directly or
indirectly, of the securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities, (iv) a
change in the majority of the Board of Directors of the Company, or (v) the
Company terminating its business or liquidating its assets.
6.5. "C.E.O." means Company's Chief Executive Officer.
6.6. "Company's Field of Business" means any of the fields of the
Company's business. On the date of the Agreement, Company's Field of Business
includes, but is not necessarily limited to, the following: the development,
manufacture and sale of scientific instruments for medical, biological and
genetic applications in the life sciences.
6.7. "Confidential Information" means any information that is
confidential, proprietary or trade secret information of Company or any of its
customer or clients or any other information the use of disclosure of which by
Company is prohibited or restricted (e.g., by reason of any contract, court
order, law or other obligation by which Company is bound). "Confidential
Information" may include, but is not necessarily limited to, technology,
computer programs, business plans, marketing plans, information as to existing
or future products or services of Company, financial projections, unpublished
works of original authorship, customer lists, financial information, and trade
secrets.
Notwithstanding the foregoing, the restrictions on disclosure
and use of information and materials as set forth in Section 4 shall not apply
to the following, and the following is not confidential or proprietary
information: (1) any information or materials which were generally available
to the public at the time made available to Employee by the Company; (2) any
information or materials which become, without breach of Section 4 and through
no fault of Employee, generally available to the public; (3) any information
or materials which Employee has received from other sources prior to the date
of this Agreement, subject to no restrictions on disclosure applicable to
Employee; and (4) any information or materials which Employee at any time
lawfully obtains from a third party who is not under any obligation of secrecy
or confidentiality to the Company, under circumstances permitting disclosure
by Employee to others without restriction.
6.8. "Intellectual Property Right" means any patent, copyright,
trade secret, trade name, trademark or other intellectual property right.
6.9. "Materials" means hardware, software, programs, manuals,
drawings, designs, articles, writings, data, notes, memorandum, manuscripts,
notebooks, proposals, work plans, interim and final reports, project files,
client contract records and other tangible manifestations of any Confidential
Information or Work Products.
6.10. "President" means Company's President.
6.11. "Term" means the term of Employee's employment as an Employee
of Company pursuant to this Agreement.
6.12. "Work Product" means any invention, discovery, concept or
idea (including, but not necessarily limited to, hardware, software programs,
or processes, techniques, know-how, methods, systems, improvements, analytical
reports, and other developments).
Section 7. Miscellaneous.
7.1. Compliance with Laws. In the performance of this Agreement,
each party will comply with all applicable laws, regulations, rules, orders
and other requirements of governmental authorities having jurisdiction.
7.2. Equitable Relief. Employee acknowledges that: the
provisions of Sections 4 and 5 are essential to Company; Company would not
enter into this Agreement if it did not include such provisions; the damages
sustained by Company as a result of any breach of such provisions cannot be
adequately remedied by damages; and, in addition to any other right or remedy
that Company may have (e.g., under this Agreement, by law or otherwise),
Company will be entitled to injunctive and other equitable relief to prevent
or curtail any breach of any such provisions.
7.3. Nonwaiver. The failure of either party to insist upon or
enforce strict performance by the other of any provision of this Agreement or
to exercise any right, remedy or provision of this Agreement will not be
interpreted or construed as a waiver or relinquishment to any extent of such
party's right to consent or rely upon the same in that or any other instance;
rather, the same will be and remain in full force and effect.
7.4. Entire Agreement. This Agreement constitutes the Entire
Agreement, and supersedes any and all prior Agreements, between Company and
Employee. No amendment, modification or waiver of any of the provisions of
this Agreement will be valid unless set forth in a written instrument signed
by the party to be bound thereby.
7.5. Applicable Law. This Agreement will be interpreted,
construed and enforced in all respects in accordance with the local laws of
the State of New Mexico, without reference to its choice of law rules.
7.6. Attorneys Fees. In the event that either party consults or
retains an attorney to enforce the terms of this Agreement, the prevailing
party in any such dispute or litigation shall be entitled to recover from the
other party its reasonable attorneys fees and costs incurred.
7.7. Severability. If any of the provisions of this Agreement are
held to be invalid or unenforceable, the remaining provisions shall
nevertheless continue to be valid and enforceable to the extent permitted by
law.
Company: CELL ROBOTICS, INC.,
a New Mexico corporation
By: ----------------------------------
Its: President
Employee: ---------------------------------------
H. Travis Lee
<PAGE>
<TABLE>
EXHIBIT 11.1
CELL ROBOTICS INTERNATIONAL, INC.
Calculation of Loss Per Share
For the Twelve Months Ended December 31, 1996
<CAPTION>
Days Days
Number of Out- In The Weighting Weighted
Date Description Shares standing Period Factor Shares
- ------- ------------------------------- ----------- -------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1/1/96 Beginning balance 3,825,914 366 366 1.0000 3,825,914
2/12/96 Issuance of shares for asset
acquisition 17,500 324 366 0.8852 15,492
7/15/96 Exercise of warrants 80,000 170 366 0.4645 37,158
8/15/96 Exercise of warrants 10,000 139 366 0.3798 3,798
9/15/96 Exercise of warrants 1,060,000 108 366 0.2951 312,787
10/7/96 Issuance of shares at $1.75 per
share 10,000 86 366 0.2350 2,350
----------- -----------
12/31/95 Ending balance 5,003,414 4,197,499
Net loss for the twelve months
ended December 31, 1996 1,544,090
Net loss per share (0.37)
</TABLE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC.
Calculation of Loss Per Share
For the Twelve Months Ended December 31, 1995
<CAPTION>
Days Days
Number of Out- In The Weighting Weighted
Date Description Shares standing Period Factor Shares
- ------- ------------------------------- ----------- -------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1/1/95 Beginning balance 1,159,518 365 365 1.0000 1,159,518
2/23/95 Forfeiture of shares (491,499) 312 365 0.8548 (420,131)
2/23/95 Issuance of shares to stockholders
of Intelligent Financial Corp. 300,008 312 365 0.8548 256,445
2/23/95 Sale of shares at $1.00 per share 105,000 312 365 0.8548 89,753
3/20/95 Sale of shares at $1.00 per share 75,000 287 365 0.7863 58,973
4/21/95 Sale of shares at $1.00 per share 75,000 255 365 0.6986 52,397
4/28/95 Sale of shares at $1.00 per share 25,000 248 365 0.6795 16,986
7/7/95 Sale of shares at $1.00 per share 10,000 178 365 0.4877 4,877
7/13/95 Sale of shares at $1.00 per share 25,000 172 365 0.4712 11,781
7/28/95 Sale of shares at $1.00 per share 65,000 157 365 0.4301 27,959
8/31/95 Sale of shares at $1.25 per share 1,360,000 123 365 0.3370 458,301
9/11/95 Issuance of shares to a shareholder 177,887 112 365 0.3068 54,585
9/19/95 Sale of shares at $1.25 per share 940,000 104 365 0.2849 267,836
----------- -----------
12/31/95 Ending balance 3,825,914 2,039,280
Net loss for the twelve months
ended December 31, 1995 1,351,150
Net loss per share (0.66)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,724,671
<SECURITIES> 0
<RECEIVABLES> 71,686
<ALLOWANCES> 1,841
<INVENTORY> 408,173
<CURRENT-ASSETS> 2,221,810
<PP&E> 722,744
<DEPRECIATION> 466,109
<TOTAL-ASSETS> 2,570,952
<CURRENT-LIABILITIES> 363,722
<BONDS> 0
0
0
<COMMON> 20,014
<OTHER-SE> 2,187,216
<TOTAL-LIABILITY-AND-EQUITY> 2,570,952
<SALES> 594,071
<TOTAL-REVENUES> 663,261
<CGS> 427,341
<TOTAL-COSTS> 1,840,291
<OTHER-EXPENSES> (60,281)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,413
<INCOME-PRETAX> (1,544,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,544,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,544,090)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> 0
</TABLE>
