<PAGE>
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, 1997
[ ] 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
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
------------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class
--------------
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 total revenues for the fiscal year ended December 31, 1997 were
$1,037,723.
As of March 27, 1998, 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
$9,264,713. As of March 27, 1998, 5,245,414 shares of Common Stock of the
Issuer were outstanding.<PAGE>
<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, 1997.
PART IV - EXHIBITS
- ------------------
1. Incorporated by reference from the Company's Pre-Effective Amendment No.
2 to Registration Statement on Form SB-2 which was declared effective by
the Commission on February 2, 1998, SEC File No. 333-40895.
2. Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996, as filed with the Commission
on April 15, 1997.
3. Incorporated by reference from the Company's Post-Effective Amendment No.
1 to Registration Statement on Form SB-2 filed with the Commission on
July 15, 1996, SEC File No. 33-80347.
4. Incorporated be reference from the Company's Pre-Effective Amendment No.
1 to Registration Statement on Form SB-2, which was declared effective by
the Commission on February 14, 1996, SEC File No. 33-80347.
5. Incorporated by reference from the Company's Current Report on Form 8-K
dated February 23, 1995, as filed with the Commission on March 10, 1995,
SEC File No. 33-26467.
<PAGE>
<PAGE>
ITEM 1. BUSINESS
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OVERVIEW
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The Company has developed, and is preparing to manufacture, market and
sell, a number of sophisticated laser-based medical devices. The Lasette(-TM-
), a compact, lightweight, portable skin perforator, has been designed to
permit nearly painless sampling of capillary blood in both clinical and home
settings for the purpose of subsequent glucose or hematocrit testing. The
RevitaLase(-TM-) is a modularly-designed laser-based system for dermatological
use which incorporates the laser in the hand-piece. Its design allows for
interchangeable, hand-pieces each with a laser having a different wavelength
suitable for specific applications to be driven by a common base unit
containing computer controls, power supply and cooling system. The initial
erbium:YAG laser for the RevitaLase(-TM-) has been designed for cosmetic uses
such as skin resurfacing and wrinkle removal and may find added applications
in scar revisioning and burn debridement. The IVF Workstation" utilizes a
microscope, computer-controlled stages and a solid-state laser to enhance
human assisted reproduction techniques. Both the Lasette(-TM-) and
RevitaLase(-TM-) will require a disposable shield or disposable delivery tip
each time the laser is used. These disposables will be manufactured for and
sold by the Company. The new laser-based medical devices utilize core
technologies and management skills developed by the Company in connection with
its Cell Robotics Workstation, a laser scientific instrument which transforms
a microscope from a viewing device into a tool for physically manipulating and
microdissecting living cells. The Company believes that the markets for its
new medical laser devices are broader than for its scientific instruments and
that its future growth will depend, primarily, on market acceptance of these
laser-based medical devices.
The erbium:YAG laser handpiece for the RevitaLase(-TM-) has received Food
and Drug Administration ("FDA") clearance for use in dermatological and
surgical applications. It is undergoing continuing testing to finalize
protocols. The Lasette(-TM-) is a substitute for the stainless steel lancet
now used for capillary blood sampling. In clinical settings the Company
believes that the Lasette(-TM-) will lessen the spread of, and the fear among
healthcare workers of contracting, infectious diseases through inadvertent
needle sticks while also reducing the problems of sharps disposal. The
Lasette(-TM-) has received FDA clearance for capillary blood and glucose
sampling from all adults, including diabetics, in clinical settings. However,
the Company believes that another principal market for the Lasette(-TM-) will
be for home use by diabetics. Diabetics are often required to take multiple
blood samples each day and many diabetics develop permanent finger-tip
soreness and calluses from recurrent blood sampling. The Company has applied
for FDA clearance for use of the Lasette(-TM-) on diabetic children. The
Company will also apply for FDA clearance of Lasette(-TM-) sales for diabetic
home use. No assurances can be given that these additional FDA clearances
will be received. The Company began shipping a limited number of the
Lasette(-TM-) demo units for clinical use during the first quarter of 1998.
The IVF Workstation has three basic applications: first, for measuring,
assessing and storing in computer memory the various properties of a human egg
to assess its suitability for fertilization; second, to mechanically inject
sperm into an egg; and third, to pierce the outer shell of a fertilized egg
with a laser to facilitate "hatching" and promote embryo development and
successful pregnancy. In the United States, FDA clearance is required for sale
of the IVF Workstation. Clinical trials necessary to obtain the data required
for application for such clearance have recently begun and the Company expects
they will take at least one year to complete. However, no assurance can be
given that FDA clearance will ever be obtained for use of the IVF Workstation
for laser-assisted hatching. The IVF Workstation can be marketed in the
European Community and the Company is applying for the CE Mark necessary for
sales. The first order for an IVF Workstation has been delivered to an IVF
clinic in Tunisia.
The Company's growth plan is to concentrate its resources on the
development of the clinical and home markets for its laser-based medical
devices. The Company intends to market the Lasette(-TM-) through strategic
alliances with major distributors serving the diabetic and clinical markets,
supplemented by distribution arrangements with regional distributors and
direct sales by the Company. The Company intends to market the RevitaLase(-TM-
) with its erbium:YAG laser head by establishing an OEM relationship or
technology transfer with a major manufacturer of CO2 and other medical laser
systems for the aesthetic market. The IVF Workstation and the Cell Robotics
Workstation will be marketed and sold over the internet and through other
direct selling methods by the Company, and through manufacturers
representatives, except that in the United States the IVF Workstation will not
be offered for laser-assisted hatching until after FDA clearance is obtained.
HISTORY
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Cell Robotics Inc. ("CRI") 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 (defined below) as well as related technologies. See
"Intellectual Property Patents and Licenses." In 1991, it obtained a
non-exclusive license covering the AT&T Patent and, using funding provided by
Mitsui Engineering & Shipbuilding ("Mitsui"), a Japanese corporation, began
developing instruments using those technologies. In 1994, the license with
AT&T was converted from non-exclusive to exclusive. In February 1995,
Intelligent Financial Corporation ("IFC"), the shares of which were publicly
traded, acquired 100% of the issued and outstanding shares of Common Stock of
CRI in a transaction treated as a reverse merger (the Acquisition), and
subsequently changed its name to "Cell Robotics International, Inc."
BUSINESS STRATEGY
- -----------------
The Company has developed a business strategy to provide a line of
technologically-advanced proprietary laser-based medical devices and laser
research instruments for both clinical and consumer markets. The Company's
goal is to provide advanced laser-based medical devices that provide superior
safety, efficacy and comfort at competitive prices. The key components of this
business strategy include:
Exploit Proprietary Technology.
------------------------------
Through its patents, licenses and know-how, the Company has
developed, and plans to continue to improve, sophisticated laser-based
technology for medical applications.
Develop Market Recognition.
--------------------------
The Company plans to position its laser-based medical devices as the
preferred technological solution to clearly-defined medical needs.
Establish Exclusive Distribution Channels.
-----------------------------------------
The Company plans to enter into exclusive distribution agreements
with large, well-established manufacturers and distributors of medical
products to take advantage of existing distribution channels and name
recognition.
Rapidly Expand Capacity to Assemble Products.
--------------------------------------------
The Company is committed to rapidly expand its manufacturing
capacity to assemble some of its laser-based medical devices. Through a
combination of outsourcing for components, OEM (Original Equipment
Manufacturer) relationships and internal assembly capacity, the Company plans
to be prepared to respond efficiently to market demand for its new products.
Through the implementation of the foregoing, the Company hopes to
become a leader in the development and sale of technologically sophisticated
laser-based medical devices that respond to the rapidly increasing market
demand for products that offer more effective, safer and less painful
solutions than conventional procedures.
PRODUCTS
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Lasette(-TM-)
--------
Description.
-----------
The Lasette(-TM-) is a compact, lightweight, portable skin
perforator that uses a laser to pierce the skin on a fingertip to permit the
taking of capillary blood samples for the purpose of subsequent glucose and
hematocrit testing. The Lasette(-TM-) is designed to reduce patient
discomfort, and the Company believes it is a safer and cleaner process than
the lancet or pinprick method now in use. As a result, the Company believes
the Lasette(-TM-) can replace stainless steel lancets in certain applications
which contribute to large quantities of medical sharps and blood-infected
medical waste that pose the risk of cross-contamination to both the clinician
as well as the patient.
The present generation of the Lasette(-TM-) is approximately the
size of a video cassette and consists of a battery-driven primary perforator
unit, a recharger and wall mount. The next generation Lasette(-TM-) is
currently under design and development and, when completed (projected sometime
in the fourth quarter of 1998), will be the approximate size of a handheld
cellular telephone. To protect the lens of the laser, enhance its safety and
reduce the risk of inadvertent transmission of disease, the Lasette(-TM-)
requires the use of a disposable plastic shield for each perforation, which
the Company has manufactured on an OEM basis. The Company expects to initially
sell the Lasette(-TM-) for $2,000 and the shields for $3.00 for a box of 25.
Markets.
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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 approximately one billion times a year in homes,
hospitals, clinics and doctors' offices. Capillary blood sampling is performed
in virtually all clinical settings, including hospitals, dialysis clinics,
blood banks, nursing facilities, home health agencies and physicians' offices.
Data indicates that in the United States alone, there are 7,500 hospitals and
46,000 other clinical sites performing routine daily capillary blood sampling.
Currently the most commonly used device for capillary blood sampling is the
stainless steel lancet. In the hospital setting, inadvertent transmission of
disease from accidental lancet sticks is a recognized problem. The Company
believes that the Lasette(-TM-) can substantially reduce the pain and trauma
involved in this procedure and the risk of inadvertent cross-contamination for
both the clinician and the patient.
While the Company believes that the potential clinical market for
the Lasette(-TM-) is significant, a substantially greater opportunity lies in
the worldwide consumer market of persons afflicted with diabetes. Diabetics
throughout the world are required to take capillary blood samples in order to
monitor their blood sugar levels on average four times per day. The recurring
fingersticks become painful and annoying when performed on a daily basis,
causing many patients to test less frequently than prescribed by their
physicians. The Company believes that, if it can obtain the necessary
regulatory clearances for home use by diabetics, of which there can be no
assurance, the Lasette(-TM-) can reduce the pain and trauma involved in this
procedure and provide valuable assistance to such patients.
Marketing and Distribution.
--------------------------
Initial marketing targets will be hospitals, clinics, and
physicians' offices, where sales of multiple units will be possible. The
Company has designed a sales, marketing and distribution program for the
Lasette(-TM-) which includes (i) strategic alliances with worldwide
distributors already serving the worldwide diabetic and other clinical
markets, (ii) direct sales by the Company and (iii) arrangements with smaller
regional distributors in specific world market segments. The Company is
engaged in discussions with large companies that already have a presence in
the worldwide diabetic products market. Finalizing those arrangements will
depend upon the satisfactory delivery and testing of Lasettes(-TM-) to permit
the distributor to verify product performance and regulatory clearances for
diabetic use. In addition to the Company's efforts to establish major
distribution arrangements, the Company has existing distributorships in South
Korea and Singapore, with sales expected to begin in these locations in the
second quarter of 1998. Discussions are also under way with large distributors
of diabetic products in China and Japan.
Manufacturing.
-------------
In August 1996, the Company established a strategic development and
production alliance with Big Sky Laser Technologies, Inc. ("BSLT"), an OEM
manufacturer and developer of laser-based medical devices in Montana. BSLT is
a recognized laser OEM manufacturer that has agreed to comply with FDA, ISO
9001 and other regulatory requirements. BSLT will begin full-scale manufacture
of the Lasette(-TM-) for the Company in May, 1998. In March, 1998, the
Company and BSLT entered into negotiations to finalize an agreement detailing
the continued involvement of BSLT and the Company in the development,
manufacturing and distribution of the Lasette(-TM-) and associated
accessories.
Competition.
-----------
The Lasette(-TM-) represents a technological alternative to the
traditional stainless steel lancet for routine capillary blood sampling. It
eliminates the risk of cross-contamination and attendant indirect costs, and
has been designed to reduce the pain, fear and anxiety associated with blood
sampling. It also eliminates the cost and risk of lancet waste disposal.
While each stainless steel lancet costs only pennies, the Company
believes that by eliminating the associated indirect costs of their use
described above, the Lasette(-TM-) can be successfully marketed at an initial
end price of $2,000 per unit. The Company plans to introduce a second
generation Lasette(-TM-) at a lower price.
The only other commercialized approach to laser-based capillary
blood sampling that has come to the attention of the Company is a laser skin
perforator developed by Venisect (now called "Transmedica"). The Company is
aware from industry sources, however, that the Venisect laser is substantially
larger than the Lasette(-TM-), more expensive and, most significantly, as of
March, 1998, has not been cleared by the FDA for use by diabetics. In
October 1997, Venisect, Inc. ("Venisect") commenced a patent infringement
action (the "Venisect Litigation") in which it claimed the Lasette(-TM-)
infringed the U.S. patent underlying Venisect's competitive skin perforator.
The United States District Court for the Eastern District of Arkansas (the
"Court") subsequently dismissed the Venisect Litigation, without prejudice,
due to lack of personal jurisdiction and improper venue. The Court's ruling
does not prevent Venisect from re-filing in a proper jurisdiction at a later
date. The Company has investigated the Venisect patent with its advisors,
including patent counsel, and believes that no basis for any infringement
claim exists. Accordingly, while there can be no assurance of the ultimate
outcome of the Venisect Litigation, the Company does not believe that the
Venisect Litigation will have a material adverse effect upon the Company's
business, results of operations or financial condition. See "Legal
Proceedings."
The development of new advanced technologies for determining and/or
controlling glucose levels in diabetic patients is a focus of many corporate
research and development efforts throughout the world. Several companies are
developing glucose testing products based on non-invasive technologies, using
skin patches and diode-pumped lasers. To the Company's knowledge, none of
these products has received FDA clearance for sales in the United States.
However, if these products are approved for sale and become commercially
available in the United States in the future, they could have a material
adverse effect on sales of the Lasette(-TM-) and, as a result, on the business
and financial condition of the Company.
Regulatory Status.
-----------------
The Lasette(-TM-) obtained FDA clearance for clinical use for all
adults to permit capillary blood sampling, including diabetics, in
October 1997. In addition, the Company has begun clinical studies for
additional applications for clearance for children in clinical settings and
home use for all ages. The studies for juvenile patients were submitted March
30, 1998, and the FDA is required to respond by July 30, 1998. The Company
expects to submit data to the FDA to receive clearance for use in the home by
May 15, 1998.
Revitalase(-TM-)
-----------
Description.
-----------
Aesthetic procedures are performed worldwide to remove wrinkles and
other cosmetic blemishes. The Company's newly-developed RevitaLase(-TM-) is a
sophisticated skin resurfacing laser that introduces a new modular design and
concept to clinicians performing aesthetic surgery. The unit is small,
portable and operates on standard 110 volt wall current so that the clinicians
and their staff can easily move the system within a facility or from office to
office. The Company's solid state laser system will consist of a portable,
erbium:YAG laser with a variable power supply, cooling system and disposable
delivery tip. The most distinguishing 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 wave guides, optical fibers or articulated
arms, that make competing systems heavy and expensive. This design offers
numerous advantages to the clinician, including a substantial cost savings
from other products currently available, as well as the use of interchangeable
laser heads using different crystals that permit the same unit to be used for
multiple dermatological applications such as wrinkle removal, scar revision,
hair removal and tattoo removal.
The Company has completed manufacture of prototype RevitaLase(-TM-)
units which are currently available to potential distributors for evaluation.
Markets.
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In January 1995, CO2 laser technology was introduced that could
remove wrinkles much more effectively than the topical treatments then
available and at substantially less cost than surgery. CO2 lasers quickly
emerged as the predominant new treatment for wrinkles and over 20 companies
began selling lasers for this application. According to Medical Laser Insight,
through 1996 over 4,000 units have been sold worldwide, generating over
$200 million in revenue.
Market expansion for CO2 lasers has been hampered by the extended
healing times, high cost, inability to treat skin colors other than Caucasian,
and other product limitations. In March 1997, new erbium lasers were
introduced. The use of erbium:YAG lasers has been shown to shorten the healing
times and be safe to treat most skin pigmentations.
Skin resurfacing is one of the fastest growing fields in
dermatology, with approximately 25,000 dermatologists, plastic surgeons and
general physicians qualified to do skin resurfacing procedures in the United
States. Industry data suggests that there are over 70,000 licensed physicians
in the United States practicing in areas of dermatology, plastic surgery,
otolaryngology (ENT), ocular plastic surgery and general practice who
collectively performed more than 46,000 laser resurfacings during 1996. In
addition, because the erbium:YAG laser has been proven effective on most skin
colors, the Company believes that the RevitaLase(-TM-) can be marketed
successfully in many heretofore unserved areas, such as Asia, South America
and the Middle East. The Company believes that the advantages of the erbium
laser plus the low price of the Company's laser system will allow it to
capture greater market share in international markets.
Traditionally, cosmetic removal of wrinkles and other skin
treatments have been administered by dermatologists, plastic surgeons and
other physicians. Sales of skin resurfacing lasers have in the past been
primarily to hospitals and clinics that could afford the high cost of the
lasers. Because of their cost, single physician or group practice sales have
been limited in most instances to high volume practices or to physicians who
are willing to invest in new technology. The Company believes that at the
RevitaLase(-TM-)'s expected price point of $30,000 to $35,000 per unit, the
RevitaLase(-TM-) will be attractive to single physician and small group
practices.
Marketing and Distribution.
--------------------------
The Company's primary distribution strategy for the RevitaLase(-TM-)
involves the establishment of an OEM relationship or technology transfer with
a major manufacturer and distributor of medical laser systems in the aesthetic
market. Under these types of arrangements, potential partners would use their
existing presence in the market to promote and sell the RevitaLase(-TM-) under
their own brand name. The Company is currently contacting various companies;
however, as of the date of this Report, no definitive agreements, commitments
or understandings exist with any third party, and there can be no assurance
that the Company will be successful in these efforts.
Manufacturing.
-------------
The Company will outsource the manufacture of certain components of
the RevitaLase(-TM-) and then complete the final assembly and delivery of the
finished product. The Company has remodeled a portion of its existing facility
and will purchase the fixed assets necessary to assemble the RevitaLase(-TM-)
internally, with a projected capacity of 30 units per month. All manufacturing
must be in conformity with the requirements of the FDA MDQS, the European
Community's ISO 9001 and other applicable requirements.
Competition.
-----------
The worldwide market for laser skin resurfacers is characterized by
the dominance of several large, well-established competitors, including
Coherent, Inc., LaserScope, Inc., Sharplan Lasers, Inc., Laser Industries,
Ltd., ESC Medical Systems, Ltd., and Continuum Biomedical, Inc. These
manufacturers already have achieved varying degrees of market penetration with
the first generation of CO2 lasers and are in a position to offer their
existing and expanding markets significant advantages by upgrading to the
technology offered by the RevitaLase(-TM-).
Erbium:YAG lasers have recognized advantages over the CO2 lasers
previously marketed to clinicians performing aesthetic surgery. Healing times
of patients treated with erbium lasers are four to 14 days while CO2 lasers
can take as long as six weeks to three months. In addition, clinical trials
suggest that the erbium wavelength of the laser may enhance healing and reduce
thermal damage.
Because of their clinical and aesthetic advantages, erbium:YAG laser
systems currently are the best selling lasers in the skin resurfacing market.
The erbium:YAG skin resurfacers which are currently available range in price
from $40,000 to $115,000 per unit. The Company believes that it can profitably
manufacture and market a RevitaLase(-TM-) for $30,000 to $35,000 per unit,
giving it a significant price advantage over existing competition.
Regulatory Status.
-----------------
In July 1997, the Company received all necessary FDA clearances for
marketing and sales of the RevitaLase(-TM-) for dermatological and surgical
applications.
In Vitro Fertilization Workstation
----------------------------------
Description.
-----------
The IVF Workstation is a computer-controlled multi-functional
workstation that combines for the first time a technological solution to both
the functional and informational requirements of clinicians working in the IVF
environment. Utilizing a microscope, computer-controlled motorized stage,
video camera, sophisticated laser-based technology and data storage and
retrieval systems, the IVF Workstation permits standardized evaluation,
measurement and diagnosis of eggs and embryos, sperm injection and
laser-assisted embryo hatching in one integrated system. With its computer
hardware and software, the IVF Workstation also permits the detailed
cataloguing and documentation of each IVF procedure and the organization and
retrieval of data and other information.
The Company plans to offer the IVF Workstation in various
configurations, including a standard platform plus optional laser modules and
a pair of micromanipulators and/or micro syringe pumps for sperm injection.
The computer controls the pumps used for sperm injection, positions and fires
the laser and documents each step with a video image in a Microsoft(-
Registered Mark-)Word document.
IN VITRO fertilization is a rapidly-growing area of human fertility
treatment. However, success rates with current procedures vary significantly
from clinic to clinic. While sperm injection is a technique commonly used by
IVF clinics, it has been found that problems encountered in embryo hatching
often contribute to infertility and poor success rates. An IVF clinic's
reputation is dependent upon the number of successful pregnancies it is able
to achieve. The IVF Workstation is designed to improve success rates for
clinics and IVF patients. Initial animal trials have demonstrated improved
success rates utilizing the IVF Workstation with its laser-assisted hatching.
Using laser-assisted hatching, the Company believes that IVF clinics will have
the ability to provide substantially improved success rates with fewer IVF
cycles, thereby also reducing costs. The complete IVF Workstation can
currently be sold in most of the world, excluding the United States and Japan.
After receiving the CE Mark, the Company will be able to sell the product in
the European Community, and much of the rest of the world follows the European
Community guidance. The Company has delivered its first order to an IVF clinic
in Tunisia.
Markets.
-------
The market for the IVF Workstation consists of the more than 1,300
clinics worldwide that treat infertility, approximately 300 of which are
located in the United States. Worldwide these clinics conduct approximately
100,000 IVF treatment cycles a year. At an average cost of $5,000 per
treatment cycle, it is estimated that over $500 million is spent annually at
these clinics. It is believed that the IVF Workstation will substantially
increase success rates and reduce the time and cost required to successfully
complete a fertility treatment cycle, thereby increasing profits and revenue
to the clinician.
Marketing and Distribution.
--------------------------
The IVF Workstation is expected to receive the CE Mark by April,
1998. Clinical trials for FDA clearance for marketing in the United States
have begun in Europe, Australia, Israel and, more recently in the United
States. The Company hopes that the improved success rate experienced by
foreign clinics will have the effect of stimulating interest in the product in
domestic markets.
Sales, service and installation of the IVF Workstation will be
handled directly by the Company's staff and manufacturers representatives. The
Company is also using its Internet Website as a sales medium. In addition, the
Company is entering into arrangements with distributors in foreign markets.
Currently, distribution agreements are in place covering South Korea and
Brazil.
The complete IVF Workstation will be offered with two pricing
structures. Wherever permitted, the Company will promote the pricing strategy
of a reduced purchase price with ongoing revenues based upon each laser shot.
Under this scenario, the Company will maintain ownership of the laser and will
provide annual calibration and maintenance of the laser module. This will
ensure that the system is performing as it was designed. The Company expects
that customers will increase their use of the laser as they experience a
reduction in time and expense and improve their success rates. In the United
States, clinics will be able to pass along the fees for laser-assisted
hatching to their patients since most procedures are direct patient-pay
procedures. This will allow the clinic to purchase the equipment initially at
a much lower price. In many countries outside of the United States, however,
the Company expects the IVF Workstation will be sold for a single, higher flat
fee.
Manufacturing.
-------------
The Company plans to outsource the manufacture of certain components
and then assemble the IVF Workstation at its facility. The Company anticipates
that it will be able to assemble and ship sufficient units to satisfy demand
for the product, if any.
Competition.
-----------
The Company is not aware of any other product that combines all of
the features and performance specifications of the IVF Workstation. A small
company in Switzerland has introduced a product that provides laser-assisted
hatching, but which does not offer all of the features found in the IVF
Workstation.
Regulatory Status.
-----------------
Once the CE Mark is received, sales in Europe and other
international markets will be initiated. The only functional component of the
IVF Workstation that requires FDA clearance is the laser module used for
laser-assisted hatching. An Investigational Device Exemption (IDE) application
for clinical trials of the IVF Workstation has been approved by the FDA.
Clinical trials have started at two sites in the United States and at one (1)
site each in Belgium, Israel, and Australia. It is expected that FDA clinical
trials of the IVF Workstation will take at least one (1) year to complete.
There can be no assurance when, if ever, FDA clearance for sales in the United
States will be obtained.
Scientific Research Instruments
-------------------------------
Applications of the Research Instruments.
----------------------------------------
The Company's microrobotic technology allows scientists to
manipulate objects in microspace, upgrading the microscope from simply an
instrument for observation to an interactive micro-laboratory. The scientific
research instruments are designed to enhance the usefulness and importance of
the conventional laboratory microscope as a tool in medical, biological and
genetic applications in the life sciences. The technology can be used for cell
separation, cell-cell interaction, microdissection, and intercellular
manipulation of living cells. The Company has either demonstrated itself that
its products can be used for, or is aware of others using its products in,
cancer research and immunology, neurobiology, assisted reproductive techniques
and genome research.
Description.
-----------
In 1996, the Company introduced the computer-controlled Cell
Robotics Workstations for optical trapping, micromanipulation and
microsurgery. These workstations are based on the Company's core
LaserTweezers(-Registered Mark-), LaserScissors(-TM-), CellSelector(-TM-) and
SmartStage(-Registered Mark-) technologies. The functionality of the Cell
Robotics 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. The Cell
Robotics Workstation integrates the Company's research instruments into a
complete computer-controlled optical trapping and ablation workstation. The
Cell Robotics Workstation provides and improves upon functions that are
routinely used in research microscopy, but offers advanced laser-mediated
micromanipulation. With the Cell Robotics 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. A fully-equipped Cell Robotics Workstation
includes the SmartStage(-Registered Mark-), 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. A fully-equipped Cell Robotics Workstation sells
for a retail price of $85,000 in the United States. The modules included in
the complete Cell Robotics Workstation are also offered separately, with the
basic microscope Workstation offered at a retail price of $27,000, the
LaserTweezers(-Registered Mark-) Workstation for a retail price of $58,000 and
the LaserScissors(-TM-) Workstation at a retail price of $56,000.
Markets.
-------
The initial market for the Company's research workstations has been
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
users of inverted microscopes, for which there were approximately 10,000
existing users in 1996 and approximately 1,000 new purchases made annually in
the United States and Canada. Worldwide, the installed base of inverted
microscopes was approximately 33,000 in 1996, 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 CellSelector(-TM-) and SmartStage(-Registered
Mark-) but is operated manually and often compromises the sterility of the
specimen. Annual sales of micromanipulators totaled approximately 800 in the
United States in 1996 and 2,000 worldwide.
Principal markets for the Company's research instruments 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.
Marketing and Distribution.
--------------------------
While the Company intends to focus its marketing efforts on the
distribution and sale of its laser-based medical devices, it will continue to
promote and market its scientific instruments through direct sales, dealers,
representatives and distribution arrangements. The Company also has a
distribution agreement with Mitsui granting Mitsui exclusive distribution
rights for the Company's products in Japan for a term of ten years. The
Company also expanded its domestic and international distribution channels,
and now distributors in 15 countries are starting to sell the research
instruments.
MANUFACTURING
- -------------
The Company's manufacturing approach for the Cell Robotics Workstation,
RevitaLase(-TM-) and IVF Workstation attempts to minimize the capital outlay
by outsourcing parts to machine shops and circuit board companies, but
completing all final assembling and testing on its premises to ensure the
quality of the final products. The Company plans to continue to use this
approach with the new and current products. The Company is instituting the
record keeping, quality control, and production procedures to meet the
requirements of the FDA MDQS, and the European Community's ISO 9001
manufacturing requirements.
COMPETITION
- -----------
The industry in which the Company competes with its laser-based medical
devices is characterized by rapidly evolving technology and intense
competition. Many companies of all sizes, including both large organizations
as well as several specialized laser-based medical devices companies are
engaged in activities similar to that of the Company. In addition, colleges,
universities, governmental agencies and other public and private research
institutions will continue to conduct research and to protect technologies
that they have developed, some of which will be directly competitive with that
of the Company. Many of the Company's competitors have substantially greater
financial, research and development, human and other resources than the
Company.
The Company believes it has certain technological advantages in producing
the compact, low-cost laser design in the Lasette(-TM-) and the RevitaLase(-
TM-). However, the Company's cost advantage is dependent in part upon its
ability to maintain its relationship with New Technology Enterprise Center
("NEC"), its Russian associate, the supplier of the crystals used in the
manufacture of its lasers. In addition, the Company has experienced some
quality or supply problems with its Russian supplier, either of which, if not
remedied, could necessitate it changing the source of supply. Social,
political or economic factors in Russia may also affect the ability of this
associate to consistently supply goods to the Company. Alternative sources of
supply for the crystals, while available, would increase the production cost
of the Company's product and reduce its competitive advantage.
The development of new advanced technologies for determining and/or
controlling glucose levels in diabetic patients is a focus of many corporate
research and development efforts throughout the world. Several companies are
developing glucose testing products based on non-invasive technologies, using
skin patches and diode-pumped lasers. To the Company's knowledge, none of the
products have been successfully commercialized or received FDA clearance for
sales in the United States. However, if these products are approved for sale
and become commercially available in the United States in the future, they
could have a material adverse effect on sales of the Lasette(-TM-), and, as a
result, on the business and financial condition of the Company.
The Company believes that its success is highly dependent upon its
ability to obtain distribution agreements for the sale of its new laser-based
medical devices and create additional internal sales and marketing resources.
Although several distribution agreements are in place, there can be no
assurance that the Company can achieve these goals.
The Company believes that the principal factor affecting its competitive
position is the suitability of its instruments for, and performance in, a
particular application. Because of the highly specialized nature of its
markets, such traditional competitive factors as price, delivery,
upgradability and support are less significant, with the exception of the
RevitaLase(-TM-) which is in a very cost-competitive market. 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,
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.
INTELLECTUAL PROPERTY
- ---------------------
The Company relies primarily on a combination of patent, trade secret,
copyright and trademark laws, confidentiality procedures and other
intellectual property protection methods to protect its proprietary
technology. The Company's laser-based medical devices currently have no patent
protection and its scientific research instruments have only limited patent
protection. The commercial success of the Company's laser-based medical
devices will depend, in part, upon the Company's ability to protect and defend
its intellectual property rights and the competitive advantages that those
rights offer to its products. There can be no assurance that the Company will
be successful in these efforts.
Both the Lasette(-TM-) and the RevitaLase(-TM-) products were originally
developed using the multifaceted crystal resonator ("MCR") technology acquired
from Tecnal Products, as more fully described below. Subsequently, the
Company has advanced the laser design employed in both products and has
sought, or is preparing to seek, new patents protecting those designs. One
result of this effort has been the receipt of Notice of Allowance from the
U.S. Patent and Trademark Office ("PTO") of a new patent for certain
advantageous modifications of the laser beam used in skin perforators, such as
the Lasette(-TM-). This patent will cover proprietary aspects of both current
and projected future models of the Lasette(-TM-). Patents covering other
aspects of the Lasette(-TM-) are currently pending in the PTO and World Patent
Office. The IVF Workstation is not currently protected by any specific issued
patents; however, the Company has submitted an application to the PTO and
World Patent Office seeking protection for certain laser design aspects of the
system. The Company will also seek to protect certain data-processing aspects
of the system. The LaserTweezers(-Registered Mark-) application of the Cell
Robotics Workstation is being produced and sold under the AT&T License and the
related optical trapping patent (defined and described below).
Patents and Licenses
--------------------
AT&T License:
------------
In 1991, the Company entered into a license agreement with AT&T (the
"AT&T" License") pursuant to which the Company was granted a worldwide
exclusive license to manufacture, use and sell products and processes covered
by the claims of one (1) United States patent held by AT&T (the "AT&T Patent")
related to "Optical Traps" which covers all biological optical trapping
applications for wavelengths that are longer than 800nm. The AT&T Patent
expires in 2007. Corresponding patents have also been issued in Canada, Japan,
Australia, Hong Kong and the European Community. The inventions covered by the
AT&T Patent and License apply to the Company's LaserTweezers(-Registered Mark-
). Under the terms of the AT&T 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 initially in the amount of
$150,000 at December 31, 1997 and increasing by an additional $50,000 per year
to as high as $500,000 per year, regardless of actual sales. 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. The Company is engaged in efforts to renegotiate the terms of
the AT&T License, but there can be no assurance that these efforts will be
successful. If the Company is unable to renegotiate the AT&T License, it may
be forced to abandon the LaserTweezers(-Registered Mark-) product.
Tecnal Patents:
--------------
On January 10, 1996, the Company acquired from Tecnal
Products, Inc., a subsidiary of Lovelace Scientific Resources, Inc., one (1)
United States patent known as the Multifaceted Crystal Resonator patent, ("MCR
Patent"), and one foreign patent application 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 components required by conventional solid-state lasers, and a
laser perforator. The MCR Patent was originally developed under the license
agreement with NTEC of Russia. The advanced laser design of the MCR Patent and
other related technology developments can be used in a variety of laser-based
applications, including skin resurfacing (facial wrinkle removal), laser
dentistry, eye surgery and other medical and industrial procedures. While
these technologies were used in early versions of the Lasette(-TM-) and the
RevitaLase(-TM-), the Company has now developed its own technology for these
products.
The Company acquired the MCR Patent and other technological assets
in consideration of cash payments in the amount of approximately $15,000, the
issuance of an aggregate of 17,500 shares of Common Stock and the grant of a
1% royalty on future net revenue based upon the technology, with a lifetime
maximum royalty of $20,000. An ongoing obligation in the form of a 2% royalty
payable to NTEC on all Lasette(-TM-) sales for perforation know-how also
exists.
Other Patents:
-------------
The Company has also been issued two (2) United States patents
related to its Cell Robotics Workstation, but which the Company does not
currently use. One patent covers three dimensional mechanical staging and the
other a specialized chamber for the LaserTweezers(-Registered Mark-), neither
of which is used in the Cell Robotics Workstation. In addition, the Company is
in the process of preparing, and will be submitting, applications for design
patents related to the RevitaLase(-TM-) as well as applications for patents
associated with the IVF Workstation. However, neither the RevitaLase(-TM-) nor
the IVF Workstation is currently covered by any of the Company's existing
patents.
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 various
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 be issued 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. Further, while the Company believes, based
upon its research and investigations, as well as those of its advisors,
including patent counsel, that none of its products infringe upon the domestic
or foreign patent rights, or other intellectual property rights, of third
parties, there can be no assurance that the Company will not be required to
defend against future infringement claims of third parties in addition to the
Venisect Litigation. Such additional litigation could represent a substantial
commitment of the Company's limited capital resources, including both funds
and human resources, without any assurance that the Company will ultimately
prevail on the merits. As a result, the potential of such litigation could
represent a material adverse effect upon the Company's future financial
condition and results of operations.
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. In addition, the Company has developed distinctive trademarks for
both its laser-based medical devices and its scientific research instruments
which it believes constitute valuable intellectual property rights. The
Company has obtained federal registrations for LaserTweezers(-Registered Mark-
), LaserScissors(-TM-), CellSelector(-TM-) and SmartStage(-Registered Mark-),
all modules of its Cell Robotics Workstation. The Company has not obtained
federal registrations for Lasette(-TM-), Revitalase(-TM-), and IVF
Workstation. While it intends to apply for these registrations, to date it has
made application only for Lasette(-TM-). However, there can be no assurance
that federal registrations for these trademarks will be issued or, if issued,
the degree of protection that they will afford. In the absence of Federal
registration, the Company relies on common law rights for its trademarks.
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 years ended December 31, 1997, and December 31, 1996, the
Company spent approximately $1,245,125 and $718,177, respectively, on internal
research and development programs. As of December 31, 1997, four 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 stockholder, Mitsui, and
the sale of securities in 1995, 1996 and 1997. 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 does not currently perform any research and development under
contract to third parties except for Small Business Innovative Research
("SBIR") grants from the federal government. These include a Phase II grant
from the National Cancer Institute (NCI) of the National Institutes of Health
(NIH). The award funds two years of development of a proprietary laser
instrument for semi-automated single cell sorting. The total award over two
years is approximately $749,000, of which approximately $269,685 has been
received to date. The receipt of this award should facilitate the Company's
goal of developing a single cell analysis workstation which could aid in the
understanding of cancer cells and viruses. Proceeds from this award will be
used to expand the current capabilities of the Cell Robotics Workstation and
LaserTweezers(-Registered Mark-) technology.
While the Company is actively engaged in the development of potential
future products from its core technology, these products are essentially
extensions of the current product lines. There can be no assurance that any of
these programs will be continued or completed. Even if these products are
successful, the Company does not expect to introduce any resulting new
products for at least six 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 marketing, sales and manufacturing processes. The
Company has been successful in obtaining many of the regulatory clearances
that are required to market and sell its products, however additional
clearance for broader markets will be required, of which there can be no
assurance.
For research applications, the Company's products are subject only to
safety regulations by the FDA. However, the European Community ("EC") has
recently required that the research instruments receive their CE mark before
they can be exported to the EC. The Company received the CE mark for its Cell
Robotics Workstation and all of its modules in September 1997. However, the
Company's laser-based medical device products require more 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 may take many months
and may involve the expenditure of substantial resources. In addition to
obtaining FDA clearances for each product, each manufacturing establishment
must be registered with, and approved by the FDA and meet ISO 9001
requirements.
The FDA has separate review processes for medical devices that must be
followed before such products can be commercially marketed in the United
States. There are two basic review procedures for medical devices in the
United States. Certain products may qualify for a Section 510(k) procedure,
under which the manufacturer gives the FDA a Pre-Market Notification ("510(k)
Notification") of the manufacturer's intention to commence marketing of the
product at least 90 days before the product will be introduced for clinical
use. Among other things, the manufacturer must establish in the 510(k)
Notification that the product to be marketed is "substantially equivalent" to
another legally-marketed, previously existing product. If a device does not
qualify for the 510(k) procedure, the manufacturer must file a Pre-Market
Approval Application ("PMA"). The PMA requires more extensive pre-filing
testing than the 510(k) procedure and involves a significantly longer FDA
review process.
As Class II devices, both RevitaLase(-TM-) and Lasette(-TM-) were
eligible to qualify under the Section 510(k) procedure. The RevitaLase(-TM-)
received FDA clearance within a few months without clinical trials. The
Lasette(-TM-), on the other hand, required approximately one year to obtain
its first FDA clearance, limited to clinical use with healthy adults, due to
the required extensive clinical trials. FDA clearance for use of the Lasette(-
TM-) for adult diabetics in clinical settings was issued in October 1997, and
the Company has begun clinical studies for additional applications for
clearance for children in clinical settings and home use for all ages. Until
such clearances are obtained, the Company will not be able to market or sell
the Lasette(-TM-) in the United States for home use by diabetics, a principal
market for the product. The IVF Workstation, as a Class III device insofar as
laser-assisted hatching is concerned, was not eligible for the Section 510(k)
procedure and requires complete Pre-Market Approval. The IVF Workstation was
granted an IDE and is in the process of completing detailed clinical trials,
which may take more than two years in their entirety. However, while
marketing in the United States must await FDA clearance which is likely not to
occur for at least one year, the Company has the right to market the IVF
Workstation in Europe and most foreign countries since it is not deemed a
medical device in these jurisdictions. Nevertheless, as an electronic laser-
based product, actual shipments of the IVF Workstation to the EC require a CE
Mark which the Company expects to receive by April, 1998.
For marketing outside of the United States, the Company or its
prospective licensees will be subject to foreign regulatory requirements
governing clinical trials and marketing approval for the products. The
requirements governing the conduct of clinical trials, product licensing,
pricing, and reimbursement vary widely from country to country. Although the
Company does have employees experienced in the EC and other regulatory
procedures, it does not currently have any facilities or employees outside of
the United States. In some cases the Company will rely on its strategic
partners in foreign markets to satisfy the regulatory requirements imposed by
those jurisdictions.
Employees
- ---------
At March 31, 1998, the Company had 13 full-time employees and 5 part-time
employees. Of the full-time employees, 5 were principally engaged in product
development, 1 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's facilities are located in approximately 12,000 square feet
in Albuquerque, New Mexico. This facility contains the Company's executive and
administrative offices, as well as its assembly, production, testing, storage
and inventory functions. The lease covering the facility requires monthly
payments of $7,986, subject to a 3% annual increase, and has recently been
renegotiated to terminate in 2002. The Company 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 insured
against loss.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
In October 1997, a civil action was brought by Venisect, Inc. against the
Company in the United States District Court of the Eastern District of
Arkansas (the "Court"), Case No. OR-C-97-877 (the "Venisect Litigation") in
which Venisect claims that the Lasette(-TM-) infringes a U.S. patent,
underlying its competitive laser skin perforator. The Court subsequently
dismissed the Venisect Litigation, without prejudice, due to lack of personal
jurisdiction and improper venue. The Court's ruling does not prevent Venisect
from re-filing in a proper jurisdiction at a later date. The Company and its
advisors, including patent counsel, have conducted a comprehensive
investigation of the basis of the claims underlying the Venisect Litigation
and believe that the Lasette(-TM-) does not infringe upon the Venisect U.S.
patent or any of its related foreign patents. In the event Venisect elects to
re-file the Venisect Litigation in a proper jurisdiction at a later date, the
Company intends to vigorously defend the claims being asserted in the Venisect
Litigation. Accordingly, while there can be no assurance of the ultimate
outcome of the Venisect Litigation, the Company does not believe that the
claims will have a material adverse impact on the Company's business, results
of operations or financial condition.
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 ended December 31, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ---------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
- ---------------------------
The Common Stock is traded over-the-counter and quoted on the 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 December 31, 1997. The prices presented are bid and asked
prices which represent prices between broker-dealers and do not include retail
mark-ups and mark-downs or any commission to the broker-dealer. The prices do
not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Bid Ask
---------------- ----------------
Low High Low High
------ ------ ------ ------
<S> <C> <C> <C> <C>
1996
- ----
First Quarter $ 1.375 $ 2.75 $ 1.625 $ 3.25
Second Quarter 1.875 3.875 2.125 4.125
Third Quarter 1.375 3.00 1.625 3.125
Fourth Quarter 1.375 2.875 1.563 1.938
1997
- ----
First Quarter $ 1.875 $ 2.8125 $ 2.00 $ 3.00
Second Quarter 1.9375 3.375 2.00 3.50
Third Quarter 2.9375 4.00 3.0625 4.0625
Fourth Quarter 1.875 3.625 2.875 3.875
- ------------------------------------
</TABLE>
The bid and ask prices of the Common Stock on March 27, 1998 were $2.375
and $2.50, respectively, as quoted on the Bulletin Board. As of March 27, 1998
there were approximately 174 stockholders of record of the 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.
SUBSEQUENT EVENTS
- -----------------
In February 1998, the Company sold 460,000 Units (including the
Underwriter's "Over-Allotment Option," which consisted of 60,000 Units), each
Unit consisting of one share of Series A Convertible Preferred Stock (the
"Preferred Stock"), convertible into four Common Shares, and two Common Stock
Purchase Warrants (the "Warrants"), in a registered offering to the public.
Each Unit was sold at a price to the public of $8.25. The Units were traded
over-the-counter and quoted on the Bulletin Board under the symbol "CRIIU" for
a period of thirty (30) days through March 4, 1998 (the "Unit Trading
Period"). At the end of the Unit Trading Period, the Units automatically
separated and, as a result, the Preferred Stock and Warrants now trade
separately over-the-counter, and are quoted on the Bulletin Board under the
symbols "CRIIP" and "CRIIW," respectively.<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 Report.
PLAN OF OPERATIONOVERVIEW
- --------------------------
In 1995, the Company introduced its laser-based scientific research
instruments, which in 1996 were refined and redesigned into the modularized
Cell Robotics Workstation. Sales of these scientific instruments during 1996
and 1995 were disappointing, resulting in significant operating losses in both
periods. Given the limited market for the scientific research instruments, the
Company acquired technology in January 1996, (see Business "Intellectual
Property") which it has used to develop laser-based medical devices for the
clinical and consumer markets. Having now completed the development of the
Lasette(-TM-) (skin perforator), the RevitaLase(-TM-) (skin resurfacer) and
the IVF Workstation, and having obtained initial regulatory clearances for
limited domestic sales of the Lasette(-TM-) and RevitaLase(-TM-), the Company
intends to use the net proceeds of the Offering (defined below) principally to
stimulate both domestic and international sales of its laser-based medical
devices and concurrently complete the processes necessary for additional
domestic and international regulatory clearances for those products.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1996 (AUDITED)
- -------------------------------------------------------------------------
During the year ended December 31, 1997 the Company's operating activities
were limited to continuing efforts to complete the development of its laser-
based medical devices. Product sales for the period were generated only from
sales of its scientific research instruments. Total revenues from product
sales and grant revenue increased 56.5%, from $663,261 during the 1996 period
to $1,037,723 during 1997. Research and development grant revenue increased
from $69,190 during 1996 to $158,233 during 1997, and increase of 128.7%. The
gross profit realized by the Company on revenues generated during fiscal 1997
was $279,518, or 26.9%, compared to a gross profit of $166,730, or 25.1%,
realized during fiscal 1996.
The Company believes that its increased product sales reflect, in part, the
fact that during the fourth quarter of fiscal 1996, the Company converted its
exclusive distribution agreement with Carl Zeiss, Inc. covering its scientific
research instruments to a non-exclusive marketing arrangement. Management
believes this has allowed 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 dependent upon the successful
introduction and subsequent market acceptance of its new laser-based medical
devices.
Operating expenses incurred during fiscal 1997 were $2,795,491, an increase
of $1,024,390, or 57.8%, over fiscal 1996 operating expenses of $1,771,101.
This increase was principally attributable to costs related to the continuing
design and development of the Company's laser-based medical products.
Research and development expenses increased by $526,948, or 73.4%, due
primarily to professional design and engineering consulting fees relating to
the Company's new medical products currently under development. Marketing
related expenses incurred during fiscal 1997 were $868,812, an increase of
$393,159, or 82.7% over fiscal 1996 marketing expenses of $475,653. 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 marketing costs. Product literature, international trade show
registration and travel, sales and marketing salaries and patent royalties are
other areas in which marketing expenses increased during 1997. General and
administrative expenses associated with the conduct of the Company's business
also increased, from $577,271 during the year ended December 31, 1996 to
$681,554 for the year ended December 31, 1997, an increase of $104,283 or
18.1%.
During the fiscal period ended December 31, 1997, other income and expenses
decreased from a $60,281 net contribution to income for the year ended
December 31, 1996 to a $43,081 net contribution to income. This decrease was
due almost exclusively to the termination of tenant sublease in July 1997.
As a result of the foregoing, the Company's net loss for the year ended
December 31, 1997 increased by $928,802, or 60.2%, from a net loss of
$1,544,090 for the year ended December 31, 1996 to a net loss of $2,472,892
for the comparable period ended December 31, 1997. This resulted in a net loss
of $0.48 per share on 5,100,032 weighted average shares outstanding for the 12
months ended December 31, 1997 compared to a net loss of $0.37 per share on
4,197,499 weighted average shares outstanding for the comparable period ended
December 31, 1996.
The Company markets its scientific instruments in both domestic and
international markets, with Canada, Australia and Japan being the Company's
principal international markets. The Company also has existing
distributorships in South Korea and Singapore, and discussions are under way
with large distributors of diabetic products in China and Japan. Although
certain areas of the Far East have encountered less stable economic
circumstances, the Company is currently focusing its marketing efforts in
Japan and China where economies are typically more stable and new technology
is in high demand. Additionally, the Company's sales projections are based on
forecasts provided by its international distributors who, in turn, factor
regional economic conditions and market trends into the projections that are
provided to the Company.
Other than the foregoing, management knows of no trends, or other demands,
commitments, events or uncertainties that will result in, or are reasonably
likely to result in, a material impact on the Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since its inception, the Company has relied principally upon the proceeds
of both debt and equity financings to provide working capital for its product
development and marketing activities and, to a lesser extent, the proceeds of
two small SBIR grants. The Company has not been able to generate sufficient
cash from operations and, as a consequence, additional financings have been
required to fund ongoing operations. Initially, the Company relied upon one
investor, Mitsui Engineering and Shipbuilding Company ("Mitsui"), a Japanese
corporation which provided, through a series of loans and stock purchases, in
excess of $7 million in working capital. In 1995, the Company completed a
private offering of equity in which it raised approximately $2.875 million. As
part of that private offering, the Company issued a series of warrants, whose
exercise during the third quarter of 1996 resulted in an additional capital
infusion of approximately $2 million. Finally, in connection with that private
offering, the Company issued to Paulson Investment Company, Inc., who served
as placement agent, warrants exercisable for a period of five 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 Placement
Agent's Warrants). In August, 1997, the Company completed a private sale of
200,000 shares for gross proceeds of $650,000. The Company has agreed to
permit the investor to exchange the 200,000 shares of Common Stock for 78,788
of the Units offered in the secondary offering (the "Secondary Offering" more
fully described below under "Subsequent Events") completed in February, 1998.
In December 1997, the Company obtained a short-term loan from Paulson (the
"Paulson Loan") in the principal amount of $500,000 which was repaid, without
interest, out of the proceeds of the Secondary Offering. The Company does not
have any available commercial lines of credit or other sources of capital to
satisfy its cash requirements until revenues from operations can be realized
through future product sales. Accordingly, the Company will rely exclusively
upon the proceeds of the Secondary Offering to satisfy its working capital
requirements for the foreseeable future.
Cash used in operations for the years ended in December 31, 1997 and 1996
were $2,253,941, and $1,315,930 respectively. The primary reason for the
increase in cash used in operations during the year ended December 31, 1997,
as compared to prior periods, is the increase in product development and
operating expenses during that period.
Cash provided by financing activities for the years ended December 31, 1997
and 1996 were and $1,185,539 and $2,444,812, respectively. These figures
reflect the equity financings discussed above.
The Company's liquidity and capital resources continued to decrease during
the year ended December 31, 1997, due primarily to the Company's ongoing
operating losses.
The Company's current ratio at December 31, 1997 was 1.4:1, compared to a
current ratio of 6.1:1 on December 31, 1996. This decrease in liquidity is
primarily due to a reduction of the Company's current assets, principally
cash. Total assets decreased from $2,570,952 at December 31, 1996 to
$1,979,847 at December 31, 1997, a decrease of $591,105 or 23.0%.
The decrease in the Company's current assets of $752,260, or 33.9%, was
the result of a large decrease in cash and cash equivalents which fell from
$1,724,671 at December 31, 1996, to $623,572 at December 31, 1997, a decrease
of $1,101,099 or 63.8%. This decrease in cash and cash equivalents was
primarily the result of the Company's continuing operating losses. Slightly
offsetting the decrease in cash and cash equivalents was an increase in
accounts receivable of $154,011, from $69,845 at the end of 1996, to $223,856
at December 31, 1997. The increase in accounts receivable was primarily due to
increased sales during the fourth quarter of 1997 of the Cell Robotics
Workstation. Inventory increased in the amount of $177,860, or 43.6%, to
support the increased workstation sales and partial delivery of prepaid
components for the Company's laser-based medical devices.
During the year ended December 31, 1997, the Company's total current
liabilities increased $671,248, from $363,722 at December 31, 1996 to
$1,034,970 at December 31, 1997. Increases in accounts payable of $442,329, or
275.0%, and royalties payable of $151,121, or 359.6%, and a small increase in
payroll related liabilities were all directly related to the continued design
and development of the Company's laser-based medical devices.
As a result of the foregoing, the Company's working capital decreased from
$1,858,088 at December 31, 1996 to $434,580 at December 31, 1997, a decrease
of $1,423,508. This decrease was due almost exclusively to the Company's
operating loss incurred during fiscal 1997.
In the event Venisect elects to re-file the Venisect Litigation in a proper
jurisdiction, the Company will be required to expend resources and working
capital in the defense of the Venisect Litigation. The Company has
investigated the Venisect patent with its advisors, including patent counsel,
and believes that no basis for any infringement claim exists. Accordingly,
while there can be no assurance of the ultimate outcome of the Venisect
Litigation, management does not believe that the Venisect Litigation will have
a material adverse effect upon the Company's business, results of operations
or financial condition.
The Company expects that its cash used in operating activities will level
off in 1998. The timing of the Company's future capital requirements,
however, cannot accurately be predicted. The Company's capital requirements
depend upon numerous factors, including, most notably, the market acceptance
of its new laser-based medical devices. If capital requirements vary
materially from those currently planned, the Company may require additional
financing, including but not limited to, the sale of equity or debt
securities. The Company has no commitments for any additional financing and
there can be no assurance that such commitments can be obtained. Any
additional equity financing may be dilutive to the Company's existing
stockholders and debt financing, if available, may involve pledging some or
all of the Company's assets and may contain restrictive covenants with respect
to raising future capital and other financial and operational matters. If the
Company is unable to obtain additional financing as needed, the Company may be
required to reduce the scope of its operations, which could have a material
adverse effect upon the Company's business, financial condition and results of
operation. The Company believes that the net proceeds from the Secondary
Offering will be sufficient to meet the Company's working capital requirements
for at least the next 12 months, although there can be no assurance in this
regard.
NET OPERATING LOSS CARRYFORWARDS
- --------------------------------
At December 31, 1997, the Company had a net operating loss carryforward for
income tax purposes of approximately $12,000,000, which expires beginning in
2006. Under the Tax Reform Act of 1986, the amounts of and the benefits from
net operating loss carryforwards are subject to certain limitations in the
amount of net operating losses that the Company may utilize to offset future
taxable income. It is likely that the ownership changes in 1995 in connection
with the Acquisition will limit the use of this net operating loss
carryforward under applicable Internal Revenue Service Regulations.
REPORTING FOR SEGMENTS
- ----------------------
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION."
SFAS No. 131 supersedes the "industry segment" concept of SFAS No. 14 with a
"management approach" concept as the basis for identifying reportable
segments. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. Management has not yet completed its analysis of the adoption
impact of SFAS No. 131; however, if the laser-based medical devices are
ultimately material, the Company believes SFAS No. 131 will require the
designation of two business segments.
THE YEAR 2000 ISSUE
- -------------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date sensitive software may recognize a
date using ""00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. Based upon a
recent assessment, the Company has made a preliminary determination that it
may be required to upgrade or replace certain portions of its software so that
its computer systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with upgrades of existing software and
conversions to new software, the year 2000 Issue can be mitigated. However, if
such upgrades and conversions are not made, or are not completed or available
timely, the Year 2000 Issue could have a material impact on the operations of
the Company. However, the Company has initiated formal communications with its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. Expenditures in 1997 for the year 2000 project amounted to
less than $7,500 and management expects that completion of the project may
result in additional expenditures of approximately $25,000. However, there
can be no guarantee that the systems of other companies on which the Company's
business relies will be timely converted, or that failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. The Company
has determined that it has no exposure to contingencies related to the Year
2000 Issue for the products it has already sold. In view of the foregoing,
there is reasonable assurance that the Year 2000 Issue will not have a
material adverse effect upon the Company.
SUBSEQUENT EVENTS
- -----------------
In February, 1998, the Company sold, in a registered offering to the public
(the "Secondary Offering"), a total of 460,000 Units, each Unit consisting of
one (1) share of Series A Convertible Preferred Stock ("Preferred Stock"), and
two (2) Common Stock Purchase Warrants ("Warrants"). Each share of Preferred
Stock is convertible into four (4) shares of the Company's Common Stock, $.004
par value ("Common Stock"), subject to adjustment under certain circumstances,
at any time at the option of the holder. Each Warrant is exercisable to
acquire one (1) share of the Common Stock at an exercise price of $2.40 per
share. Each Unit was sold at a price to the public of $8.25, resulting in
gross proceeds of $3,795,000, less Underwriting Discount and Commissions of
$303,600. A portion of the proceeds to the Company will be used to satisfy
additional Secondary Offering expenses of approximately $500,000 incurred in
connection with the Secondary Offering and the Paulson Loan, as well as to
repay the Paulson Loan. After payment of the expenses associated with the
Secondary Offering, the Company will have approximately $2,491,400 available
for operations of the Company. (See Note 10 of the Notes to Consolidated
Financial Statements)
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
The following financial statements are filed as a separate section of this
Report and attached hereto:
1. Independent Auditors' Report;
2. Consolidated Balance Sheet - December 31, 1997 and December 31,
1996;
3. Consolidated Statements of Operations - for the years ended
December 31, 1997 and 1996;
4. Consolidated Statements of Stockholders' Equity - for the years
ended December 31, 1997 and 1996;
5. Consolidated Statements of Cash Flows - for the years ended
December 31, 1997 and 1996; and
6. Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
There have been no changes in and/or disagreements with the Company's
principal independent accountant, KPMG Peat Marwick LLP, on Accounting and
Financial Disclosure during the Company's two most recent fiscal years or any
later interim period.<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, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibits
- --------
** 3.2 Amended and Restated Bylaws
*** 3.3(a) Amended and Restated Articles of Incorporation
** 3.3(b) Amended and Restated Articles of Incorporation dated May 23,
1995
** 4.1 Specimen Certificate of Common Stock
***** 4.2 Representatives' Common Stock Purchase Warrant
**** 4.3 Warrant Agreement
**** 4.3.1 Warrant Agreement (revised)
***** 4.4 Lohrding Option Agreement
***** 4.5 Certificate of Designation of Rights and Preferences of
Series A Convertible Preferred Stock
***** 4.6 Specimen Certificate of Series A Preferred Stock
***** 4.7 Specimen Unit Certificate
***** 4.8 Specimen Common Stock Purchase Warrant Certificate
* 10.1 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.
* 10.2 Employment Agreement of Ronald K. Lohrding.
* 10.3 Employment Agreement of Craig T. Rogers.
**** 10.4 Employment Agreement of Travis Lee.
* 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 License Agreement dated May 13, 1996, between the Registrant
and GEM Edwards, Inc.
***** 10.16 Termination Agreement and Release between the Registrant and
GEM Edwards, Inc.
****** 10.17 Employment Agreement of Dr. Ronald K. Lohrding dated
February 2, 1998
** 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 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.
**** Incorporated by reference from the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996, as filed with
the Commission on April 15, 1997.
***** Incorporated by reference from the Company's Pre-Effective Amendment
No. 2 to Registration Statement on Form SB-2 which was declared
effective by the Commission on February 2, 1998, SEC File No. 333-
40895.
****** 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, 1997.<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, 1997 and 1996, 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 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, 1997 and 1996,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Albuquerque, New Mexico
February 26, 1998<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997and 1996
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 623,572 $ 1,724,671
Accounts receivable, net of allowance
for doubtful accounts of $1,841 in
1997 and 1996 223,856 69,845
Inventory 586,033 408,173
Other 36,089 19,121
------------ ------------
Total current assets 1,469,550 2,221,810
Property and equipment, net (note 3) 194,654 256,635
Deferred offering costs (note 10) 248,372 -
Other assets, net (note 4) 67,271 92,507
------------ ------------
$ 1,979,847 $ 2,570,952
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 603,153 $ 160,824
Payroll related liabilities 149,726 128,932
Royalties payable 193,150 42,029
Other current liabilities 88,941 31,937
------------ ------------
Total current liabilities 1,034,970 363,722
Short-term loan refinanced subsequent to
balance sheet date (note 10) 500,000 -
- ------------ ------------
Total liabilities 1,534,970 363,722
------------ ------------
Stockholders' equity (notes 5 and 10):
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,
5,245,414 and 5,003,414 shares
issued and outstanding in 1997
and 1996, respectively 20,982 20,014
Additional paid-in capital 14,037,243 13,327,672
Accumulated deficit (13,613,348) (11,140,456)
------------ ------------
Total stockholders' equity 444,877 2,207,230
Commitments and contingencY
(notes 6, 8 and 9) ------------ ------------
$ 1,979,847 $ 2,570,952
============ =============
</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, 1997 and 1996
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Product sales $ 879,490 $ 594,071
Research and development grants 158,233 69,190
------------ ------------
Total revenues 1,037,723 663,261
Product cost of goods sold 599,153 427,341
SBIR direct expenses 159,052 69,190
------------ ------------
Total cost of goods sold 758,205 496,531
------------ ------------
Gross profit 279,518 166,730
------------ ------------
Operating expenses:
General and administrative 681,554 577,271
Marketing 868,812 475,653
Research and development 1,245,125 718,177
------------ ------------
Total operating expenses 2,795,491 1,771,101
------------ ------------
Loss from operations (2,515,973) (1,604,371)
------------ ------------
Other income (deductions):
Interest income 32,004 40,645
Interest expense (723) (1,413)
Other 11,800 21,049
------------ ------------
Total other income 43,081 60,281
------------ ------------
Net loss $(2,472,892) $(1,544,090)
============ ============
Weighted average common shares
outstanding, basic and diluted 5,100,032 4,197,499
============ ============
Net loss per common share, basic and diluted $ (.48) $ (.37)
============ ============
</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, 1997 and 1996
<CAPTION>
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------- ------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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 -
Exercise of stock options - - 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)
Issuance of shares at $3.25,
less costs of offering - - 200,000 800 629,700 -
Exercise of stock options - - 42,000 168 79,871 -
Net loss for 1997 - - - - - (2,472,892)
---- ---- --------- -------- ---------- ------------
Balance at December 31, 1997 - $ - 5,245,414 $ 20,982 14,037,243 (13,613,348)
==== ==== ========= ======== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
<TABLE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 and 1996
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,472,892) $(1,544,090)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 119,914 126,096
Decrease (increase) in accounts receivable (154,011) 319,763
Increase in inventory (177,860) (239,097)
Decrease (increase) in other current assets (16,968) 9,946
Increase in other long-term assets - (42,103)
Increase in accounts payable and payroll
related liabilities 239,751 61,047
Increase (decrease) in other current
liabilities and royalties payable 208,125 (7,492)
------------ ------------
Net cash used by operating activities (2,253,941) (1,315,930)
------------ ------------
Cash flows from investing activities -
purchase of property and equipment (32,697) (144,163)
------------ ------------
Cash flows from financing activities:
Proceeds from loans 500,000 -
Proceeds from issuance of common stock 730,039 2,030,000
Costs of offering common stock (19,500) (10,188)
Deferred offering costs (note 10) (25,000) -
Restricted proceeds released from
issuance of common stock - 425,000
------------ ------------
Net cash provided by financing
activities 1,185,539 2,444,812
------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,101,099) 984,719
Cash and cash equivalents:
Beginning of year 1,724,671 739,952
------------ ------------
End of year $ 623,572 $ 1,724,671
============ ============
Supplemental information - stock issued
in exchange for asset acquisition
(note 4) $ - $ 41,562
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(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"). 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 (the
Reorganization). Accordingly, the transaction was recorded as a
reverse purchase of IFC by CRI. Therefore, the historical financial
information in the accompanying consolidated 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
sampling, 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. In 1997, approximately 53 percent of the
Company's product sales were in the United States, with Japan,
Australia and Canada being the Company's principal international
markets.
The Company's customers consist primarily of research institutes,
universities, and distributors.
(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>
1997 1996
------------ ------------
<S> <C> <C> <C>
Finished goods $ 40,452 $ -
Parts and components 443,424 267,273
Sub-assemblies 102,157 140,900
----------- ------------
$ 586,033 408,173
=========== ===========
</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) Other Assets
------------
Certain legal fees and other related costs associated with start-up,
organization, 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, and software
development costs are amortized as sales occur based on the
estimated total number of units to be sold.
(f) Earnings Per Share
------------------
The Company adopted the provisions of SFAS No. 128, "EARNINGS PER
SHARE" in 1997. SFAS No. 128 establishes new standards for
computing and presenting earnings per share ("EPS"). Specifically,
SFAS No. 128 replaces presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities
with complex capital structures, and requires a reconciliation of
the numerator and denominator of basic and diluted EPS computations
to the financial statements. Upon adoption, SFAS No. 128 requires
restatement of prior period EPS information presented. Adoption of
SFAS No. 128 did not have a material effect on the Company's
consolidated financial statements.
Options to purchase 1,000,905 and 885,826 shares of common stock
were outstanding at December 31, 1997 and 1996, respectively. These
were not included in the computation of diluted earnings per share
as the exercise of these options would have been anti-dilutive
because of the net losses incurred in 1997 and 1996.
(g) Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, royalties payable, accrued liabilities
and short-term loan in the consolidated financial statements
approximate fair value because of the short-term maturity of these
instruments.
(h) 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.
(i) 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 Japan, Australia and Canada, were
$410,483 and $248,278 for the years ended December 31, 1997 and
1996, 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>
1997 1996
------------ ------------
<S> <C> <C> <C>
Customer A, a related party $ 112,000 201,314
Customer B 114,623 105,421
Customer C 125,941 -
Customer D - 92,821
Customer E 93,100 -
=========== ===========
</TABLE>
(j) 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.
(k) 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.
(l) 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 is recorded on the date of grant only if the current market
price of the underlying stock exceeds 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.
(m) Reporting For Segments
----------------------
In June, 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION." SFAS No. 131 supersedes the "industry segment"
concept of SFAS No. 14 with a "management approach" concept as the
basis for identifying reportable segments. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
Management has not yet completed its analysis of the adoption impact
of SFAS No. 131; however, if the laser-based medical devices are
ultimately material, the Company believes SFAS No. 131 will require
the designation of two business segments.
(n) Reclassification
----------------
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C> <C>
Furniture and fixtures $ 8,028 $ 8,028
Computers 320,572 299,894
Equipment 378,691 366,672
Leasehold improvements 48,150 48,150
----------- -----------
755,441 722,744
Accumulated depreciation (560,787) (466,109)
----------- -----------
Net property and equipment $ 194,654 $ 256,635
=========== ===========
</TABLE>
(4) OTHER ASSETS
------------
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C> <C>
Software development costs $ 59,019 $ 59,019
Patents 48,246 48,246
Start-up and organization costs 33,116 33,116
Noncompete agreements 8,116 8,116
----------- -----------
148,497 148,497
Accumulated amortization (81,226) (55,990)
----------- -----------
Net other assets $ 67,271 $ 92,507
=========== ===========
</TABLE>
On January 10, 1996, the Company acquired certain technological assets
and covenants not to compete from Tecnal 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 capitalized $47,899 of software development
costs relating to a project whose technological feasibility has been
established. During 1997 and 1996, the Company recorded amortization of
$17,706 and $15,345, respectively, as cost of goods sold.
(5) 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 or "NQSO's"). An
aggregate of 1,250,000 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.
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, 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
Options expired (18,095) 2.22
Options granted 175,174 2.59
Options exercised (42,000) 1.91
----------- -------
Options at December 31, 1997 1,000,905 $2.03
========= =====
</TABLE>
During 1995, 97,579 options were repriced 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. At
December 31, 1997, there were 81,421 of those repriced options
outstanding. During 1996, the vesting requirements were eliminated on
360,000 options having original, and in some cases amended, exercise
prices of $1.75.
At December 31, 1997 there were 197,095 additional shares available for
grant under the Plan. The number of options exercisable was 696,856 and
the weighted-average exercise price of those options was $1.83. The
weighted average contractual life of outstanding options at December 31,
1997 was 3.35 years, and the range of exercise prices was $1.75 to $3.56.
The fair value of stock options granted and modified during 1997 and 1996
was $257,594 and $239,818, respectively, on the date of grant or
amendment using the Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C> <C>
Expected dividend yield 0.0 % 0.0 %
Risk-free interest rate 6.5 % 6.6 %
Expected life of option 4 years 4 years
Expected volatility 75.2 % 80.0 %
====== ======
</TABLE>
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 consolidated 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>
1997 1996
------------- -------------
<S> <C> <C> <C>
Reported net loss $ (2,472,892) $ (1,544,090)
Pro forma net loss (2,671,309) (1,997,271)
Pro forma net loss per share -
basic and diluted (.52) (.48)
</TABLE>
Pro forma net loss reflects only options granted in 1997, 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.
The board of directors and stockholders have approved an Employee Stock
Purchase Plan ("ESPP"). As of December 31, 1997 and 1996, no shares of
Common Stock have been issued under the ESPP and there have been no
subscriptions of employees to participate in the plan.
(6) Royalty Agreements
------------------
The Company is party to several royalty agreements under which it must
make payments to the original holders of patents on components used in
its products. Such royalties, equal to 1 percent of the net sales of the
products containing patented components are generally due upon sale of
the products.
Additionally, one royalty agreement requires a royalty payment equal to 5
percent of revenue generated from sales of 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>
1999 $ 200,000
2000 250,000
2001 300,000
2002 400,000
2003 450,000
Thereafter 4,100,000
-----------
$ 5,700,000
===========
</TABLE>
(7) 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>
December 31,
1997 1996
------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $4,118,000 3,400,000
Inventory capitalization 197,000 104,000
Obsolete inventory reserve - 15,000
Vacation and sick leave payable 28,000 27,000
Allowance for doubtful accounts 625 625
Legal fees - 9,000
----------- -----------
4,343,625 3,555,625
Less valuation allowance (4,318,625) (3,536,625)
----------- -----------
Net deferred tax asset 25,000 19,000
- ----------- -----------
Deferred tax liabilities:
Amortization $ 8,000 -
Depreciation 17,000 19,000
----------- -----------
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 $12,000,000 expires
beginning in 2006 through 2012. Ownership changes resulting from the
Reorganization will limit the use of this net operating loss under
applicable Internal Revenue Service regulations.
(8) Commitments
-----------
The Company is obligated under a noncancelable operating lease for
building facilities which requires a minimum rental payment of $96,096 in
1998. The lease is subject to 3 percent annual increases and expires on
November 30, 2002. Rent expense for 1997 and 1996 was $106,893 and
$104,336, respectively.
(9) Contingency
-----------
In October 1997, a competitor filed a civil suit against the Company
claiming that one of the Company's medical devices, the Lasette(-TM-),
infringes a U.S. patent, underlying its competitive laser skin
perforator. The Company and its patent counsel have conducted a
comprehensive investigation of the basis of the claims underlying such
litigation, and believe that the Lasette(-TM-) does not infringe upon
such competitor's U.S. patent or any of its related foreign patents. The
Company intends to vigorously defend the claims being asserted in such
litigation. Accordingly, while there can be no assurance of the ultimate
outcome of the litigation, the Company does not believe the claims will
have a material adverse impact on the Company's business, results of
operations or financial condition.
(10) Subsequent Events
-----------------
In February 1998, the Company sold 460,000 Units (including the
Underwriter's "Over-Allotment Option, which consisted of 60,000 Units),
each Unit consisting of one share of Series A Convertible Preferred Stock
(the "Preferred Stock"), convertible into four Common Shares, and two
common stock purchase warrants (the "Warrants"), in a registered offering
to the public. Each Unit was sold at a price to the public of $8.25
resulting in gross proceeds of $3,795,000. After consideration of the
Underwriter's commission and discount and other offering costs, net
proceeds to the Company were approximately $3.0 million. The Company
utilized $500,000 to repay a short-term loan concurrent with the
offering. Accordingly, such short-term loan has been reclassified from
current liabilities at December 31, 1997.
The Preferred Stock is convertible at any time at the option of the
holder. The Preferred Stock converts automatically upon the earlier of
February 2001 or the sum of the closing bid prices of the Preferred Stock
and the Warrants included in the Units has been at least $12.375 for ten
consecutive trading dates. The Preferred Stock has a liquidation
preference of $8.25 per share and is entitled to a semiannual dividend of
four-tenths of one share of Common Stock for each share of Preferred
Stock.
Each Warrant entitles the holder thereof to purchase at any time prior to
February 2003, one share of Common Stock at a price of $2.40 per share.
The Warrants may be redeemed by the Company for a redemption price of
$0.25 per Warrant under certain conditions.
In connection with the offering, the Company issued options to purchase,
in the aggregate, 450,000 shares of the Company's Common Stock at an
exercise price of $2.0625 per share. The options are subject to vesting.
Specifically, 150,000 options vested and became exercisable on the
closing of the offering and the balance will vest on November 30, 2002;
provided, however, (i) 150,000 options will vest and become exercisable
thirty days after the end of any quarter in which the Company reports
pre-tax income of at least $50,000; and (ii) 150,000 options shall vest
and become exercisable upon the Company reporting its first fiscal year
with net income of at least $500,000. The options are exercisable for a
period of 36 months from each respective vesting date, but in no event
later than December 31, 2002. Additionally, the Company granted the
Underwriters' a five-year warrant that entitles the Underwriters to
purchase up to 40,000 Units at an exercise price of $9.90 per Unit.
In connection with the offering, the Company entered into a multi-year
employment agreement with the chief executive officer of the Company.
Finally, in February 1998, the Company allowed a principal shareholder
who acquired 200,000 shares of Common Stock in August 1997 for $650,000
to exchange such shares for 78,788 Units.
(11) Capital Resources
-----------------
Since inception, the Company has incurred operating losses which have
resulted in an accumulated deficit of $13,613,348 and operations using
net cash of $2,253,941 in 1997.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
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 1998. 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 and the proceeds from the February 1998 Unit offering will be
sufficient to cover its expected operational deficits through 1998.
<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: 3/31/98
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: 3/31/98 Executive Officer
(Signature & Title) /s/ Jean Scharf
-------------------------------------------
Jean Scharf
Date: 3/31/98 Chief Financial Officer, Chief Accounting
Officer and Controller
(Signature & Title) /s/ Craig T. Rogers
-------------------------------------------
Craig T. Rogers
Date: 3/31/98 Director
(Signature & Title) /s/ Mark Waller
-------------------------------------------
Mark Waller, Director
Date: 3/31/98
(Signature & Title) /s/ Raymond Radosevich
-------------------------------------------
Raymond Radosevich, Director
Date: 3/31/98
(Signature & Title) /s/ Debra Bryant
-------------------------------------------
Debra Bryant, Director
Date: 3/31/98
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of February 2, 1998, is made and entered into by
and between CELL ROBOTICS INTERNATIONAL, INC., a Colorado corporation
("Company") and DR. RONALD K. LOHRDING ("Executive"). For the definition of
certain terms used in this Agreement, see Section 6 below.
The Company and Executive agree as follows:
Section 1. Employment.
- ----------------------
1.1. Engagement.
----------
The Company will employ Executive, and Executive will accept
employment, as an Executive of Company for the Term, subject to and in
accordance with the provisions of this Agreement.
1.2. Duties.
------
During the Term, Executive will serve Company in the capacity of
Chairman of the Board of Directors, President and Chief Executive Officer of
the Company, or such other capacity as may be designated by the Board.
Executive's duties as an Executive of Company include all of the duties
normally associated with such capacity. Executive's duties will also include
such other activities, responsibilities and duties as may reasonably be
assigned from time to time by the Board. If Executive is elected or
appointed by the Board as an officer or other position with Company, Executive
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 Executive, Executive will devote
Executive's best efforts, entire productive time, ability and attention to the
business of Company. Further, during the Term, Executive 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 Executive's duties or obligations to Company or which
would directly or indirectly compete with Company.
Section 2. Compensation.
- ------------------------
2.1. Base Salary.
-----------
During the Term, Company will pay Executive a base salary equal
to $123,000 per annum, payable in equal bi-weekly or semi-monthly installments
in accordance with the Company's payroll system. The Board will review, at
least annually, the Executive's compensation with a view to increasing it if,
in the sole judgment of the Board, the performance of the Company, the
services of the Executive and compensation paid by other companies engaged in
businesses comparable to the business of the Company to executives in
comparable positions merit such an increase.
2.2. Incentive Compensation.
----------------------
In addition to base salary described in paragraph 2.1, Executive
may be entitled to receive such bonuses and other compensation as may be
determined by the Board (e.g., pursuant to such bonus, stock and other
incentive compensation plans as may be adopted and maintained by Company
during the Term).
2.3 Stock Incentive Plan.
--------------------
The Company shall use its best efforts maintain its Stock
Incentive Plan pursuant to which the Company is authorized to issue incentive
stock options qualified under Section 422 of the Internal Revenue Code of
1986, as amended ("Stock Plan"). Executives shall be entitled and eligible to
participate in the Stock Plan as an executive officer and key Executive of the
Company on the same basis as other executive officers of the Company, as
determined and modified from time to time by the Board of Directors. All
incentive stock options granted to Executive pursuant to the Stock Plan shall
permit the cashless exercise of such options in conformity with applicable
legal requirements. The Company agrees to use its best efforts to cause the
Stock Plan, together with all shares of the Company's common stock issuable
upon exercise of options granted under the Stock Plan, to be registered under
the Securities Act of 1933, as amended ("Securities Act").
2.4. Benefits.
--------
During the Term, Executive 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. Expenses.
--------
During the Term, Company will reimburse Executive for reasonable
out-of-pocket expenses incurred by Executive 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
Executives generally.
2.6. Withholding and Offset.
----------------------
Payment of the base salary and any other amounts to Executive
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 Executive.
2.7. Indemnification.
---------------
Subject to applicable law, the Company shall indemnify and hold
Executive harmless from any and all loss, judgments or claims Executive may
suffer in the proper discharge of Executive'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 Executive's Employment for Cause pursuant to
paragraph 3.3; (b) Company's termination of Executive's employment without
Cause pursuant to paragraph 3.4; (c) Executive resigns from employment as an
Executive of Company pursuant to paragraph 3.5; (d) Executive terminates his
employment for Cause pursuant to paragraph 3.6; (e) the death of Executive; or
(f) the disability of Executive resulting from injury, illness or disease,
whether of a mental or physical nature, which substantially impairs or
prevents the ability of Executive to satisfactorily perform Executive's duties
and obligations under this Agreement for a period of 90 days; (g) the Change
in Control of the Company or (h) five (5) years from the commencement date.
If the Executive is terminated pursuant to subparagraphs 3.2(a), (c), (e), (f)
or (h), the Executive shall be entitled to no additional compensation under
Section 2 herein. However, if an Executive is terminated pursuant to
subparagraphs 3.2(b), (d) or (g), Executive 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 Executive's employment for
Cause without prior notice.
3.4. Termination Without Cause.
-------------------------
Company may at any time terminate Executive's employment with or
without Cause by giving Executive notice of the same at least thirty (30) days
prior to the effective date of such termination.
3.5. Resignation.
-----------
Executive 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 Executive.
----------------------------------
Executive may at any time terminate Executive's employment for
Cause without prior notice.
3.7. Termination Due to Change in Control.
------------------------------------
Executive may terminate Executive'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(f)
Company decides not to terminate Executive's employment and Executive 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 2.1 will be
reduced to the extent of such entitlement.
3.9. Termination Payments.
--------------------
In the event the Executive's employment is terminated pursuant to
paragraph 3.4, 3.6 or 3.7, the Company shall be obligated to pay to Executive
Termination Payments equal to two (2) times, in the aggregate, the product of
(i) the Executive's average annualized total compensation under this
Agreement, including base salary, incentive compensation, commissions,
bonuses, fringe benefits and other forms of compensation, during the two most
recent taxable years (or to the date of the commencement set forth in Section
3.1, if less than two years). Such Termination Payments shall be due and
payable in twelve (12) equal monthly installments commencing one month after
the date of such Termination.
3.10. Return of Company Property.
--------------------------
Upon termination of the Term, Executive will deliver to Company
any and all property of Company which is in Executive'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 Executive's employment with Company, Executive
will have access to certain Confidential Information. Executive 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. Executive will not use or disclose any
Confidential Information (a) other than as required in the course of
Executive's employment with Company, (b) for Executive's own personal gain, or
(c) in any manner contrary to the best interests of Company.
4.2. Proprietary Information of Others.
---------------------------------
Executive will not use in the course of Executive's employment
with Company, or disclose or otherwise make available to Company any
information, documents or other items which Executive may have received from
any other person (e.g., a prior employer) and which Executive is prohibited
from so using, disclosing or making available (e.g., by reason of any
contract, court order, law or obligation by which Executive is bound).
4.3. Work Product.
------------
All Work Product which Executive 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 Executive'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.
------------------------------------------
Executive 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, Executive 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
designee of all Executive'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 designee 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 Executive.
All such Materials authored, made, conceived or developed by Executive or made
available to Executive (or any copies or extracts thereof) will be held by
Executive in trust solely for the benefit of Company. Executive will use such
Materials only as required in the course of Executive'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 Executive'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 Executive 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, Executive 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. For purposes of the foregoing, Executive
will be deemed to be connected with such business if the business is carried
on by: (a) a partnership in which the Executive is general or limited
partner; (b) a corporation of which Executive 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 Executive, 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, Executive 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 Executive solicited business within the last year of the Term. Further,
Executive 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 Executive 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 Executive 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 Executive 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 Executive 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 Executive of such breach;
b. Any significant change in position, duties and
responsibilities of Executive to which the Executive does not consent;
c. Any move of the Company or its principal officers resulting
in or any other requirement that the Executive, without his consent, change
his principal residence.
d. The Company has shown to have engaged in any active material
dishonesty or fraud upon the Executive.
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: research,
development, manufacturing, use, licensing, sale and distribution of
instruments and their components.
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 Executive by the Company; (2) any
information or materials which become, without breach of Section 4 and through
no fault of Executive, generally available to the public; (3) any information
or materials which Executive has received from other sources prior to the date
of this Agreement, subject to no restrictions on disclosure applicable to
Executive; and (4) any information or materials which Executive 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 Executive 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 Executive's employment as an Executive
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.
----------------
Executive 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 Executive. 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 INTERNATIONAL, INC., a Colorado
corporation
By: _____________________________________________
Its: ____________________________________________
Executive: _________________________________________________
Dr. Ronald K. Lohrding
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 28 THROUGH 29 COF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 623,572
<SECURITIES> 0
<RECEIVABLES> 225,697
<ALLOWANCES> 1,841
<INVENTORY> 586,033
<CURRENT-ASSETS> 1,469,550
<PP&E> 755,441
<DEPRECIATION> 560,787
<TOTAL-ASSETS> 1,979,847
<CURRENT-LIABILITIES> 1,034,970
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0
0
<COMMON> 20,982
<OTHER-SE> 14,037,243
<TOTAL-LIABILITY-AND-EQUITY> 444,877
<SALES> 879,490
<TOTAL-REVENUES> 1,037,723
<CGS> 599,153
<TOTAL-COSTS> 758,205
<OTHER-EXPENSES> 2,795,491
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 723
<INCOME-PRETAX> (2,472,892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,472,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (2,472,892)
<EPS-PRIMARY> (.48)
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