CELL ROBOTICS INTERNATIONAL INC, 424B3, 1998-02-05

CELL ROBOTICS INTERNATIONAL INC
424B3, 1998-02-05
LABORATORY ANALYTICAL INSTRUMENTS

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Filed pursuant to Rule 424(b)(3)
Registration No. 333-40895

PROSPECTUS

CELL ROBOTICS INTERNATIONAL, INC.

400,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF SERIES A CONVERTIBLE PREFERRED STOCK
AND TWO COMMON STOCK PURCHASE WARRANTS

Cell Robotics International, Inc., a Colorado corporation (the "Company"),
is offering 400,000 Units (the "Units), each Unit consisting of one share of the
Company's Series A Convertible Preferred Stock (the "Preferred Stock") and two
common stock purchase warrants (the "Warrants"). The Units will automatically
separate 30 days from the date of this Prospectus, after which the shares of
Preferred Stock and Warrants included in the Units will trade separately. Each
share of Preferred Stock is convertible into four shares of the Company's common
stock, $.004 par value (the "Common Stock"), subject to adjustment under certain
circumstances ("the Conversion Ratio") at any time at the option of the holder.
Each share of Preferred Stock shall automatically convert into four shares of
Common Stock upon the earlier of (a) the third anniversary of the date of this
Prospectus or (b) the sum of closing bid prices of the Preferred Stock and two
Warrants included in the Units has been at least $12.375 for at least ten
consecutive trading days. Dividends in the form of shares of the Company's
Common Stock will accrue on all outstanding shares of Preferred Stock at the
rate of four-tenths of one share of Common Stock every six months commencing the
date of this Prospectus. Such Common Stock dividends shall be issued and
distributed within 30 days following their accrual every six months.

Each Warrant entitles holder to purchase one share of Common Stock at a
price of $2.40 per share ("Warrant Exercise Price"), subject to adjustment under
certain circumstances. The Warrants are exercisable commencing on the date of
issue and will expire on February 2, 2003, (the "Warrant Expiration Date")
unless earlier redeemed. The Company may redeem the outstanding Warrants, in
whole or in part, at any time upon at least 30 days' prior written notice to the
registered holders thereof, at a price of $.25 per Warrant, provided that (i)
there is in effect a registration statement registering for sale under the
Securities Act of 1933 as amended ("Securities Act") the shares of Common Stock
issuable upon exercise of the Warrant (the "Warrant Stock"); (ii) the closing
bid price of the Company's Common Stock has been at least $4.80 for the ten
consecutive trading days immediately preceding the date of such notice of
redemption; and (iii) the expiration of the 30 day notice period is within the
Warrant Term. In the event of redemption, the Warrants will be exercisable
through the date preceding the date fixed for redemption.

Prior to this offering, there has been no public market for the Units,
Preferred Stock or Warrants (hereafter collectively referred to as the
"Securities") and there can be no assurance that an active trading market for
the Securities will develop or be maintained following the offering. Although
the Company is a publicly-held corporation, the present market for its Common
Stock is limited and sporadic. On January 30, 1998, the closing bid and ask
prices of the Common Stock on the OTC Electronic Bulletin Board ("Bulletin
Board") under the trading symbol CRII were $1.9375 and $2.0625, respectively.

The offering price of the Units ("Unit Offering Price") is $8.25 per Unit.
The Unit Offering Price was determined by negotiation between the Company and
Paulson Investment Company, Inc. ("Paulson") (the "Representative or
"Underwriter"). For a discussion of the factors considered in determining the
Unit Offering Price, see "Underwriting."
------------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 9.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit.............................................. $8.25 $.66 $7.59
Total(3).............................................. $3,300,000 $264,000 $3,036,000
</TABLE>

(1) Excludes a non-accountable expense allowance equal to 3% of the gross
proceeds of this offering, payable to Paulson, and five-year warrants (the
"Representative's Warrants") entitling the Representative to purchase up to
40,000 Units at an exercise price equal to 120% of the Unit Offering Price.
The Company also has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting offering expenses payable by the Company of approximately
$415,000 including the non-accountable expense allowance to Paulson. See
"Underwriting."

(3) The Company has granted the Underwriter options for 45 days from the date of
this Prospectus to purchase up to an additional 60,000 Units on the same
terms as set forth above to cover over-allotments, if any (the
"Over-Allotment Option"). If the Underwriter exercises such option in full,
the total Price to Public, Underwriting Discount and Commissions and
Proceeds to Company will be $3,795,000, $303,600 and $3,491,400
respectively. See "Underwriting."

------------------------------

The Units are being offered by the Underwriter, subject to prior sale, when
and if delivered to and accepted by the Underwriter, and subject to their right
to reject any order, in whole or in part, and to certain other conditions. It is
expected that delivery of the certificates representing the Units will be made
against payment therefor in New York, New York on or about February 6, 1998.

PAULSON INVESTMENT COMPANY, INC.

THE DATE OF THIS PROSPECTUS IS FEBRUARY 2, 1998.
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------------------------

The Company is subject to the reporting and other requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends to furnish its stockholders with annual reports containing
financial statements audited by independent certified public accountants, as
well as quarterly financial information for each of the first three quarters of
each fiscal year. The Company will also file reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission").

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BULLETIN BOARD OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMPANY'S SECURITIES ON THE BULLETIN BOARD IN ACCORDANCE WITH RULE 103 OF
REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FURTHER,
SUCH PERSONS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE
AFFECT THE PRICE OF THE COMPANY'S SECURITIES, INCLUDING PURCHASES OF THE
COMPANY'S SECURITIES TO STABILIZE THE MARKET PRICE, PURCHASES OF THE COMPANY'S
SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMPANY'S SECURITIES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION WITH REGARD TO THE CAPITAL STOCK OF THE COMPANY IN THIS PROSPECTUS,
INCLUDING SHARE AND PER SHARE INFORMATION, ASSUMES (I) NO EXERCISE OF ANY
OUTSTANDING OPTIONS OR WARRANTS OF THE COMPANY PRIOR TO THE OFFERING DESCRIBED
HEREIN, (II) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, OR THE
REPRESENTATIVES' WARRANTS, AND (III) NO CONVERSION OF THE PREFERRED STOCK OR
EXERCISE OF THE WARRANTS SOLD IN THE OFFERING. (SEE "DESCRIPTION OF SECURITIES"
AND "UNDERWRITING".) UNLESS OTHERWISE SPECIFIED TO THE CONTRARY OR UNLESS THE
CONTEXT IMPLIES OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" SHALL BE
DEEMED TO REFER TO CELL ROBOTICS INTERNATIONAL, INC., A COLORADO CORPORATION,
AND ITS WHOLLY-OWNED SUBSIDIARY, CELL ROBOTICS, INC., A NEW MEXICO CORPORATION.

THE COMPANY

The Company has developed, and is preparing to manufacture, market and sell,
a number of sophisticated medical laser products. 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. The
"RevitaLase-TM-," a modularly-designed laser system for dermatological use, has
the laser in the hand-piece. This design allows 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 IN VITRO fertilization workstation ("IVF Workstation-TM-")
utilizes a microscope, computer-controlled stages and a solid-state laser to
enhance human assisted reproduction techniques. Both the Lasette-TM- and
RevitaLase-TM- 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 medical laser products utilize core technologies and management
skills developed by the Company in connection with its Cell Robotics
Workstation-TM-, 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 medical
laser devices.

The Erbium:YAG laser handpiece for the RevitaLase-TM- has received FDA
clearance for use in dermatological and surgical applications. It is undergoing
continuing testing to finalize protocols for clinical use. The Company expects
to begin initial shipments of RevitaLase-TM- units with the Erbium:YAG handpiece
in the second quarter of 1998. The Lasette-TM- is a substitute for the stainless
steel lancet now used for such 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 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 is making application for FDA clearance of
Lasette-TM- sales for diabetic home use and for use on children. No assurances
can be given that these additional FDA clearances will be received. The Company
plans to begin shipping the Lasette-TM- for clinical use in the first quarter of
1998.

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required for application for such clearance have recently begun and the Company
expects they will take approximately one year to complete. However, no assurance
can be given that FDA clearance will ever be obtained for use of the IVF
Workstation-TM- in "hatching." The European Community has cleared the use of the
IVF Workstation-TM- for marketing and the Company is applying for the CE Mark
necessary for sales. The first purchase order for an IVF Workstation-TM- has
been received from 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 medical laser products. 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 with a major manufacturer of
CO(2) and other medical laser systems for the aesthetic market. The IVF
Workstation-TM- will be marketed and sold over the Internet, through other
direct selling methods by the Company, and through manufacturers'
representatives, except that in the United States the IVF Workstation-TM- will
not be offered for laser-assisted hatching until after FDA clearance is
obtained.

The Company was organized on September 28, 1988 as Intelligent Financial
Corporation ("IFC"). In February 1995, IFC acquired all of the issued and
outstanding shares of Cell Robotics, Inc. ("CRI"), a New Mexico corporation (the
"Acquisition"), which had been formed in 1988 to develop the Cell Robotics
Workstation. In May 1995, IFC changed its name to Cell Robotics International,
Inc.

The Company maintains its principal offices at 2715 Broadbent Parkway, N.E.,
Albuquerque, New Mexico 87107. Its telephone number at that address is (505)
343-1131, its facsimile number is (505) 344-8112, and its Internet Website
address is http://www.cellrobotics.com/cell.

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THE OFFERING

<TABLE>
<CAPTION>
<S> <C>
Securities Offered........................ 400,000 Units, each Unit consisting of one share of Series A
Convertible Preferred Stock and two Warrants. The Units will
automatically separate 30 days from the date of this Prospectus,
whereupon the Preferred Stock and Warrants included in the Units will
trade separately.

Preferred Stock........................... 400,000 shares of Preferred Stock (liquidation preference $8.25 per
share). See "Description of Securities--Series A Convertible
Preferred Stock."

CONVERSION. Each share of Preferred Stock is convertible at any time,
at the option of the holder, into four shares of Common Stock. The
Preferred Stock will convert automatically into Common Stock at the
Conversion Ratio upon the earlier of (a) the third anniversary of the
date of this Prospectus or (b) the sum of the closing bid prices of
the Preferred Stock and two Warrants included in the Units has been
at least $12.375 for ten consecutive trading days. (See "Description
of Securities-- Preferred Stock--Conversion.")

DIVIDEND. A dividend equal to four-tenths of one share of Common
Stock shall accrue each outstanding share of Preferred Stock every
six months commencing the date of this Prospectus. Such dividend
shares of Common Stock, rounded down to the nearest whole, are
distributable within 30 days following accrual every six months.

LIQUIDATION PREFERENCE. $8.25 per share.

REDEMPTION. The Preferred Stock is not redeemable by the Company, and
holders of the Preferred Stock have no right to compel the redemption
by the Company of any shares of the Preferred Stock.

RANKING. The Preferred Stock will be senior to the Common Stock with
respect to dividends and upon liquidation, dissolution or winding up.

VOTING RIGHTS. The Preferred Stock is non-voting except as required
by law and as provided to approve certain future actions.

Warrants.................................. Each Warrant entitles the holder thereof to purchase at any time
prior to the Warrant Expiration Date one share of Common Stock at a
price of $2.40 per share. All or less than all of the outstanding
Warrants may be redeemed by the Company upon 30 days written notice
for a redemption price of $.25 per Warrant in the event the closing
bid price of the Company's Common Stock equals or exceeds $4.80 per
share for ten consecutive trading days, provided that there is an
effective registration statement and the expiration of the 30-day
notice period is within the exercise period of the Warrant.

Common Stock outstanding after offering... 5,222,414 shares(1)(2)
</TABLE>

5
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<TABLE>
<CAPTION>
Use of proceeds........................... To fund marketing and sales, to acquire fixed assets, to hire
additional marketing and manufacturing personnel, to fund further
research and development, to repay a short-term loan made by Paulson
to the Company, and for working capital and other general corporate
purposes. See "Use of Proceeds."
<S> <C>
Bulletin Board symbols:
Unit.................................... "CRIIU"
Preferred Stock......................... "CRIIP"
Warrant................................. "CRIIW"
</TABLE>

- ------------------------

(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Company's Stock
Incentive Plan (the "Plan"), 1,032,000 of which are subject to outstanding
and unexercised options having a weighted average exercise price of $1.99
per share, and of which 357,724 options are subject to future vesting, (ii)
450,000 shares of the Common Stock reserved for issuance upon the exercise
of options held by the Company's President, Dr. Ronald K. Lohrding, at an
exercise price equal to 25% (the Initial Conversion Value) of the Unit
Offering Price (the "Lohrding Options"), (iii) 345,000 shares of Common
Stock reserved for issuance upon exercise of the outstanding Placement
Agent's Warrant (as hereinafter defined) and (iv) 300,000 shares of Common
Stock reserved for issuance under the Company's Employee Stock Purchase Plan
("ESPP"). Does not include (i) 1,600,000 shares of Common Stock reserved for
issuance upon conversion of the Preferred Stock (1,840,000 shares if the
Over-Allotment Option is exercised in full) and (ii) 800,000 shares of
Common Stock reserved for issuance pursuant to the exercise of the Warrants
which will be sold in this offering (920,000 shares if the Over-Allotment
Option is exercised in full). Also does not include 315,152 shares of Common
Stock reserved for issuance upon conversion of Preferred Stock and 157,576
shares of Common Stock reserved for issuance upon exercise of Warrants
included in Units (the "Hall Units") issuable to Richard Hall in exchange
for 200,000 shares of Common Stock purchased in a private transaction in
August 1997 under the terms of an Investment Agreement and up to 45,715
shares of Common Stock which may become issuable under the terms of an
agreement with GEM Edwards, Inc. upon exercise of a conversion option which
vests in the event of a future payment default. See "Management Stock
Incentive Plans," "Description of Securities Placement Agent's Warrant," and
"Certain Transactions--Contingent Stock Issuance."

(2) Assumes no exercise of (i) the Underwriter's Over-Allotment Option and (ii)
the Representative's Warrants.

The information contained in this Prospectus relates solely to the issuance
of up to 400,000 Units and up to an additional 60,000 Units included in the
Over-Allotment Option granted to the Underwriters. The Units are being offered
and sold to the public through the Underwriters on the terms set forth in
"Underwriting."

6
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SUMMARY FINANCIAL DATA

Set forth below is selected summary financial data with respect to the
Company. Actual financial information for the years ended December 31, 1995 and
1996, and as of September 30, 1997 and for the nine months ended September 30,
1996 and September 30, 1997, is derived from the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and is
qualified by reference to such Consolidated Financial Statements and the Notes
thereto.

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statements of Operations Data
Revenues.............................................. $ 942,667 $ 663,261 $ 592,802 $ 828,566
Cost of Sales......................................... 728,719 496,531 400,997 597,299
Operating Expenses.................................... 1,192,522 1,771,101 1,306,841 2,271,621
Other Income (Expenses)............................... (372,576) 60,281 33,379 41,186
Net Loss.............................................. (1,351,150) (1,544,090) (1,081,657) (1,999,168)
Net Loss Per Share(1)................................. (.66) (.37) (.28) (.40)
Average Common Shares Outstanding..................... 2,039,280 4,197,499 3,926,416 5,054,026
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
DECEMBER 31, 1996 ACTUAL(2) AS ADJUSTED(3)
----------------- ------------ --------------
<S> <C> <C> <C>
Balance Sheet Data
Total Assets..................................................... $ 2,570,952 $ 1,784,323 $ 4,405,323
Working Capital.................................................. 1,858,088 591,162 3,212,162
Total Liabilities................................................ 363,722 906,752 906,752
Stockholders' Equity............................................. 2,207,230 877,571 3,498,571
</TABLE>

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(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
the calculation of net loss per share for the fiscal years ended December
31, 1995 and 1996, and for the nine-month periods ended September 30, 1996
and 1997.

(2) Does not reflect a $500,000 short-term loan extended by Paulson to the
Company (the "Paulson Loan") in December 1997. The Paulson Loan is repayable
in full, without interest out of the proceeds of this offering.

(3) Adjusted to give effect to the receipt of the Paulson Loan in December 1997
and the application of the estimated net proceeds of this offering,
including the repayment of the Paulson Loan. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

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FORWARD-LOOKING STATEMENTS

Certain statements made in this Prospectus are "forward-looking statements"
(within the meaning of the Private Securities Litigation Reform Act of 1995)
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements made in this Prospectus are based on current expectations that
involve numerous risks and uncertainties. The Company's plans and objectives are
based, in part, on assumptions involving the growth and expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements made in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements made in this Prospectus, particularly
in view of the Company's early stage of operations, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.

INVESTOR SUITABILITY

IN ORDER TO PURCHASE UNITS IN THIS OFFERING, INVESTORS WILL BE REQUIRED TO
PROVIDE TO THE COMPANY AND THE UNDERWRITER A WRITTEN REPRESENTATION THAT THEY
SATISFY MINIMUM SUITABILITY REQUIREMENTS CONSISTING OF EITHER (I) A MINIMUM
ANNUAL GROSS INCOME OF $65,000 AND A MINIMUM NET WORTH OF $65,000, EXCLUSIVE OF
AUTOMOBILE, HOME AND HOME FURNISHINGS, OR (II) A MINIMUM NET WORTH OF $150,000,
EXCLUSIVE OF AUTOMOBILE, HOME AND HOME FURNISHINGS. IF AN INVESTOR FAILS TO
CONFIRM THAT HE SATISFIES SUCH SUITABILITY REQUIREMENTS, THE UNDERWRITER WILL
NOT PERMIT SUCH INVESTOR TO PARTICIPATE IN THE OFFERING.

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RISK FACTORS

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POSSIBILITY OF THE
LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S SECURITIES AND, ALONG WITH EACH
OF THE FOLLOWING FACTORS, CONSIDER THE INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.

HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN. From its
inception in 1988 through September 30, 1997, the Company has incurred losses of
approximately $13.1 million, substantially all of which consisted of research
and development and general and administrative expenses. To date, the Company
has been unable to profitably market its products. The Company has principally
relied upon the proceeds from debt and equity financings to provide its working
capital. For the years ended December 31, 1996 and 1995 and for the nine months
ended September 30, 1997 and 1996, the Company's net losses were $1,544,090,
$1,351,150, $1,999,168 and $1,081,657, respectively. In addition, the Company's
operations used net cash of $1,315,930 and $1,803,286 for the year ended
December 31, 1996 and nine months ended September 30, 1997, respectively. The
Company has yet to sell any of its products in commercial quantities. Moreover,
even if the Company eventually generates increased revenues from product sales,
the Company does not expect to achieve operating profits before the last quarter
of 1998. The Company's ability to achieve a profitable level of operations in
the future will depend in large part on finalizing development of its medical
laser products, obtaining additional regulatory approval for such products and
bringing several of these products to market. The likelihood of long-term
success of the Company must be considered in light of the expenses, difficulties
and delays frequently encountered in the development and commercialization of
new medical laser products, competitive factors in the marketplace as well as
the burdensome regulatory environment in which the Company operates. There can
be no assurance that the Company will ever achieve significant revenues or
profitable operations. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

GOING CONCERN UNCERTAINTY. The consolidated financial statements included
in this Prospectus have been prepared assuming that the Company will continue as
a going concern. As a result of the Company's continuing operating losses and
negative cash flows from operations, the Independent Auditors' Report issued in
conjunction with the audit of the consolidated financial statements of the
Company for the fiscal year ended December 31, 1996, contained an explanatory
paragraph indicating that the foregoing matters raised substantial doubt about
the Company's ability to continue as a going concern. The Company's continued
operating losses have resulted in an accumulated deficit of $13,139,624 at
September 30, 1997. There can be no assurance that the Company's operations will
be profitable or that the Company will be able to attain its business plan
objectives. See Independent Auditors' Report and Notes to Consolidated Financial
Statements Note 12.

FUTURE REVENUE GROWTH DEPENDENT ON MEDICAL LASER PRODUCTS. The Company is
relying heavily upon the success of its medical laser products which are in the
product introduction stage. These medical laser products are subject to all of
the risks of failure inherent in the market introduction of innovative
technologies. Those risks include the possibilities that some or all of the
proposed products may fail to receive additional necessary regulatory
clearances, that the proposed products may have features which render them
uneconomical either to manufacture or market, that there does not exist demand
for the products at levels or prices at which the Company can operate
profitably, or that third parties will market a superior product. As a result,
there can be no assurance that all or any of the Company's medical laser
products will receive all of the required governmental regulatory approvals or
become commercially viable or achieve market acceptance. See "Business."

ADDITIONAL FINANCING REQUIREMENTS. The Company will require substantial
funds for commercialization of its medical laser products, establishing
manufacturing and testing capabilities and marketing and sales efforts. The
Company's capital requirements depend upon numerous factors, including the
progress of its product commercialization, the requirement for additional
clinical testing, the time and cost involved in obtaining additional regulatory
approvals, the cost of filing, prosecuting, defending and enforcing patent

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claims and other intellectual property rights, competing technological and
market developments, the ability of the Company to establish collaborative
arrangements, the development of commercialization activities and arrangements,
and the purchase of capital equipment. Unless the Company is able to achieve
profits from operations within the next 12 months, or if the Company experiences
unanticipated cash requirements during the next 12 months, the Company expects
that it may require substantial additional capital. The Company may seek
additional funding through public or private financings or collaborative or
other arrangements with third parties. There can be no assurance that additional
funds will be available on acceptable terms, if at all. If additional funds are
raised by issuing equity securities, further substantial dilution to existing
stockholders, including purchasers of the Units offered hereby, may result. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its development programs or to obtain funds by
entering into arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its products or
technologies that the Company would not otherwise relinquish. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

PATENT LITIGATION. On October 15, 1997, Venisect, Inc. ("Venisect")
commenced a patent infringement action (the "Venisect Litigation") against the
Company in the United States District Court for the Eastern District of Arkansas
alleging that the Lasette-TM- infringes on certain patents and patent rights
owned by Venisect. Venisect seeks injunctive relief and monetary relief,
including treble damages. The Company has filed a response to this Complaint,
moving to dismiss the Complaint for lack of jurisdiction. The Company believes,
and has received an opinion from its patent counsel, that the Lasette-TM- does
not infringe on the patents and patent rights owned by Venisect and will assert
substantive defenses if the action is not dismissed or is re-filed in another
jurisdiction. Nevertheless, there can be no assurance that the Company will be
able to successfully defend the patent infringement claims made by Venisect. If
Venisect prevails in this litigation, the Company may be permanently enjoined
from selling the Lasette-TM- and may be obligated to pay significant damages to
the plaintiff. Even if the Company is successful in its defense of the
Litigation, the cost of such defense could be substantial and the Company's
management may be required to devote a substantial amount of time to such
defense. Accordingly, the Venisect Litigation could have a material adverse
impact on the Company's business and financial condition.

LIMITED PROTECTION FROM PATENTS AND PROPRIETARY TECHNOLOGY. The Company's
medical laser products currently have no patent protection. The Company intends
to file applications for patents covering some features of the medical laser
products; however, there can be no assurance that patents will be issued or, if
issued, the degree of protection that they will afford. The Company's current
scientific research instruments only have limited patent protection. The Company
has licenses to or assignments of United States patents and certain
corresponding foreign patents that cover certain aspects of some of its
products. However, there can be no assurance as to the degree of protection
offered by these patents. These patents may have limited commercial value or may
lack sufficient breadth or scope to adequately protect the aspects of the
Company's technology to which they relate.

Since there is no patent protection currently afforded the Company's medical
laser products, there can be no assurance that other patent holders or other
third parties will not claim infringement by the Company or its licensors with
respect to current and future technology. Because United States patent
applications are held and examined in secrecy, it is also possible that
presently pending United States patent applications will eventually issue with
claims that will be infringed by the Company's products. There can be no
assurance that additional competitors, in the United States and in foreign
countries, many of which have substantially greater resources than the Company
and have made substantial investments in competing technologies, will not apply
for and obtain patents that will prevent, limit or interfere with the Company's
ability to make and sell its products. The Company is aware of several patents
held by third parties that relate to certain aspects of its products. There can
be no assurance that these patents would not be used as a basis to challenge the
Company's current or future patents, to limit the scope of its patent rights or
to limit its ability to obtain additional or broader patent rights. A successful
challenge to the

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validity of any of the Company's existing or future patents and/or patent rights
may adversely affect the Company's competitive position and could limit the
Company's ability to commercialize one or more of its medical laser products and
its scientific products. Further, the Company may in the future be required to
initiate litigation to protect its patent position. There can be no assurance
that the Company will have the resources necessary to pursue such litigation or
otherwise protect its patent rights. The defense and prosecution of patent suits
is costly and time-consuming, even if the outcome is favorable. This is
particularly true in foreign countries where the expense associated with a
proceeding can be prohibitive. An adverse outcome in the defense of a patent or
infringement suit could subject the Company to significant liabilities to third
parties, require the Company and others to cease selling products that infringe
or require disputed rights to be licensed from third parties. Such licenses may
not be available on satisfactory terms or at all. Moreover, if claims of
infringement are asserted against future co-development partners or customers of
the Company, those partners or customers may seek indemnification from the
Company for damages and expenses they incur. There can no be assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available under acceptable terms, if at all. There has
been, and the Company believes that there will continue to be, significant
litigation in the laser-based biotechnological industry regarding patent and
other intellectual property rights. Any litigation, including the Venisect
Litigation, could consume a substantial portion of the Company's financial and
personnel resources and, regardless of the outcome of such litigation, have a
material adverse impact upon the Company's business, results of operations and
financial condition.

The Company also relies on trade secret protection for its unpatented
proprietary technology. However, trade secrets are difficult to protect. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, that such trade secrets will not be disclosed or
that the Company can effectively protect its rights to unpatented trade secrets.
Despite precautions taken by the Company, unauthorized parties may attempt to
engineer, reverse engineer, copy or obtain and use its products and other
information the Company considers proprietary. The Company pursues a policy of
having its employees and consultants execute non-disclosure agreements upon
commencement of employment or consulting relationships with the Company, which
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship shall be kept confidential
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or other proprietary information in the event of unauthorized use or
disclosure of such information.

Further, the Company has developed and relies on the trademarks that it uses
with its products, including the Lasette-TM-, the RevitaLase-TM- and the IVF
Workstation-TM-. The Company has applied for a federal registration for the name
Lasette-TM- and intends to apply for federal registration with respect to the
use of the RevitaLase-TM- and IVF Workstation-TM- trademarks. Where
registrations of trademarks have not been issued, the Company claims common law
trademark rights to those names. Notwithstanding, there can be no assurance that
the Company will obtain additional registrations for any of its trademarks or
that the Company will not be subject to opposition, cancellation or infringement
proceedings based upon the use of such trademarks. The loss of the use of any
one or more of the trademarks could have a material adverse effect upon the
Company's ability to profitably market the associated product. See "Business
Intellectual Property."

COMPETITION. The industry in which the Company competes is characterized by
intense competition, extensive research and development efforts and rapid
technological progress. New product developments and enhancements of existing
products are expected to continue and there can be no assurance that discoveries
by others will not render the Company's products non-competitive.

There are many companies, both public and private, that are engaged in the
development of products for the same applications being pursued by the Company.
Many of those companies have substantially greater financial, research and
development, manufacturing and marketing experience and resources than

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the Company and represent substantial long-term competition for the Company.
Such companies may succeed in developing products that are more effective or
less costly than any products that may currently be owned or which may be
developed by the Company in the future. Specifically, the Company is aware of
several other companies which are developing glucose testing products based on
non-invasive technologies, such as skin patches and diode-pumping laser
products. 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 on the business and financial condition
of the Company.

Factors affecting competition in the laser-based medical and
biotechnological industry vary depending on the extent to which the competitor
is able to achieve a competitive advantage based upon proprietary technology. If
the Company is able to establish and maintain a significant proprietary position
with respect to its products, competition will likely depend primarily on the
effectiveness of the products and their price competitiveness. In addition, the
Company's competitive position also depends upon its ability to attract and
retain qualified scientific and other personnel, develop effective proprietary
products, acquire technology from third parties, implement development and
marketing plans, obtain patent protection and secure adequate capital resources.
See "Business Competition."

RISKS ASSOCIATED WITH LICENSES. The LaserTweezers-Registered Trademark-
application of the Cell Robotics Workstation is based upon an exclusive patent
license from AT&T (the "AT&T License"), which requires the payment of
substantial minimum annual royalties in the future. If future sales of the Cell
Robotics Workstation do not increase substantially over historical levels, it is
likely that future sales of the product will be rendered uneconomical by virtue
of the minimum royalty required under the AT&T License. Under such
circumstances, the Company may elect to allow the AT&T License to terminate and
as a result lose its ability to continue to market the
LaserTweezers-Registered Trademark- module of the Cell Robotics Workstation.

TECHNOLOGICAL CHANGE AND PRODUCT OBSOLESCENCE. The medical device industry
is characterized by extensive research efforts, rapid technological progress,
evolving industry standards, frequent new product and service introductions and
enhancements and intense competition from numerous organizations, including
pharmaceutical and medical diagnostic equipment companies, academic
institutions, and others. New developments are expected to continue at a rapid
pace. There can be no assurance that research and discoveries by others will not
render any of the Company's products or potential products non-competitive,
obsolete and/or unmarketable. In order to compete successfully, the Company must
continue to improve its current products and develop and market new products
that keep pace with technological developments. Accordingly, even if the
Company's medical laser products achieve market acceptance, its future success
will depend in significant part on its ability to continually improve the
performance, features, and reliability of its products in response to both
evolving demands of the marketplace and competitive product offerings. There can
be no assurance that the Company will be successful in so doing. Any failure by
the Company to anticipate or respond adequately to technological developments
could have a material adverse effect on its operating results and financial
condition. The Company's pursuit of necessary technological advances will
require substantial time and expense, and there can be no assurance that the
Company will succeed in adapting its products to changing technology standards
and customer requirements. There can be no assurance that the announcement or
introductions of new products by the Company or its competitors or any change in
industry standards will not cause customers to defer or cancel purchases of
existing products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business."

GOVERNMENT REGULATION; NEED FOR ADDITIONAL PRODUCT CLEARANCES AND
APPROVALS. The testing, manufacture, labeling, distribution, marketing and
advertising of products such as the Company's existing and proposed products and
its ongoing research and development activities are subject to extensive
regulation by government regulatory authorities in the United States and other
countries. The FDA and comparable agencies in foreign countries impose
substantial requirements on the introduction of new medical laser products
through lengthy and detailed clinical testing procedures, and other costly and
time-consuming

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<PAGE>
compliance procedures. The Company's products must receive FDA clearance before
they can be commercially marketed in the United States, which in many instances
involves rigorous pre-clinical and clinical testing and an extensive FDA
approval process. The time required for completing such testing and obtaining
such approvals is uncertain, and FDA clearance may never be obtained for some
products or applications. Delays or rejections may be encountered based upon
changes in FDA policy during the period of product development and FDA
regulatory review of the Company's submitted application. Similar delays may
also be encountered in other countries. Failure to receive timely approval from
these agencies could result in the Company's incurring substantial costs and
could also have a material adverse effect upon the Company's operations and
financial condition. In addition, if regulatory clearance of a product is
granted, such clearance may entail limitations on the indicated uses for which
the product may be marketed. Also, modifications may be made to the Company's
products to incorporate enhancements to their functionality and performance
based upon new data and design review. There can be no assurance that the FDA
will not request additional information relating to product improvements, that
any such improvements would not require further regulatory review thereby
delaying testing, approval and commercialization of the Company's products or
that ultimately any such improvements will receive FDA clearance.

While the Lasette-TM- has been cleared by the FDA for clinical use for all
adult glucose/hematocrit testing, including diabetics, the Company believes that
realizing the full commercial potential of the Lasette-TM- will depend upon the
Company receiving FDA clearance to sell the Lasette-TM- to all diabetics (adults
and children) for home use. The Company is applying for FDA clearance to sell
the product for home use by diabetics; however, there can be no assurance that
such clearance will be issued or, if issued, that it will not be subject to
restrictions that could substantially impair its future profitability. In
addition, the laser-assisted hatching module of the IVF Workstation-TM- has only
begun clinical trials, which will consist of at least 600 clinical cycles. It is
estimated that the clinical trials for this product will take at least one year
to complete, with no assurance that once completed the product will receive FDA
clearance for sales in the United States.

FDA regulations also require manufacturers of medical devices to adhere to
certain "Medical Device Quality System Regulation" ("MDQS"), which include
testing, design, quality control and documentation procedures. Compliance with
applicable regulatory requirements is subject to continual review and will be
monitored through periodic inspections by the FDA. Similarly, sales of the
Company's products outside of the United States are also subject to certain
manufacturing standards promulgated by the International Standards Organization
("ISO"). In addition, the Company's manufacturing activities are subject to
regulation and control under the Occupational Safety and Health Act (OSHA) and
regulations promulgated thereunder. Later discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including fines, delays, or suspensions of
regulatory clearances, seizures, recalls of products, operating restrictions and
criminal prosecution. The failure to comply with regulatory requirements could
subject the Company to regulatory or judicial enforcement actions, including,
but not limited to, product recall or seizures, injunctions, civil penalties,
criminal prosecution, refusals to approve new products and withdrawal of
existing approvals, as well as potentially enhanced product liability exposure.
Sales of the Company's products outside of the United States will be subject to
regulatory requirements governing clinical trials and marketing approval.

In addition, the foreign sale by the Company of at least one of its lasers
is subject to the Export Control Act and can only be exported under a license
held by the Company's supplier. Should that source of supply fail to maintain
such license, the Company's ability to export that laser product would be
suspended until it was able to identify and enter into an arrangement with a new
licensed supplier. These requirements vary widely from country to country and
could delay introduction or continuing sales of the Company's products in
foreign countries. See "Government Regulation."

DEPENDENCE UPON SOURCE OF SUPPLY. The Erbium:YAG lasers used by the Company
in the Lasette-TM- and the RevitaLase-TM- are made from crystals which the
Company has manufactured in Russia through a

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strategic relationship. The Company's competitive advantage in these products is
derived to a degree upon the significant cost savings which the Company is able
to realize by having its crystals manufactured by its Russian supplier. However,
the continuation of the Company's relationship with this source of supply is in
doubt due to current unresolved disputes, including problems related to crystal
quality. If this source of supply were restricted or eliminated due to factors
specifically affecting such supplier, such as the inadvertent or intentional
non-performance by such source, or events flowing from Russia's political or
economic instability, it is likely that alternative sources of supply would be
substantially more expensive. As a result of the foregoing, and other factors
beyond the control of the Company, the Company could lose its strategically
important source of supply for laser crystals, which would impair its
competitive advantage. See "Business."

UNCERTAINTY OF MARKET ACCEPTANCE. Achieving market acceptance for the
Company's proprietary products will require substantial marketing efforts and
expense. As with any new technology, there is substantial risk that the
marketplace will not accept the potential benefits of such technology or be
willing to pay for any cost differential with the existing technologies. For
example, the Lasette-TM- will compete directly with stainless steel lancets
which only cost pennies apiece and non-invasive procedures and products are
currently being developed by other companies. Market acceptance of these current
and proposed products will depend, in large part, upon the ability of the
Company to educate potential customers, including third-party distributors, of
the distinctive characteristics and benefits of its products. There can be no
assurance that current or proposed products will be accepted by the end users or
that any of the current or proposed products will be able to compete effectively
against current and alternative products. See "Business."

DEPENDENCE ON MANUFACTURERS. The Company is relying upon a third party to
manufacture the Lasette-TM-. The Company is dependent on third parties to
produce and manufacture certain components for its other products. Certain key
components used in the manufacturing of the Company's products are currently
obtained from single vendors. There are no written agreements with such third
parties, and no third party is obligated to perform any services for the Company
on which the Company depends in order to meet its business objectives.
Consequently, there can be no assurance that these third parties will commit any
resources to the commercialization of the Company's business. Any supply
interruption in a single-sourced component would have a material adverse effect
on the Company's ability to manufacture products until a new source of supply
were qualified. There can be no assurance that the Company would be successful
in qualifying additional sources on a timely basis, if ever. Failure to do so
would have a material adverse effect on the Company's business, financial
condition, and results of operations. See "Business."

PRODUCT DEFECTS AND WARRANTIES. Products as complex as those developed by
the Company may contain undetected errors or defects when first introduced or as
new versions are released. In addition, the Company offers on existing products
and plans to offer on future products a one-year warranty against defects in
materials and workmanship. There can be no assurance that, despite testing by
the Company or its customers, errors will not be found in new products resulting
in warranty claims, product redevelopment costs and loss of, or delay in, market
acceptance and additional costs. If a product initially fails to produce
acceptable results, customer acceptance of the Company's products, even those
which have been successfully redesigned or improved, could be materially
adversely affected. See "Business."

MARKETING AND SALES; LACK OF STRATEGIC RELATIONSHIPS. In order for the
Company to increase revenues and achieve profitability, the Company's products
must achieve a significant degree of market acceptance. The Company's future
success is dependent upon its ability to establish an effective sales
organization for its proprietary products or to enter into distribution
arrangements with other entities selling to its target markets. No assurances
can be given that the Company will be able to hire and retain its own sales
force or enter into appropriate distribution arrangements. The Company must
attract, build, train and motivate a marketing and sales force which the Company
currently does not have. Building a successful sales force

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takes time, and requires a significant amount of capital. The Company intends to
acquire experienced marketing personnel, and to enter into marketing and
distribution agreements with various strategic partners. There can be no
assurance that the Company will be successful in recruiting marketing personnel
with the required skills or that it will be able to enter into such strategic
relationships. In addition, there can be no assurance that a commercial market
for the Company's products will develop, that the Company will be able to
compete effectively on price or some other basis, if such a market does develop,
or that the Company's products will perform up to market expectations. See
"Business."

DEPENDENCE UPON KEY PERSONNEL. The Company's future success is dependent on
the continued service of its key technical, marketing, sales, and management
personnel and on its ability to continue to attract, motivate, and retain highly
qualified employees. The Company's key employees may voluntarily terminate their
employment with the Company at any time. Competition for such employees is
intense and the process of locating technical and management personnel with the
combination of skills and attributes required to execute the Company's strategy
is often lengthy. Accordingly, the loss of the services of key personnel could
have a material adverse effect upon the Company's operations and on research and
development efforts. Further, the Company does not have key person life
insurance covering its management personnel or other key employees, other than a
$500,000 term policy on Dr. Lohrding. See "Management."

MANAGEMENT OF GROWTH; USE OF PROCEEDS TO MAKE UNSPECIFIED ACQUISITIONS. The
Company's ability to manage its growth, if any, will require it to continue to
improve and expand its management, operational and financial systems and
controls. Any measurable growth in the Company's business will result in
additional demands on its customer support, sales, marketing, administrative and
technical resources and will place significant strain on the Company's
management, administrative, operation, financial and technical resources and
increase demand upon its systems and controls. There can be no assurance that
the Company will be able to successfully address these additional demands. There
also can be no assurance that the Company's operating and financial control
systems will be adequate to support its future operations and anticipated
growth. Failure to manage the Company's growth properly could have a material
adverse effect upon the Company's business, financial condition and results of
operations. The Company may also seek potential acquisitions of patents,
products, technologies and businesses that could complement or expand the
Company's business. In the event the Company were to identify an appropriate
acquisition candidate, there is no assurance that the Company would be able to
successfully negotiate, finance or integrate such acquired patents, products,
technologies or businesses. Furthermore, such an acquisition could cause a
diversion of management's time and resources. There can be no assurance that a
given acquisition, when consummated, would not materially adversely affect the
Company's business and results of operations. See "Risk Factors Dependence Upon
Key Personnel."

HEALTH CARE REFORM AND POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
RELATED MATTERS. The Company's future success may be affected by the continuing
efforts of government and third-party payors to contain or reduce the costs of
health care through various means. The Company cannot predict the effect health
care reforms may have on its business, and there can be no assurance that any
such reforms will not have a material adverse effect on the Company. Certain of
the medical lasers products that the Company is developing are designed for use
in elective medical procedures, such as cosmetic surgery and in vitro
fertilization. In both the United States and elsewhere, uses of elective medical
procedures are dependent in part on the availability of reimbursement to the
consumer from third-party payors, such as government and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services. It is unlikely that the cost of the Lasette-TM-
will qualify as a reimbursable expense under most health insurance programs.
There can be no assurance that the Company's laser medical products will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis. See "Business."

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LIMITED MARKET FOR SCIENTIFIC INSTRUMENTS. The principal markets for the
Company's scientific instrumentation products are colleges, universities and
other institutions engaged in scientific research. Most, if not all, of these
potential customers rely upon federal and state funding in order to support
their research activities. The ability of these institutions to purchase the
Company's products is dependent upon receiving adequate funding from the public
sector. A reduction or withdrawal of government support of scientific pursuits
could result in, a diminished demand for the Company's products. See "Business."

RISK OF PRODUCT LIABILITY. Clinical trials or marketing of any of the
Company's products may expose the Company to liability claims from the use of
such products. The Company currently carries product liability insurance with
limits of $2,000,000; however, there can be no assurance that the Company will
be able to obtain or maintain insurance on acceptable terms for its clinical and
commercial activities or that such insurance would be sufficient to cover any
potential product liability claim or recall. Failure to have sufficient coverage
could have a material adverse effect on the Company's business and results of
operations. See "Business."

BROAD DISCRETION AND APPLICATION OF PROCEEDS. The Company expects that the
proceeds of this offering will be used principally for product research and
development and to launch its medical laser products. The Company is not
currently able to estimate precisely the allocation of the proceeds among such
uses, and the time and amount of expenditures will vary depending upon numerous
factors. The Company's Board of Directors will have broad discretion to allocate
the proceeds of this offering and to determine the timing of expenditures. See
"Use of Proceeds."

FEDERAL INCOME TAX LIABILITY ON PREFERRED STOCK DIVIDEND. Subject to
certain conditions and assumptions, the payment and distribution by the Company
of the dividend in the form of Common Stock to holders of the Preferred Stock
will be characterized as a dividend for federal income tax purposes. In general,
distributions classified as dividends for federal income tax purposes constitute
ordinary income and will be recognized by the holders of the Preferred Stock as
taxable income upon the accrual of such dividend. The amount of income tax
attributable to receipt of such Common Stock dividend is dependent, upon other
things, upon the taxpayer's other income and expenses for such year and the
rates then in effect. While the Company has undertaken and intends to distribute
the Common Stock dividend within 30 days following its accrual every six months,
there can be no assurance that holders of the Preferred Stock will be able to
dispose of the Common Stock in market transactions in sufficient quantities to
pay the income tax which may be attributable to receipt of such dividends. As a
result, there is a risk that holders of Preferred Stock will recognize taxable
income with respect to the Common Stock dividend and be required to pay income
tax attributable to such dividend without being able to liquidate sufficient
quantities of the Common Stock to pay the associated tax liability. THE TAX
TREATMENT TO A HOLDER MAY VARY DEPENDING ON SUCH HOLDER'S PARTICULAR SITUATION.
POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
TREATMENT THAT MAY BE ANTICIPATED TO RESULT FROM THE OWNERSHIP OR DISPOSITION OF
THE PREFERRED STOCK IN THEIR PARTICULAR CIRCUMSTANCES.

SUBSTANTIAL DILUTION. Investors acquiring Units offered hereby will incur
immediate and substantial dilution of their investment of approximately $1.56
per share, or 75.8% of the offering price, assuming conversion of the Preferred
Stock, and the Company's adjusted net tangible book value as of September 30,
1997. To the extent that currently outstanding options and warrants to purchase
the Company's Common Stock are exercised, there will be further dilution to
investors acquiring Shares. See "Dilution."

OFFERING PRICE ARBITRARILY DETERMINED. The offering price of the Units
being offered hereby were determined by negotiation between the Company and the
Representatives and is not necessarily related to the Company's assets, book
value or financial condition, and may not be indicative of the actual value of
the Company. See "Underwriting."

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NO DIVIDENDS. The Company has not declared or paid cash dividends on its
Common Stock in the preceding two fiscal years. The Company currently intends to
retain all future earnings, if any, to fund the operation of its business, and
therefore does not anticipate paying dividends on Common Stock in the
foreseeable future.

POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of
Common Stock (including Common Stock issued upon the exercise of outstanding
options and warrants) in the public market after this offering could materially
adversely affect the market prices of the Common Stock, the Units, the Preferred
Stock and the Warrants. Such sales also might make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems acceptable, or at all. As of November
15, 1997, 5,222,414 shares of the Company's $.004 par value Common Stock, were
issued and outstanding, of which 2,749,708 are unrestricted and freely tradeable
at the discretion of their owners and 2,472,706 are "restricted securities" and
under certain circumstances may, in the future, be sold in compliance with Rule
144 adopted under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who beneficially owned restricted shares of Common Stock for at
least one (1) year is entitled to sell, within any three (3) month period, a
number of shares that does not exceed the greater of one percent (1%) of the
total number of outstanding shares of the same class, or if the Common Stock is
quoted on NASDAQ or a stock exchange, the average weekly trading volume during
the four (4) calendar weeks immediately preceding the sale. A person who
presently is not, and who has not been an affiliate of the Company for at least
three (3) months immediately preceding the sale, and who has beneficially owned
the shares of Common Stock for at least two (2) years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
Of these restricted shares, approximately 1,415,106 shares of Common Stock are
eligible for sale in the public market without restriction in reliance upon Rule
144(k) under the Securities Act. Of the 2,472,706 restricted shares outstanding,
1,040,100 are beneficially owned by officers, directors and affiliates of the
Company, who have agreed, pursuant to lock-up agreements, that they will not
offer, sell, contract to sell, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock owned by them or that could
be purchased by them to the exercise of options or warrants to purchase Common
Stock of the Company through a period of 90 days after the date of this
Prospectus without the prior written consent of the Underwriters. Upon the
expiration of the lock-up agreements, the 840,100 shares of Common Stock held by
the officers, directors and affiliates will be immediately eligible for resale
subject to the volume limitations of Rule 144 and approximately 217,500 other
restricted shares will become eligible for resale under Rule 144 from time to
time thereafter. Upon completion of this offering, assuming no exercise of the
Underwriters' Over-Allotment Option, and giving effect to the issuance of the
Hall Units, the Company will have outstanding 478,788 shares of Preferred Stock
which will be convertible into 1,915,152 shares of Common Stock and Warrants
exercisable to purchase an additional 957,576 shares of Common Stock. Further,
if all of the Preferred Stock remains outstanding until their automatic
conversion in three years, the Company will issue as a dividend on that
Preferred Stock 191,515 shares of Common Stock every six months, or an aggregate
of 1,149,090 shares of Common Stock over three years. In addition, the Company
currently has issued and outstanding options and warrants to purchase an
aggregate of 1,827,000 shares of Common Stock, of which 1,032,000 underlying
shares of Common Stock may be freely tradeable upon exercise due to the
registration statement covering the Plan. The Company may also grant options to
purchase an additional 300,000 shares of Common Stock under the ESPP. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or the availability of such shares for sale will have on the market prices
prevailing from time-to-time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock, Units, Preferred Stock and
Warrants and could impair the Company's ability to raise capital in the future
through the sale of equity securities. Actual sales or the prospect of future
sales of shares of Common Stock under Rule 144 may have a depressive effect upon
the prices of the Common Stock, Units, Preferred Stock and Warrants and the
markets therefor. See "Shares Eligible For Future Sale."

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POSSIBLE DILUTION FROM FUTURE SALES OF COMMON STOCK. The Company's Board of
Directors has the authority to issue up to 12,500,000 shares of Common Stock and
to issue options and warrants to purchase shares of the Company's Common Stock
without stockholder approval. Future issuance of Common Stock could be at values
substantially below the offering price in this offering and therefore could
represent further substantial dilution to investors in this offering. In
addition, the Board could issue large blocks of common stock to fend off
unwanted tender offers or hostile takeovers without further stockholder
approval. See "Description Of Securities" and "Shares Eligible For Future Sale."

POTENTIAL ADVERSE EFFECTS OF FUTURE SALES OF PREFERRED STOCK. The Company's
Articles of Incorporation, as amended, authorize the issuance of up to 2,500,000
shares of $.04 par value preferred stock. In addition to the Preferred Stock
included in the Units offered hereby, the Board of Directors has been granted
the authority to fix and determine the relative rights and preferences of
additional preferred shares, as well as the authority to issue such shares,
without further stockholder approval. As a result, the Board of Directors could
authorize the issuance of a series of preferred stock which would grant to
holders preferred rights to the assets of the Company upon liquidation, the
right to receive dividend coupons before dividends would be declared to common
stockholders, and the right to the redemption of such shares, together with a
premium, prior to the redemption of Common Stock. Common stockholders have no
redemption rights. In addition, the Board could issue large blocks of preferred
stock to fend against unwanted tender offers or hostile takeovers without
further stockholder approval. See "Description Of Securities" and "Shares
Eligible For Future Sale."

MANAGEMENT'S LACK OF VOTING INFLUENCE. Upon consummation of this offering
and assuming the conversion of the preferred shares, the Company's President,
Ronald K. Lohrding, will own 300,000 shares of Common Stock, and vested options
exercisable to acquire an additional 325,000 shares of Common Stock, together
representing 8.8% of the total issued and outstanding shares of Common Stock
following completion of this offering. All of the Company's officers and
directors as a group own only 420,800 shares of Common Stock, and vested options
exercisable to acquire an additional 496,000 shares of Common Stock. Even giving
effect to the exercise of their outstanding and vested options, the Company's
officers and directors as a group would exercise voting control over only 12.5%
of the Company's outstanding shares of Common Stock following completion of this
offering. As a result of this lack of voting influence as stockholders, there
can be no assurance that the Company's officers and directors will be able to
implement the plans and strategies described in this Prospectus. Further, it is
possible that stockholders with greater voting influence could initiate actions
which could be adverse to those plans or hostile to current management. See
"Security Ownership of Management and Principal Stockholders."

NO PRIOR PUBLIC TRADING MARKET FOR THE COMPANY'S UNITS, PREFERRED STOCK OR
WARRANTS. Prior to this offering, there was no public trading market for the
Company's Units, Preferred Stock or Warrants and there can be no assurance that
a public trading market for those Securities will be developed or maintained in
the future. While there currently exists in the over-the-counter market a
limited and sporadic public trading market for the Common Stock, there can be no
assurance that such a market will improve in the future. During 1997, the
average daily trading volume of the Common Stock was approximately 18,400
shares, with five days having no trading activity. There can be no assurances
that an investor will be able to liquidate his investment without considerable
delay, if at all. If a public trading market for the Units, Preferred Stock or
Warrants does develop, the prices may be highly volatile. Factors discussed
herein may have a significant impact on the market prices of the Units,
Preferred Stock, Warrants and Common Stock. See "Description Of Securities."

RISKS OF PRICE AND VOLUME FLUCTUATIONS. The over-the-counter markets for
securities such as the Units, Preferred Stock, Warrants and Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and trends in the Company's industry and the investment
markets generally, as well

18
<PAGE>
as economic conditions and quarterly variations in the Company's results of
operations, may adversely affect the market prices of the securities. See
"Certain Market Information."

THE SECURITIES ENFORCEMENT AND PENNY STOCK REFORM ACT OF 1990. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure, relating to the market for penny stocks, in connection with trades
in any stock defined as a penny stock. The Commission recently adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000, if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
See "Certain Market Information."

The Company's Common Stock is, the Units and Preferred Stock may become and
the Warrants will be subject to rules adopted by the Commission regulating
broker-dealer practices in connection with transactions in "penny stocks." Those
disclosure rules applicable to penny stocks require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized list disclosure document prepared by the Commission. That
disclosure document advises an investor that investments in penny stocks can be
very risky and that the investor's salesperson or broker is not an impartial
advisor but rather paid to sell the shares. It contains an explanation and
disclosure of the bid and offer prices of the security, any retail charges added
by the dealer to those prices ("markup" or "markdown"), and the amount of
compensation or profit to be paid to or received by the salesperson in
connection with the transaction. The disclosure contains further admonitions for
the investor to exercise caution in connection with an investment in penny
stocks, to independently investigate the security as well as the salesperson
with whom the investor is working, and to understand the risky nature of an
investment in the security. Further, the disclosure includes information
regarding the market for penny stocks, explanations regarding the influence that
marketmakers may have upon the market for penny stocks and the risk that one or
two dealers may exercise domination over the market for such security and
therefore control and set prices for the security not based upon competitive
forces. The broker-dealer must also provide the customer with certain other
information and must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. Further, the rules require that following the
proposed transaction the broker provide the customer with monthly account
statements containing market information about the prices of the securities.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Many brokers may be unwilling to engage in transactions in
the Company's securities because of the added disclosure requirements, thereby
making it more difficult for purchasers of Units in this offering to dispose of
their securities.

POTENTIAL ADVERSE EFFECTS OF MARKET OVERHANG FROM PREFERRED STOCK, WARRANTS
AND OUTSTANDING OPTIONS. The Company has outstanding options and warrants
exercisable to acquire 795,000 shares of Common Stock, 450,000 of which are
subject to future vesting. In addition, the Company has 1,250,000 shares of
Common Stock reserved for issuance under the Plan and has granted 1,032,000
options with respect to such shares, all of which are immediately exercisable.
In addition, the Company has reserved 300,000 shares for issuance under the
ESPP. Following completion of this offering, assuming no exercise of the
Over-Allotment Option, and giving effect to the issuance of the Hall Units, the
Company will have outstanding shares of Preferred Stock convertible into
1,915,152 shares of Common Stock (2,155,152 shares if the Over-Allotment Option
is exercised in full) and Warrants exercisable to purchase an additional 957,576
shares of Common Stock (1,077,576 shares if the Over-Allotment Option is
exercised in

19
<PAGE>
full). All outstanding options and warrants, including the Warrants, are
exercisable on or before the fifth anniversary of the date of this Prospectus.
To the extent that such stock options or warrants are exercised, or the
Preferred Stock converted, dilution to the interests of the Company's
stockholders will likely occur. Additional options and warrants may be issued in
the future at prices not less than 85% of the fair market value of the
underlying security on the date of grant. Exercise of these options or warrants,
or conversion of the Preferred Stock, or even the potential of their exercise or
conversion may have an adverse effect on the trading price and market for the
Common Stock. The holders of the Preferred Stock, options or warrants are likely
to convert or exercise them at times when the market price of the Common Stock
exceeds the conversion or exercise prices of the securities. Accordingly, the
issuance of shares of Common Stock upon exercise of the options or warrants or
conversion of the Preferred Stock will likely result in dilution of the equity
represented by the then outstanding shares of Common Stock held by other
stockholders. Holders of the Preferred Stock, options or warrants can be
expected to convert or exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms which are more
favorable to the Company than the exercise terms provided by such options or
warrants. See "Description of Securities."

NEED FOR CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATIONS. Holders of
the Preferred Stock and/or Warrants will have the right to convert the Preferred
Stock or exercise the Warrants to acquire shares of Common Stock only if there
is a current and effective Registration Statement and Prospectus covering the
shares of Common Stock issuable upon their conversion or exercise, and only if
the shares are qualified for sale under the securities laws of the applicable
state or states. While the Company has undertaken and plans to do so, there can
be no assurance that a current Registration Statement and Prospectus will be in
effect when any of the Preferred Stock is converted or the Warrants are
attempted to be exercised. Although the Company will seek to qualify for sale
the shares of Common Stock underlying the Preferred Stock and Warrants in those
states in which the securities are to be offered, no assurance can be given that
such qualification will occur. The Preferred Stock and Warrants may be deprived
of any value if a Prospectus covering the shares issuable upon the conversion or
exercise thereof is not kept effective and current, or if such underlying shares
are not, or cannot be, registered in the applicable states. See "Description of
Securities."

POTENTIAL ADVERSE EFFECT OF WARRANT REDEMPTION. The Warrants may be
redeemed by the Company at a price of $0.25 per Warrant upon 30 days' notice,
mailed after the closing bid price of the Common Stock has equaled or exceeded
$4.80 for a period of ten consecutive trading days. Warrantholders shall have
exercise rights until the close of the business day preceding the date fixed for
redemption. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the Exercise Price at a time when it may be disadvantageous for
holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. The Warrants may not be redeemed or
exercised unless a Registration Statement pursuant to the Securities Act
covering the underlying shares of Common Stock is current and such shares have
been qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of the state of residence of the holder
of the Warrant. See "Description of Securities."

UNDERWRITER'S INFLUENCE ON THE MARKET. A significant number of the Units
may be sold to customers of the Underwriter. Such customers may subsequently
engage in transactions for the sale or purchase of such securities through or
with the Underwriter. Although they have no legal obligation to do so, the
Underwriter from time to time in the future may make a market in and otherwise
effect transactions in the Units, Preferred Stock or Warrants. To the extent the
Underwriter does so, it may be a dominating influence in any market that might
develop and the degree of participation by the Underwriter may significantly
affect the price and liquidity of the Units, Preferred Stock or Warrants. Such
market making activities, if commenced, may be discontinued at any time or from
time to time by the Underwriter without obligation or prior notice. Depending on
the nature and extent of the Underwriter's market making

20
<PAGE>
activities and retail support of the Units, Preferred Stock or Warrants at such
time, the Underwriter's discontinuance could adversely affect the price and
liquidity of the Units, Preferred Stock or Warrants. See "Underwriting."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Units offered hereby,
are estimated to be approximately $2,621,000 ($3,076,400 if the Over-Allotment
Option is exercised in full) after deducting the underwriting discount and
offering expenses.

<TABLE>
<CAPTION>
USE AMOUNT PERCENT
- ------------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Marketing and Sales(1)..................................................................... $ 1,000,000 38.2%
Manufacturing Equipment and Personnel(2)................................................... 600,000 22.9%
Product Development(3)..................................................................... 250,000 9.5%
Future Research and Development(4)......................................................... 200,000 7.6%
Debt Repayment(5).......................................................................... 500,000 19.1%
Working Capital(6)......................................................................... 71,000 2.7%
------------ -----
$ 2,621,000 100.0%
------------ -----
------------ -----
</TABLE>

- ------------------------

(1) Consists primarily of expenses for negotiating distribution agreements and
developing marketing material, including advertising brochures and attending
trade shows.

(2) Reflects purchase of machinery, equipment and other fixed assets to be used
for manufacturing and testing, and hiring and training additional
manufacturing personnel.

(3) Includes funds needed to complete engineering, commercial development and
validation of the medical laser products.

(4) Consists of research and development principally for additional medical
lasers, and a smaller version of the Lasette-TM-.

(5) Reflects repayment to Paulson of the $500,000 Paulson Loan.

(6) The Company continually evaluates potential acquisitions of patents,
products or technologies owned by third parties that could complement the
Company's current product portfolio. Funds allocated to working capital
could be used to complete one or more product or technology acquisitions,
although there are currently no understandings, agreements or commitments
with respect to any such material acquisition.

The amounts set forth above represent the Company's best estimate for the
use of the net proceeds of this offering in light of current circumstances.
However, actual expenditures could vary considerably depending upon many
factors, including, without limitation, changes in the economic conditions,
unanticipated complications, delays and expenses, or problems relating to the
development of additional products and/or market acceptance for the Company's
products. Any reallocation of the net proceeds of the offering will be made at
the discretion of the Board of Directors but will be in furtherance of the
Company's strategy to achieve growth and profitable operations through the
development of additional products and augmentation of the Company's marketing
efforts. The Company's working capital requirements are a function of its future
sales growth and expansion, neither of which can be predicted with any
reasonable degree of certainty. As a result, the Company is unable to precisely
forecast the period of time for which net proceeds of this offering will meet
its working capital requirements, although unless the Company is able to achieve
profits from operations, it expects it to be less than 12 months from the date
of this Prospectus. The Company may need to seek funds through loans or other
financing arrangements in the future, and there can be no assurance that the
Company will be able to make such arrangements in the future should the need
arise.

21
<PAGE>
Pending use of the net proceeds of the offering, the funds will be invested
temporarily in certificates of deposit, short-term government securities or
similar investments. Any income from these short-term investments will be used
for working capital.

DIVIDEND POLICY

The Company has not declared or paid cash dividends on its Common Stock in
the preceding two fiscal years. The Company currently intends to retain all
future earnings, if any, to fund the operation of its business, and, therefore,
does not anticipate paying dividends on Common Stock in the foreseeable future.
Future cash dividends, if any, will be determined by the Board of Directors.

22
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
the estimated net proceeds from the sale of the Units offered hereby. This
section should be read in conjunction with the Consolidated Financial Statements
and Notes thereto contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------
AS
ACTUAL(1) ADJUSTED(1)(2)
------------- --------------
<S> <C> <C>
Long term debt.................................................................... $ -0- $ -0-
Stockholders' equity
Preferred Stock, $.04 par value, 2,500,000 shares authorized; no shares
outstanding actual; 400,000 shares issued and outstanding as adjusted......... -0- 16,000
Common Stock, $.004 par value, 12,500,000 shares authorized; 5,222,414 shares
issued and outstanding 20,890 20,890
Additional paid-in capital........................................................ 13,996,305 16,601,305
Accumulated (deficit)............................................................. (13,139,624) (13,139,624)
Total stockholders' equity........................................................ 877,571 3,498,571
------------- --------------
Total capitalization $ 877,571 $ 3,498,571
</TABLE>

- ------------------------

(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Plan, 1,032,000 of
which are subject to outstanding and unexercised options having a weighted
average exercise price of $1.99 per share, and of which 357,724 options are
subject to future vesting, (ii) 450,000 shares of the Common Stock reserved
for issuance upon the exercise of the Lohrding Options, (iii) 345,000 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Placement Agent's Warrant, and (iv) 300,000 shares of Common Stock reserved
for issuance under the ESPP. Also does not include (i) 472,728 shares of
Common Stock underlying the Preferred Stock and Warrants included in the
Hall Units and (ii) up to 45,715 shares of Common Stock which may become
issuable under the terms of an agreement with GEM Edwards, Inc. upon
exercise of a conversion option which vests in the event of a future payment
default. See "Management--Stock Incentive Plans," "Description of
Securities--Placement Agent Warrants," and "Certain Transactions--Contingent
Stock Issuances."

(2) Assumes no exercise of the Underwriter's Over-Allotment Option or the
Representative's Warrants.

23
<PAGE>
DILUTION

At September 30, 1997, the Company had a net tangible book value of $806,057
or $.15 per share based upon 5,222,414 shares of Common Stock outstanding. Net
tangible book value per share is determined by dividing the number of
outstanding shares of Common Stock into the net tangible book value of the
Company (total assets less total liabilities and intangible assets). After
giving effect to the sale of the Units offered hereby and receipt of the
estimated net proceeds therefrom (after deducting the estimated underwriting
discount and offering expenses), the adjusted net tangible book value at
September 30, 1997 would have been $3,427,057 or $.50 per share of Common Stock,
assuming the conversion of all 400,000 shares of Preferred Stock sold in this
offering into 1,600,000 shares of Common Stock. This represents an immediate
increase in net tangible book value of $.35 per share to current stockholders
and an immediate dilution of $1.56 per share, or 75.8%, to the investors in this
offering. The following table illustrates the per share dilution, assuming all
400,000 Units are sold in this offering:(1)

<TABLE>
<CAPTION>
<S> <C> <C>
Price per share of Conversion Stock(2)......................................................... $ 2.0625
Net tangible book value per share of Common Stock before offering............................ $ .15
Increase per share of Common Stock attributable to new investors............................. $ .35
---------
Adjusted net tangible book value per share of Common Stock after offering...................... $ .50
Dilution of net tangible book value per share of Common Stock to new investors................. $ 1.56
---------
Dilution per share of Common Stock as a percentage of offering price........................... 75.8%
---------
---------
</TABLE>

- ------------------------

(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Plan, 1,032,000 of
which are subject to outstanding and unexercised options having a weighted
average exercise price of $1.99 per share, and of which 357,724 options are
subject to future vesting, (ii) 450,000 shares of the Common Stock reserved
for issuance upon the exercise of the Lohrding Options, (iii) 345,000 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Placement Agent's Warrant, and (iv) 300,000 shares of the Common Stock
reserved for issuance under the ESPP. Also does not include (i) 472,728
shares of Common Stock underlying the Preferred Stock and Warrants included
in the Hall Units and (ii) up to 45,715 shares of Common Stock which may
become issuable under the terms of an agreement with GEM Edwards, Inc. upon
exercise of a conversion option which vests in the event of a future payment
default. See "Management--Stock Incentive Plans," "Description of
Securities--Placement Agent Warrant," and "Certain Transactions--Contingent
Stock Issuances."

(2) Assumes that (i) all consideration paid for the Units in this offering is
allocated to the shares of Preferred Stock and (ii) all shares of Preferred
Stock sold in this offering are converted into shares of Common Stock at the
Initial Conversion Value.

The following table sets forth, as of November 15, 1997, the number of
shares of Common Stock purchased, the percentage of total cash consideration
paid, and the average price per share paid by (i) the existing stockholders and
(ii) investors purchasing Units in this offering, before deducting estimated
underwriting discounts and offering expenses payable by the Company.

<TABLE>
<CAPTION>
AVERAGE TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........................... 5,222,414 76.5% $ 14,017,195 80.9% $ 2.68
New Investors................................... 1,600,000 23.5%(1) $ 3,300,000 19.1%(1) $ 2.06(1)
---------- ----- ------------- ----- -----
Total........................................... 6,822,414 100.0% $ 17,317,195 100.0%
</TABLE>

- ------------------------

(1) Assumes (i) all 400,000 Units are sold in this offering at a Unit Offering
Price of $8.25, (ii) all consideration paid by investors for the Units is
allocated to the shares of Preferred Stock, and (iii) all shares of
Preferred Stock sold in this Offering are converted into 1,600,000 shares of
Common Stock.

24
<PAGE>
CERTAIN MARKET INFORMATION

PRICE RANGE OF COMMON STOCK

Prior to this offering, there has been no public trading market for the
Units, and there can be no assurance that a public market will develop or be
maintained in the future. The Company's Common Stock is traded over-the-counter
and quoted on the Bulletin Board on a limited and sporadic basis under the
symbol "CRII." During 1997, the average daily trading volume of the Company's
Common Stock was 18,400 shares, with five days having no trading activity. The
reported high and low bid and asked prices for the Common Stock are shown below
for the period through January 30, 1998. 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>
1995
First Quarter......................................................... $ 2.75 $ 3.625 $ 3.25 $ 4.00
Second Quarter........................................................ 2.25 3.00 3.00 3.75
Third Quarter......................................................... 1.00 3.125 2.25 3.50
Fourth Quarter........................................................ 1.75 2.875 2.00 3.25

1996
First Quarter......................................................... $ 1.375 $ 2.75 $ 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

1998
First Quarter (through January 30, 1998).............................. 1.875 2.8125 2.00 3.00
</TABLE>

The bid and ask prices of the Common Stock on January 30, 1998 were $1.9375
and $2.0625, respectively, as quoted on the Bulletin Board. As of January 30,
1998 there were approximately 176 stockholders of record of the Common Stock.

25
<PAGE>
SELECTED FINANCIAL DATA

Set forth below is selected financial data with respect to the Company.
Financial information for the years ended December 31, 1995 and 1996, and as of
September 30, 1997 and for the nine months ended September 30, 1996 and
September 30, 1997, is derived from the Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus and is qualified by
reference to such Consolidated Financial Statements and the Notes thereto.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues.............................................. $ 942,667 $ 663,261 $ 592,802 $ 828,566
Cost of Goods Sold.................................... 728,719 496,531 400,997 597,299
Gross Profit.......................................... 213,948 166,730 191,805 231,267
Operating Expenses.................................... 1,192,522 1,771,101 1,306,841 2,271,621
Operating Loss........................................ (978,574) (1,604,371) (1,115,036) (2,040,354)
Other Income (Expenses)............................... (372,576) 60,281 33,379 41,186
Net Income (Loss)..................................... (1,351,150) (1,544,090) (1,081,657) (1,999,168)
Net (Loss) Per Share(1)............................... (.66) (.37) (.28) (.40)
Average Common Shares
Outstanding(1)...................................... 2,039,280 4,197,499 3,926,416 5,054,026
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA
Total Assets............................................................... $ 2,570,952 $ 1,784,323
Working Capital............................................................ 1,858,088 591,162
Total Liabilities.......................................................... 363,722 906,752
Accumulated Deficit........................................................ (11,140,456) (13,139,624)
Stockholders' Equity....................................................... 2,207,230 877,571
</TABLE>

- ------------------------

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.

PLAN OF OPERATION--OVERVIEW

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 1995 and 1996
were disappointing, resulting in significant operating losses in both periods.
Given the limited market for the scientific research instruments, the Company
acquired certain technology in January 1996, (see Business--"Intellectual
Property") which it has used to develop medical laser products 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-TM-, 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 this offering principally to stimulate both domestic and
international sales of its medical laser products and concurrently complete the
processes necessary for additional domestic and international regulatory
clearances for those products.

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996

During the nine month period ended September 30, 1997, the Company's
operating activities were limited to continuing efforts to complete the
development of its medical laser products. Product sales for the period were
generated only from sales of its scientific research instruments. Total revenues
from product sales and grant revenue increased from $592,802 for the nine month
period ended September 30, 1996 to $828,566 for the nine month period ended
September 30, 1997, an increase of 39.8%. Research and development grant revenue
increased from $69,190 during the nine months ended September 30, 1996 to
$105,720 during the nine month period ended September 30, 1997, an increase of
52.8%. The Company's gross profit for the nine months ended September 30, 1997
increased by 20.6%, from gross profit of $191,805 for the period ended September
30, 1996 to $231,267 for the period ended September 30, 1997.

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 medical laser products.

Total operating expenses for the nine month period increased from $1,306,841
for the period ended September 30, 1996 to $2,271,621 for the period ended
September 30, 1997, an increase of $964,780, or 73.8%. This increase was
principally attributable to costs related to the continuing design and
development of the Company's medical laser products. Salaries increased by
$184,399, or 46.1%, due to the addition of personnel and increased wage rates.
Professional fees increased by $301,992, or 175.3%, principally as a result of
professional design and engineering consulting fees related to the development
of the Company's medical laser products. Other operating expenses, consisting of
overhead, general and administrative expenses, consulting and professional fees,
and other costs associated with the conduct of the Company's business also
increased, from $457,667 during the nine months ended September 30, 1996 to
$846,696 for the comparable period ended September 30, 1997, an increase of
$389,029, or 85.0%. This increase is also

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related to the Company's accelerated product development activities during the
most recent nine months and the termination of a license and development
agreement.

During the nine month period ended September 30, 1997, other income and
expenses also increased from a $33,379 net contribution to income for the nine
month period ended September 30, 1996 to a $41,186 net contribution to income
during the period ended September 30, 1997. This increase was due almost
exclusively to an increase in interest income of $12,034, or 66.7%, realized
from the Company's short term investment of the remaining proceeds from the
exercise of warrants during the third quarter of 1996.

As a result of the foregoing, the Company's net loss for the nine month
period ended September 30, 1997 increased by $917,511, or 84.8%, from a net loss
of $1,081,657 for the nine month period ended September 30, 1996 to a net loss
of $1,999,168 for the comparable period ended September 30, 1997. This resulted
in a net loss of $.40 per share on 5,054,026 weighted average shares outstanding
for the nine months ended September 30, 1997 compared to a net loss of $.28 per
share on 3,926,416 weighted average shares outstanding for the comparable period
ended September 30, 1996.

RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995.

The Company's total revenues for the year ended December 31, 1996 were
$663,261, a decrease of $279,406, or 29.6%, over revenues for the comparable
period in 1995. The gross profit realized by the Company on revenues generated
during fiscal 1996 was $166,730, or 25.1%, compared to a gross profit of
$213,948, or 22.7%, realized during fiscal 1995.

Operating expenses incurred during fiscal 1996 were $1,771,101, an increase
of $578,579, or 48.5%, over fiscal 1995 operating expenses of $1,192,522. This
increase was due primarily to a 117.0% increase in other operating expenses, to
$647,617 in fiscal 1996 from $298,397 in fiscal 1995, This increase reflects
expenses associated with the re-design of the Cell Robotics Workstation, as well
as the efforts to develop its new medical laser products. Also contributing to
the increase in operating expenses was a $98,138, or 23.8%, increase in salaries
and a $142,622, or 153.2%, increase in professional fees. The increase in
salaries was driven by the hiring of additional personnel, and an increase in
the compensation of existing employees. Payroll taxes and benefits increased
correspondingly. Expenses related to the testing of the Company's research
instrument line to ensure compliance with certain federal and international
regulations contributed to the increase in professional fees, as did fees
related to the filing of international patents on the Company's recently
acquired proprietary technology and the new products incorporating that
technology. Slight decreases in rent and utilities, travel, and depreciation and
amortization served to partially offset the overall increase in operating
expenses.

Other income and expenses increased to $60,281 for the year ended December
31, 1996, from a negative $372,576 for the year ended December 31, 1995, arising
from a reduction in interest expense of $344,364. This resulted from the
conversion of a stockholder's note payable to equity, thereby reducing the
Company's outstanding debt.

The foregoing resulted in the Company experiencing a net loss for the year
ended December 31, 1996 of $1,544,090, or $0.37 per weighted average share. This
compares to a net loss of $1,351,150, or $0.66 per weighted average share for
fiscal 1995. As a result of the exercise of Class A Common Stock Purchase
Warrants, the weighted average shares outstanding increased to 4,197,499 for the
year ended December 31, 1996 from 2,039,280 for the year ended December 31,
1995.

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

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from operations and, as a consequence, additional financings have been required
to fund ongoing operations. Initially, the Company relied upon one investor,
Mitsui Engineering & 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, 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"). As of the date of this Prospectus,
none of the Placement Agent's Warrants have been exercised. 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 Units. In December 1997, the Company obtained
the Paulson Loan which is repayable without interest out of the proceeds of this
offering.

Cash used in operations for the years ended in December 31, 1995 and 1996
and nine months ended September 30, 1997 were $1,267,920, $1,315,930, and
$1,803,286, respectively. The primary reason for the increase in the negative
cash flow from operations in the nine months ended September 30, 1997 as
compared to prior periods is the increase in product development and operating
expenses during that period.

At its present level of research, development and product introduction, the
Company requires approximately $200,000 per month to cover operating expenses,
in excess of cash flow currently generated from operations. In August 1997, the
Company sold in a private transaction to one investor 200,000 shares of Common
Stock at a price of $3.25 per share. The proceeds of that private sale are being
used to satisfy the Company's working capital requirements pending completion of
this 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 this
offering to satisfy its working capital requirements for the foreseeable future.

Cash provided by financing activities for the years ended December 31, 1995
and 1996 and nine months ended September 30, 1997 were $1,953,778, $2,444,812,
and $669,509, respectively. These figures reflect the equity financings
discussed above.

The Company's liquidity and capital resources continued to decrease during
the nine month period ended September 30, 1997, due primarily to the Company's
ongoing operating losses.

The Company's current ratio at September 30, 1997 was 1.7:1, 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 $1,784,323 at
September 30, 1997, a decrease of $786,629, or 30.6%. Of this decrease, current
assets accounted for $723,896, or 92%.

The decrease in the Company's current assets of $723,896, or 32.6%, was the
result of a large decrease in cash and cash equivalents which fell from
$1,724,671 at December 31, 1996, to $559,060 at September 30, 1997, a decrease
of $1,165,611 or 67.6%. This decrease in cash and cash equivalents was primarily
the result of continuing operating losses. Slightly offsetting the decrease in
cash and cash equivalents was an increase in accounts receivable of $282,179,
from $69,845 at the end of fiscal 1996, to $352,024 at September 30, 1997. The
increase in accounts receivable was primarily due to increased sales during the
first nine months of fiscal 1997 of the Cell Robotics Workstation. Inventory
increased in the amount of $114,837, or 28.1% to support the increased sales.
Finally, as a result of the pre-payment of a purchase commitment made to a
supplier of a particular inventory component, other current assets increased
from $19,121 to $63,820, an increase of 233.8%.

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During the nine month period ended September 30, 1997, the Company's total
liabilities increased $543,030, from $363,722 at December 31, 1996 to $906,752
at September 30, 1997. Increases in accounts payable of $444,590, or 276.4%, and
royalties payable of $110,914, or 263.9%, and a smaller increase in payroll
related liabilities were slightly offset by a small decrease in other current
liabilities of $4,561, or 14.3%. The Company did not have any long term
liabilities on December 31, 1996 or September 30, 1997.

As a result of the foregoing, the Company's working capital decreased from
$1,858,088 at December 31, 1996 to $591,162 at September 30, 1997, a decrease of
$1,266,926. This decrease was due almost exclusively to the Company's operating
loss incurred during the nine month period.

The Company will be required to expend resources and working capital in the
defense of the Venisect Litigation. The defense of this action, even if the
Company is successful, could have a material adverse effect on the Company's
future liquidity. See "Risk Factors Patent Litigation."

The Company expects that its cash used in operating activities will increase
in the near future. The timing of the Company's future capital requirements,
however, cannot accurately be predicted. The Company's capital requirements
depend upon numerous factors, principally the market acceptance of its new
medical laser products. 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
would have a material adverse effect upon the Company's business, financial
condition and results of operation. The Company believes that the net proceeds
from this 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. See "Risk Factors Additional Financing Requirements."

NET OPERATING LOSS CARRYFORWARDS

At December 31, 1996, the Company had a net operating loss carryforward for
income tax purposes of approximately $10,000,000, 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 (as hereafter defined) will limit the use of this net operating loss
carryforward under applicable Internal Revenue Service regulations.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share." SFAS 128 establishes new standards for computing and
presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the
currently required 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 the basic and diluted EPS
computations to the financial statements issued for periods ending after
December 15, 1997, and early application is not permitted. Upon adoption, SFAS
128 requires restatement of prior period EPS presented to conform to the
requirements of SFAS 128. Management believes the adoption of SFAS 128 will not
have a material effect on the Company's previously-issued financial statements.

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COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expense,
gains, and losses) in a full set of general purposes financial statements.
Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. However, SFAS
130 does not specify when to recognize or how to measure the items that make up
comprehensive income. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, and early application is permitted. SFAS 130 requires
reclassification of financial statements for all periods presented for
comparative purposes. Management believes the adoption of SFAS 130 will not have
a material effect on the Company's future financial statements.

REPORTING FOR SEGMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131 supersedes
the "industry segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, and early application is
permitted. Management believes the adoption of SFAS 131 will not have a material
effect on the Company's future financial statements.

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.
Furthermore, the Company has yet to initiate 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. As a result, there can be no guarantee that the systems of
other companies on which the Company's business relies will be timely converted,
or that a 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 can be no assurance that the Year 2000
Issue will not have a material adverse effect upon the Company.

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BUSINESS

OVERVIEW

The Company has developed, and is preparing to manufacture, market and sell,
a number of sophisticated medical laser products. 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. The
RevitaLase-TM- is a modularly-designed laser 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-TM-" 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 medical laser products
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 medical laser devices.

The Erbium:YAG laser handpiece for the RevitaLase-TM- has received FDA
clearance for use in dermatological and surgical applications. It is undergoing
continuing testing to finalize protocols for clinical use. The Company expects
to begin initial shipments of RevitaLase-TM- units with the Erbium:YAG handpiece
in the second quarter of 1998. 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 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 is making application for FDA clearance
of, Lasette-TM- sales for diabetic home use and for use on children. No
assurances can be given that these additional FDA clearances will be received.
The Company plans to begin shipping the Lasette-TM- for clinical use in the
first quarter of 1998.

The IVF Workstation-TM- 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-TM-. Clinical trials necessary to obtain the data required for
application for such clearance have recently begun and the Company expects they
will take approximately one year to complete. However, no assurance can be given
that FDA clearance will ever be obtained for use of the IVF Workstation-TM- in
"hatching." The European Community has cleared for marketing the IVF
Workstation-TM- and the Company is applying for the CE Mark necessary for sales.
The first purchase order for an IVF Workstation-TM- has been received from an
IVF clinic in Tunisia.

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supplemented by direct distribution by the Company under a different trademark.
The IVF Workstation-TM- will be marketed and sold over the Internet, through
other direct selling methods by the Company, and through manufacturers'
representatives, except that in the United States the IVF Workstation-TM- will
not be offered for laser-assisted hatching until after FDA clearance is
obtained.

HISTORY

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, began developing instruments using those
technologies. In 1994, the license with AT&T was converted from non-exclusive to
exclusive. In February 1995, 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 medical laser products for both clinical
and consumer markets. The Company's goal is to provide advanced medical laser
products 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
technology for medical applications.

DEVELOP MARKET RECOGNITION. The Company plans to position its medical laser
products 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 medical laser
products. 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 medical
laser products that respond to the rapidly increasing market demand for products
that offer more effective, safer and less painful solutions than conventional
procedures.

PRODUCTS

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. 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, blood-infected medical waste
and pose the risk of infection to both the clinician as well as the patient.

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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 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. 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 9,500 hospitals and 21,000 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 trauma involved in this procedure and
the risk of inadvertent infection 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 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
negotiations 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 pre-production 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,
Singapore, Thailand and Malaysia, with sales beginning in these locations in the
fourth quarter of 1997. Direct sales by the Company will be accomplished both
through mail order and through the Company's own sales staff and sales
representatives.

MANUFACTURING. In August 1996, the Company established a strategic
development and production alliance with Big Sky Laser Technologies, Inc., an
OEM manufacturer and developer of medical laser products in Montana. Big Sky
Laser Technologies, Inc. is a recognized laser OEM manufacturer that has agreed
to comply with FDA, MDQS and other regulatory requirements. Big Sky Laser
Technologies, Inc. began the commercial manufacture of the Lasette-TM- for the
Company in the fourth quarter of 1997.

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

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initial end price of $2,000 per unit. The Company expects to price the second
generation Lasette-TM- below $1,000 per unit.

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. The Company is aware from industry sources,
however, that the Venisect laser is substantially larger than the Lasette-TM-,
more expensive and, most significantly, has been determined by the FDA to be
unsuitable for use by diabetics. In October 1997, Venisect commenced the
Venisect Litigation in which it claims the Lasette-TM- infringes the U.S. patent
underlying its competitive skin perforator. The Company has investigated the
Venisect patent with its advisors, including patent counsel, and believes that
no basis for any infringement claim exists. Nevertheless, there can be no
assurance that the ultimate outcome of the Venisect Litigation will not have a
material adverse effect upon the Company's ability to market and sell the
Lasette-TM- or the competitive position of this product. 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-pumping 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 adult glucose/ hematocrit testing, including diabetics, in October 1997.
In addition, the Company will soon begin clinical studies for additional
applications for clearance for children in clinical settings and home use for
all ages. These studies are scheduled to be completed by the end of 1997, and
the FDA is required to respond within 90 days. See "Risk Factors Government
Regulation" and "Business Government Regulation Product Approval Process."

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 tatoo removal.

The Company has completed manufacture of prototype RevitaLase-TM- units
which are currently being made available to potential distributors for
evaluation.

MARKETS. In January 1995, CO(2) laser technology was introduced that could
remove wrinkles much more effectively than the topical treatments then available
and at substantially less cost than surgery. CO(2) 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.

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Market expansion for CO(2) 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 colors. Since the introduction of Erbium:YAG lasers, more than
100 such lasers have been sold, with worldwide sales rapidly expanding.

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 all 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 $35,000 to $40,000 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 with a
major manufacturer and distributor of medical laser systems in the aesthetic
market. Under this arrangement, a strategic partner would use its existing
presence in the market to promote and sell the RevitaLase-TM- under its own
brand name. The Company is currently engaged in negotiations with a major
distributor of medical laser systems; however, as of the date of this
Prospectus, 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 is remodeling 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, GMP, the
European Community's ISO 9001 and other applicable requirements. The Company
expects the first units to be ready for initial shipments in the second quarter
of 1998.

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 CO(2) 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 CO(2) lasers
previously marketed to clinicians performing aesthetic surgery. Healing times of
patients treated with Erbium lasers are four to 14 days while CO(2) 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
$61,000 to $90,000 per unit. The Company believes that it can profitably

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manufacture and market a RevitaLase-TM- for $35,000 to $40,000 per unit, giving
it a significant price advantage over existing competition. Further, the
interchangeable heads offering expanded applications will be offered at
approximately $10,000 to $15,000 each, which is substantially below the cost to
the clinician of buying an entire unit to service a new application. The Company
believes that this significant price advantage as well as its versatility,
reduced size and portability will open new markets beyond the high performance,
high-priced user to include the single physician's office and additional
international markets.

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. It will be tested on additional patients to develop
protocols for clinical use.

IN VITRO FERTILIZATION WORKSTATION

DESCRIPTION. The IVF Workstation-TM- 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 technology and data storage
and retrieval systems, the IVF Workstation-TM- 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-TM- 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-TM- 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 Word document.

IVF 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. The Company believes the IVF Workstation-TM- is the only
product currently available that offers laser-assisted hatching technology,
while providing more accurate diagnosis of the embryo and documentation of the
procedure for improved future outcomes. An IVF clinic's reputation is dependent
upon the number of successful pregnancies it is able to achieve. The IVF
Workstation-TM- is designed to improve success rates for clinics and IVF
patients. Initial animal trials have demonstrated improved success rates
utilizing the IVF Workstation-TM- 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-TM- can currently be
sold in most of the world, excluding the United States and Japan. The European
Community allows the Company to market and sell the product and much of the rest
of the world follows the European Community guidance. The Company has received
its first purchase order from an IVF clinic in Tunisia.

MARKETS. The market for the IVF Workstation-TM- 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-TM- 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-TM- has received all
necessary clearances within the European Community and most foreign markets.
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

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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-TM- 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-TM- 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 and 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-TM- 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-TM- at its facility. The
Company expects to use a portion of the proceeds of this offering to purchase
equipment and hire personnel required for the assembly of the IVF
Workstation-TM- at its own 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-TM-.
Once operational, the IVF Workstation-TM- will offer IVF clinics a tool that
integrates the latest in technological advances together with needed
documentation for better outcomes.

REGULATORY STATUS. The IVF Workstation-TM- has been approved for marketing
and sale in Europe and international sales efforts have been initiated. The only
functional component of the IVF Workstation-TM- 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-TM- has
been approved by the FDA. Clinical trials started in October 1997 at two sites
in the United States and are scheduled to begin in Belgium, Israel, and
Australia. It is expected that FDA clinical trials of the IVF Workstation-TM-
will be completed no earlier than late 1998. 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 Trademark-, LaserScissors-Registered Trademark-,
CellSelector-Registered Trademark- and SmartStage-Registered Trademark-
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,

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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 Trademark-,
LaserTweezers-Registered Trademark-, LaserScissors-Registered Trademark-, and
CellSelector-Registered Trademark- 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 $80,940 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 $25,000, the
LaserTweezers-Registered Trademark- Workstation for a retail price of $52,250
and the LaserScissors-Registered Trademark- Workstation at a retail price of
$52,440.

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-Registered Trademark- and
SmartStage-Registered Trademark- 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 medical laser devices, it
will continue to promote and market its scientific instruments through direct
sales, dealers, representatives and distribution arrangements. The Company
previously had an exclusive distribution arrangement with Carl Zeiss, Inc.
("Zeiss"), one of the largest worldwide manufacturers of microscopes and lenses.
However, due to disappointing performance by Zeiss under the agreement, the
Company chose not to renew the arrangement at the end of 1996. The Company has
decided that direct marketing of its scientific instrument products will provide
a more effective and lucrative strategy for this industry segment. 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 has entered into an arrangement for the manufacture of the
Lasette-TM- by a third party on an OEM basis. The Company's manufacturing
approach for the RevitaLase-TM- and IVF Workstation-TM- 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.

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COMPETITION

The industry in which the Company competes with its medical laser products
is characterized by rapidly evolving technology and intense competition. Many
companies of all sizes, including both large organizations as well as several
specialized medical laser products 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 ("NTEC"), its
Russian associate, the supplier of the crystals used in the manufacture of its
lasers, the continuation of which is in doubt due to current unresolved disputes
between the Company and NTEC. In addition, the Company has experienced quality
or supply problems with its Russian supplier, either of which, if not remedied,
could necessitate it changing the source of supply. 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 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.

The Company believes that its success is highly dependent upon its ability
to complete distribution agreements for the sale of its new medical laser
products 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
medical laser products currently have no patent protection and its scientific
research instruments only have limited patent protection. The commercial success
of the Company's medical laser products will depend, in part, upon the Company's
ability to protect and defend its

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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- were originally developed under
the MCR Patent (defined and described below). However, the RevitaLase-TM-
currently does not use the MCR Patent and, in fact, does not currently have any
direct patent protection. The Company is, however, in the process of preparing,
and will be submitting, design patents related to the RevitaLase-TM-. Similarly,
the Lasette-TM- also does not use the MCR Patent design, but uses other crystals
which the Company believes offer certain advantages over crystals made under the
MCR Patent. As a result, the Lasette-TM- also does not currently have any direct
patent protection. The IVF Workstation-TM- does not have any direct patent
protection, although the Company believes that certain features may be
patentable and intends to make patent applications for them in the future.
Finally, the LaserTweezers-Registered Trademark- application of the Cell
Robotics Workstation is being developed 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 Trademark-. 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 $100,000 at December 31, 1996 and increasing by an
additional $50,000 per year to as high as $500,000 per year, regardless of
actual sales. As of the date of this Prospectus, 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 Trademark- product.

TECNAL PATENTS. On January 10, 1996, the Company acquired from Tecnal
Products, Inc., a subsidiary of Lovelace Scientific Resources, Inc., one 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 solidstate laser that eliminates many of the
delicate optical components required by conventional solidstate 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
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.

OTHER PATENTS. The Company has also been issued two (2) United States
patents. One patent covers three dimensional mechanical staging and the other a
specialized chamber for the LaserTweezers-Registered Trademark-, both

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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-TM-. 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 certain uncertainties and may
involve complex legal and factual issues. Consequently, although the Company
holds certain patents, is licensed under other patents and is currently
prosecuting additional patent applications, there can be no assurance that
patents will issue from any pending or future applications or that claims
allowed by any existing or future patents issued or licensed to the Company will
not be challenged, invalidated or circumvented, or that any rights granted
thereunder will provide adequate protection to the Company. Moreover, the
Company may be required to participate in interference proceedings to determine
the priority of inventions, which could result in substantial costs to the
Company. 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-TM- 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
medical laser devices and its scientific research instruments which it believes
constitute valuable intellectual property rights. The Company has obtained
federal registrations for LaserTweezers-Registered Trademark-,
LaserScissors-Registered Trademark-, CellSelector-Registered Trademark- and
SmartStage-Registered Trademark-, all modules of its Cell Robotics Workstation.
The Company has not obtained federal registrations for Lasettetm, RevitaLasetm,
and IVF Workstationtm. While it intends to apply for these registrations, to
date it has made application only for Lasettetm. 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 year ended December 31, 1996 and in the nine months ended
September 30, 1997, the Company spent approximately $709,000 and $813,000,
respectively, on internal research and development programs. As of September 30,
1997, three 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

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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 $42,600 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 Trademark- 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
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 IS-TM- 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 o("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-TM- 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-TM- was granted an IDE and is
in the process of completing detailed clinical trials, which may take more than
two years in their entirety.

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However, while marketing in the United States must await FDA clearance which is
likely not to occur before the fourth quarter of 1998, the Company has the right
to market and sell the IVF Workstation-TM- in Europe and most foreign countries,
since it is not deemed a medical device in those jurisdictions. Nevertheless, as
an electronic laser product, actual shipments of the IVF Workstation-TM- to the
EC requires a CE Mark which the Company expects to receive by the end of 1997.

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 September 1, 1997, the Company had 15 full-time employees and two
part-time employees. Of the full-time employees, 4 were principally engaged in
product development, 4 in manufacturing, 5 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.

FACILITIES

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 adequately insured
against loss.

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,
Case No. LR-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 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. The Company
intends to vigorously defend the claims being asserted in the Venisect
Litigation. See "Risk Factors--Patent Litigation."

44
<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The name, position with the Company, age of each Director, executive officer
and key employee of the Company is as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- ------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Dr. Ronald K. Lohrding............... 56 President, Chief Executive Officer and Chairman of the Board
Craig T. Rogers...................... 35 Vice-President of Investor Relations, Secretary, Treasurer and
Director
Jean Scharf.......................... 35 Chief Financial Officer and Controller
Travis Lee........................... 38 Vice-President of Sales and Marketing
Richard Zigweid...................... 49 Manufacturing Manager
Connie White......................... 43 Regulatory Affairs and Quality Manager
Michael Wolf......................... 55 Chief Engineer
Dr. Larry Keenan..................... 50 Product Manager, CR Workstation
Dr. Jerome Conia..................... 37 Product Manager, IVF Workstation-TM-
David Costello....................... 42 Product Manager, Lasette-TM-
Mark T. Waller(2).................... 46 Director
Dr. Raymond Radosevich(2)............ 59 Director
Dr. Debra Bryant(2).................. 46 Director
</TABLE>

- ------------------------

(1) There exists no family relationship between any officer or director.

(2) Independent directors. The Company will maintain at least two (2)
independent directors on its board of directors.

DR. RONALD K. LOHRDING, has served as the Company's Chief Executive Officer,
President and Chairman of the Board since February 23, 1995. He co-founded the
wholly-owned subsidiary, Cell Robotics, Inc., in 1988 and has served as the
Chairman, President and CEO since incorporation. He has over 20 years of
management experience. He received his Ph.D. in Mathematical Statistics from
Kansas State University in 1969, and then spent from 1968 to 1988 at LANL as an
R&D manager and as a scientist. He served as LANL 's Assistant Director for
Industrial and International Initiatives, Deputy Associate Director for
Environment and Biosystems, as well as Program Director for Energy, Environment
and Technology, among other senior management positions. Concurrently, he has
been a general partner in seven real estate partnerships, two of which are still
currently active.

CRAIG T. ROGERS has served as the Company's Vice President for Investor
Relations, Secretary, Treasurer and as a Director since 1995. From 1991 until
1995, he served as the Chief Executive Officer, President and a Director of IFC.
As a result of the Acquisition, Mr. Rogers resigned as the Chief Executive
Officer and President of IFC and, in February 1995, concurrently was appointed
Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Rogers
served as Chief Financial Officer until January 8, 1997. Mr. Rogers served as
Chief Operating Officer of The Rockies Fund, Inc. from July 1993 to October 1,
1996. Mr. Rogers also currently serves as an officer and director of Discovery
Technologies, Inc., a Colorado-based publicly-held holding company. From April
1988 to June 1991, he also served as Chief Financial Officer for DMA Computer
Solutions, a general partnership operating four Connecting Point franchise
stores. Mr. Rogers received a B.S. degree in Business/Economics from Colorado
College in 1984.

JEAN SCHARF was appointed Chief Financial Officer and Controller of the
Company in August 1997. From April 1995 to August 1997, she served as, the
Controller for TPL, Inc., a $7 million defense and private sector contractor.
From April 1984 to September 1994, she was employed by with Applied

45
<PAGE>
Technology Associates and with SAIC. She has also owned her own financial
software consulting business since 1994. She has a B.A. degree in business with
an accounting specialty from the University of New Mexico and is currently
working on a M.B.A. degree.

TRAVIS LEE was appointed Vice-President of Sales and Marketing in January,
1997. During 1996, Mr. Lee, was responsible for International Marketing and
Business Development at LaserScope Surgical Systems, San Jose, CA, a $70 million
manufacturer of surgical laser systems. From February 1994 to September 1996, he
was Vice President for Marketing at Heraeus Surgical Inc., a $30 million
manufacturer of surgical lasers and other medical products. He held senior
management, marketing and sales positions with Medasonics, Inc. and Xintec
Corporation from 1991 to 1994. Mr. Lee received his B.S. degree from San Jose
State University in Graphic Design.

RICHARD ZIGWEID, Manufacturing Manager, joined the Company in August, 1996.
Mr. Zigweid was Manufacturing Manager at Olympus America from May 1994 to August
1996. He served as engineering manager at Bausch & Lomb and as engineering
manager and manufacturing engineer at Baxter Healthcare from December 1988 to
February 1994. He received his B.S. degree from the University of Wyoming in
Mechanical Engineering.

CONNIE WHITE, Regulatory Affairs and Quality Assurance Manager, joined the
Company in January, 1997. She, served as Compliance Officer for Tissue
Technologies, Inc., a skin resurfacing laser manufacturer and wholly-owned
subsidiary of Palomar Medical Technologies, Inc. during 1995 and 1996, where she
achieved FDA Medical Device Quality System compliance, European market
permission, and ISO 9000 registration for Tissue Technologies' skin resurfacing
laser systems. From 1986 to 1995, was responsible for regulatory affairs at the
"O" Company, a dental implant company. Ms. White received her B.A. degree from
the University of New Mexico.

MICHAEL WOLF, Chief Engineer, joined the Company in June 1991, and has been
principally responsible for designing the Company's flagship products. He served
as Senior Engineer at Amtech Systems Corp. and spent 24 years at LANL in various
technical positions beginning in 1967. He has authored over 30 technical papers,
holds 10 United States patents, and has been the lead designer on three projects
that were awarded the R&D 100 Award, signifying one of the 100 most significant
technological advances of the year.

DR. LARRY KEENAN, Sales Representative, joined the Company in January 1993
and has been Product Manager for the Cell Robotics Workstation since July, 1997.
Dr. Keenan was the Regional Sales Manager of BioRad for the confocal microscope
product line of BioRad from 1991 through 1992. He received his Ph.D. in
Biological Sciences at the University of California at Irvine and was an
Associate Research Scientist in Neurobiology at Yale University.

DR. JEROME CONIA joined the Company in May 1992 as a Scientist and has been
the In Vitro Fertilization Workstation Product Manager since May 1996. He has
authored several scientific papers on optical trapping and scissoring and is the
principal investigator on several SBIR grants. He received his M.S. in
Embryology, Cellular Biology, and Physiology from the University of Paris, and
his Ph.D. in Specialty Life Science from the University of Orsay, Paris, France.
He also was a post-doctoral fellow in the Genetics Group at the LANL from March
1989 until May 1992.

DAVID COSTELLO, Product Manager of the Lasette-TM-, joined the Company in
August 1996. From February 1994 to September 1995, he was founder and Executive
Vice-President of Technal Products, Inc. From May 1992 to February 1994, he was
Technology Development Program Manager at Lovelace Scientific Resources. His
qualifications include five patents in medical optics, experience in regulatory
development of new clinical products, and a M.S. degree in Biomedical
Engineering from Texas A&M University.

46
<PAGE>
MARK WALLER, Director, was elected to the Board in February 1995. Since
1990, Mr. Waller has been President and founder of BridgeWorks Capital, a sole
proprietorship which arranges public and private financing for and provides
public relations services to client companies. Mr. Waller was Interim President
and Director of Totem Health Sciences, Inc., a Canadian medical products and
research company, from 1988 to 1990.

DR. RAYMOND RADOSEVICH, Director, was elected to the Board in 1992. From
1985 to 1989, he was Dean of the Anderson School of Management at the University
of New Mexico, where he is currently a Professor of Management, specializing in
business strategy and the management of technology. In addition, he teaches a
course in Technology Entrepreneurship and lectures on the subject nationally and
internationally. Dr. Radosevich earned his Ph.D. from Carnegie-Mellon
University, a B.S. in Mechanical Engineering and an M.S. in Industrial
Engineering from the University of Minnesota.

DR. DEBRA BRYANT, Director, was elected to the Board in July 1997. She is
President, CEO and majority stockholder of Humagen Fertility Diagnostics, Inc.,
which is the largest manufacturer of micropipettes for the worldwide in vitro
fertilization market. In 1984, Dr. Bryant joined Humagen, Inc. as a Senior
Scientist. In 1991, Dr. Bryant purchased the fertility diagnostics division of
Humagen, Inc. and founded Humagen Fertility Diagnostics, Inc. Dr. Bryant
received her Ph.D. in Medical Microbiology from Bowman Gray School of Medicine,
Wake Forest University and completed a NIH postdoctoral fellowship in molecular
biology at the University of Virginia.

Each director is elected to serve for a term of one year until a successor
is duly elected and qualified.

The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer will hold office until his successor is
duly elected and qualified, until his resignation or until he shall be removed
in the manner provided by the Company's By-Laws.

During the fiscal year ended December 31, 1996, the Company had a standing
Audit Committee of the Board of Directors, but did not have a Compensation or
Nominating Committee of the Board. The members of the Audit Committee were Dr.
Raymond Radosevich and Dr. Denis Burger. Dr. Burger has since resigned as a
director and was succeeded on the Audit Committee by Mr. Waller. No member of
the Audit Committee receives any additional compensation for his service as a
member of that Committee. The Audit Committee is responsible for providing
assurance that financial disclosures made by management reasonably portray the
Company's financial condition, results of operations, plan and long-term
commitments. To accomplish this, the Audit Committee oversees the external audit
coverage, including the annual nomination of the independent public accountants,
reviews accounting policies and policy decisions, reviews the financial
statements, including interim financial statements and annual financial
statements, together with auditor's opinions, inquires about the existence and
substance of any significant accounting accruals, reserves or estimates made by
management, reviews with management the Management's Discussion and Analysis
section of the Annual Report, reviews the letter of management Representations
given to the independent public accountants, meets privately with the
independent public accountants to discuss all pertinent matters, and reports
regularly to the Board of Directors regarding its activities.

The Company plans to form a Compensation Committee during fiscal 1997. No
member of the Compensation Committee will receive any additional compensation
for his service as a member of that Committee. The Compensation Committee will
be responsible for reviewing pertinent data and making recommendations with
respect to compensation standards for the executive officers, including the
President and Chief Executive Officer, establishing guidelines and making
recommendations for the implementation of management incentive compensation
plans, reviewing the performance of the President and CEO, establishing
guidelines and standards for the grant of incentive stock options to key
employees under the Company's Incentive Stock Option Plan, and reporting
regularly to the Board of Directors with respect to its recommendations.

47
<PAGE>
There are no family relationships among Directors or persons nominated or
chosen by the Company to become a Director, nor any arrangements or
understandings between any Director and any other person pursuant to which any
Director was elected as such. The present term of office of each Director will
expire at the next annual meeting of stockholders.

TECHNICAL ADVISORY BOARD

The Company has voluntarily formed a Technical Advisory Board (the "Advisory
Board") whose members are chosen by the Board of Directors based upon their
individual technical and scientific expertise in areas related to the Company's
business. In consideration of their services as members of the Advisory Board,
each member has been granted non-qualified stock options exercisable to purchase
6,000 shares of Common Stock at exercise prices ranging from $1.75 per share to
$3.56 per share. Members of the Advisory Board receive no other compensation for
their services, which consist of approximately one day per year devoted to the
business of the Company. The following persons currently serve as members of the
Advisory Board:

DR. MICHAEL BERNS is President, Beckman Laser Institute and Professor of
Cell Biology at the University of California.

DR. STEVEN CHU is a winner of the 1997 Nobel Prize in Physics and a
Professor of Physics at Stanford University.

DR. STEVEN BLOCK is Associate Professor of Molecular Biology at Princeton
University.

DR. PAUL JACKSON is a Molecular and Plant Biologist at a national
laboratory.

DR. WILFRIED FEICHTINGER is at the Institute for Fertility in Vienna,
Austria and was the recent chairman of the IXth World Congress on In vitro
Fertilization and Assisted Reproduction.

DR. CHARLES BRACKER is the G. B. Cummins Distinguished Professor, Department
of Botany and Plant Pathology, Purdue University.

DR. ROBERT STEVENSON is a biotech consultant in marketing and acquisitions.

DR. OTIS PETERSON is a laser expert and an inventor of the Alexandrite
Laser.

DIRECTOR COMPENSATION

During the fiscal year ended December 31, 1996, outside Directors received
no cash compensation or other remuneration for their services as such, however
they were reimbursed their expenses associated with attendance at meetings or
otherwise incurred in connection with the discharge of their duties as Directors
of the Company.

Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors.

EXECUTIVE COMPENSATION

The following table and discussion set forth information with respect to all
compensation earned by or paid to the Company's Chief Executive Officer ("CEO"),
and its most highly compensated executive officers other than the CEO, for all
services rendered in all capacities to the Company and its subsidiaries for each
of the Company's last three fiscal years; provided, however, that no disclosure
has been made for any executive officer, other than the CEO, whose total annual
salary and bonus does not exceed $100,000.

48
<PAGE>
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION
------------------------------------ AWARDS
OTHER ------------------------ PAYOUTS
ANNUAL RESTRICTED -----------
NAME AND COMPEN- STOCK LTIP
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS
POSITION YEAR ($) ($) ($) ($) SARS ($)
- ------------------------------- --------- ---------- ----------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dr. Ronald K. Lohrding(1)...... 1996 $ 116,850 -0- $ 3,623 -0- 25,000 -0-
President and CEO 1995 $ 99,283 -0- $ 3,220 -0- 150,000 -0-

Craig T. Rogers(2)............. 1995 $ 24,525 -0- -0- -0- 50,000 -0-
President, CEO and 1994 $ 27,000 -0- -0- -0- -0- -0-
Treasurer of IFC

<CAPTION>
NAME AND ALL OTHER
PRINCIPAL COMPEN- SATION
POSITION ($)
- ------------------------------- -------------
<S> <C>
Dr. Ronald K. Lohrding(1)...... -0-
President and CEO -0-
Craig T. Rogers(2)............. -0-
President, CEO and
Treasurer of IFC
</TABLE>

- ------------------------

(1) Dr. Lohrding replaced Mr. Rogers as President and CEO of the Company in
February 1995, following consummation of the Acquisition.

(2) Mr. Rogers served as President and CEO of the predecessor company, IFC,
until the Acquisition in February 1995. Mr. Rogers served as the Company's
Chief Financial Officer through January 8, 1997, and currently serves as the
Company's Vice-President of Investors Relations, Secretary and Treasurer.

EMPLOYMENT AGREEMENTS

The Company has entered into written Employment Agreements, having terms of
five years each, with Dr. Lohrding and Mr. Rogers. The Employment Agreement with
Dr. Lohrding provides for Dr. Lohrding to serve the Company as its Chairman,
President and CEO, on a full-time basis, for a minimum base salary of $100,000
per year. During fiscal 1996, Dr. Lohrding was paid a base salary of $115,500.
The Employment Agreement with Mr. Rogers provides for his serving as Chief
Financial Officer, Secretary and Treasurer, on a part-time basis, for a minimum
base salary of $27,000 per year. Mr. Rogers was paid a base salary of $40,000
during fiscal 1996. Effective January 9, 1997, Mr. Rogers resigned as Chief
Financial Officer; however, he remains as the Company's Vice-President of
Investor Relations, Secretary and Treasurer. The Company also has a written
employment agreement with Mr. Travis Lee, Vice President of Marketing and Sales.
Under Mr. Lee's agreement, he receives a base salary of $110,000 per year;
provided, however, that either the Company or Mr. Lee may terminate the
employment relationship upon thirty days' prior written notice.

STOCK INCENTIVE PLAN

During fiscal 1992, the Company adopted the Plan. Pursuant to the Plan,
stock options granted to eligible participants may take the form of Incentive
Stock Options ("ISO's") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or options which do not qualify as ISO's (Non-Qualified
Stock Options or "NQSO's"). As required by Section 422 of the Code, the
aggregate fair market value of the Company's Common Stock with respect to its
ISO's granted to an employee exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSO's. The
exercise price of an ISO may not be less than 100% of the fair market value of
the shares of the Company's Common Stock on the date of grant. The exercise
price of an NQSO may be set by the administrator. An option is not transferable,
except by will or the laws of descent and distribution. If the employment of an
optionee terminates for any reason (other than for cause, or by reason of death,
disability, or retirement), the optionee may exercise his options within a
ninety day period following such termination to the extent he was entitled to
exercise such options at the date of termination. Either the

49
<PAGE>
Board of Directors (provided that a majority of directors are "disinterested")
can administer the Plan, or the Board of Directors may designate a committee
comprised of directors meeting certain requirements to administer the Plan. The
Administrator will decide when and to whom to make grants, the number of shares
to be covered by the grants, the vesting schedule, the type of award and the
terms and provisions relating to the exercise of the awards. An aggregate of
1,250,000 shares of the Company's Common Stock is reserved for issuance under
the Plan.

At September 30, 1997, the Company had granted a total of 1,032,000 Stock
Options under the Plan consisting of 694,000 Incentive Stock Options exercisable
at prices ranging from $1.75 per share to $3.50 per share, and 338,000
Non-Qualified Stock Options (NQSO's), which NQSO's have been issued to members
of the Advisory Board and other Company advisors, and to certain members of the
Board of Directors, and are exercisable at prices ranging from $1.75 per share
to $3.56 per share. All options have been issued with exercise prices at or
above market value on the date of issuance.

The following tables set forth certain information concerning the granting
and exercise of incentive stock options during the last completed fiscal year by
each of the named executive officers and the fiscal year-end value of
unexercised options on an aggregated basis:

TABLE 2
OPTION/SAR GRANTS FOR LAST
FISCAL YEAR--INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN PRICE
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE
- ------------------------------------------------------ ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Ronald K. Lohrding.................................... 25,000 14.3% $ 1.875 12/13/01
Craig T. Rogers....................................... 10,000 5.7% $ 1.875 12/13/01
</TABLE>

TABLE 3
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
SHARES ACQUIRED ON AT FY-END (#) FY-END ($)(2)
NAME EXERCISE (#) VALUE REALIZED(1) ($) EXERCISABLE EXERCISABLE
- ---------------------------------------------- ------------------- --------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald K. Lohrding(3)......................... -0- -0- 175,000 $ 40,625.00
Craig T. Rogers............................... -0- -0- 60,000 $ 13,750.00
</TABLE>

- ------------------------

(1) Value Realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value
of the Common Stock on the date the options are exercised.

(2) The value of unexercised options is determined by calculating the difference
between the fair market value of the securities underlying the options at
fiscal year end and the exercise price of the options. The fair market value
of the securities underlying the options, based on the closing bid price of
the Company's Common Stock at December 31, 1996, as quoted on OTC Electronic
Bulletin Board, was $2.00 per share.

50
<PAGE>
(3) Does not reflect the Lohrding Options issued in anticipation of this
offering exercisable to purchase, in the aggregate, 450,000 shares of the
Company's Common Stock at an exercise price of $2.0625 per share. The
Lohrding Options are subject to vesting. Specifically, 150,000 Lohrding
Options will vest and become exercisable on the closing of this offering and
the balance will vest on November 30, 2002; provided, however, (i) 150,000
Lohrding 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 Lohrding Options shall vest and become exercisable
upon the Company reporting its first fiscal year with net income of at least
$500,000. The Lohrding Options are exercisable for a period of 36 months
from each respective vesting date, but in no event later than December 31,
2002.

EMPLOYEE STOCK PURCHASE PLAN

The Board of Directors and stockholders have approved the ESPP which has
been adopted pursuant to Section 423 of the Code. The ESPP has an initial term
of three years at which time it will terminate except as to any options
outstanding on the termination date. The ESPP is available to all employees of
the Company and its subsidiaries, except those employees of less than six
months, those employed on a part-time basis (20 hours per week or less), those
customarily employed for not more than five months in any calendar year, and
those persons who are officers, supervisors, or highly-compensated employees. In
addition, no persons owning five percent (5%) or more of the Company's Common
Stock may participate in the ESPP. No employee may purchase any more than
$25,000 worth of stock in any calendar year. The plan is limited to 100,000
shares per year over the three-year term with a maximum aggregate number of
shares which may be purchased by the Company's employees pursuant to the ESPP
being 300,000.

Under the plan, the year is divided into two enrollment periods of six
months each. At the commencement of each six month enrollment period, an
employee is given the ability to subscribe for and purchase shares of the
Company's Common Stock at the end of the six month enrollment at a price equal
to 85% of the fair market value of the Company's Common Stock on the
commencement date or the termination date of such enrollment, whichever price
per share is lower. The shares are purchased pursuant to a payroll deduction
program pursuant to which an employee may elect to have up to 10% of that
employee's compensation withheld during each pay period for the purposes of
covering subscriptions made under the plan.

As of the date of this Prospectus, no shares of Common Stock have been
issued under the ESPP and there have been no subscriptions of employees to
participate in the plan. The Company expects to begin implementing the ESPP
during fiscal 1998.

No officer of the Company receives any additional compensation for his
services as a director. The Company does not contribute to any retirement,
pensions, or profit sharing plans covering its directors who are not also
employees of the Company. The Company does, however, maintain a group health
insurance plan for its employees.

INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS

The Company's Articles of Incorporation provide that the Company shall
indemnify, to the fullest extent permitted by Colorado law, any director,
officer, employee or agent of the corporation made or threatened to be made a
party to a proceeding, by reason of the former or present official of the
person, against judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding if certain standards
are met. At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

51
<PAGE>
The Company's Articles of Incorporation limit the liability of its directors
to the fullest extent permitted by the Colorado Business Corporation Act.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.

52
<PAGE>
CERTAIN TRANSACTIONS

ACQUISITION

Effective February 23, 1995, IFC and CRI consummated the Acquisition
pursuant to which IFC acquired 100% of the issued and outstanding shares of
common stock and equity rights of CRI in exchange for which IFC issued to the
stockholders of CRI, PRO RATA, 668,019 shares of IFC Common Stock, Incentive
Stock Options exercisable to purchase 66,594 shares of Common Stock at an
exercise price of $2.39 per share, and non-qualified stock options exercisable
to purchase 36,000 shares of Common Stock at an exercise price of $2.39 per
share, the latter of which were issued in exchange for non-qualified stock
options of CRI held by members of its Board of Technical Advisors and Board of
Directors. As a result, CRI became a wholly-owned subsidiary of IFC. IFC
subsequently changed its name to "Cell Robotics International, Inc." The shares
of Common Stock issued to the stockholders of CRI, PRO RATA, represented
immediately following the Acquisition, 62.3% of the total issued and outstanding
shares of the Company's Common Stock. The Acquisition was accounted for as a
reverse purchase of all of the assets and liabilities of IFC by CRI.

In connection with the Acquisition, Mitsui voluntarily surrendered to CRI
for cancellation a total of 491,499 shares of common stock of CRI. As a result
of this surrender and cancellation, Mitsui retained 231,519 shares of CRI common
stock which were exchanged for an equal number of shares of Company Common Stock
in the Acquisition. The number of shares that Mitsui retained after the
voluntary surrender was subject to adjustment based upon the completion of a
subsequent financing. See "Financing and Capital Contribution Agreement." In
addition, Mitsui executed a Forbearance Agreement pursuant to which it agreed to
forebear from exercising or enforcing any rights it had by virtue of a series of
promissory notes having an outstanding principal balance of $5,758,338,
including unpaid interest, penalty interest and expenses due and owing of
$358,338, pending performance by the Company of its agreements under the
Financing Agreement described below.

FINANCING AND CAPITAL CONTRIBUTION AGREEMENT

Concurrently with the Acquisition, IFC, CRI, Mitsui and BridgeWorks
Investors I, L.L.C., an Oregon limited liability company ("BW") entered into a
Financing and Capital Contribution Agreement ("Financing Agreement"). Pursuant
to the terms of the Financing Agreement, BW executed a Subscription Agreement to
subscribe for and purchase 380,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share, 50,000 of which were subsequently assigned
to, and purchased by R.O.I., Inc., controlled by Craig T. Rogers, Vice President
of Investor Relations of the Company. As of the date of this Prospectus, all
380,000 shares have been purchased in accordance with the Subscription
Agreement.

Further, under the terms of the Financing Agreement, BW agreed to obtain on
behalf of the Company a financing commitment which would result, when
consummated, in the infusion of a minimum of $1,400,000 of additional equity
into the Company (the "Financing"). Following consummation of the Acquisition,
the Company completed a $2.875 million private placement of its securities
through Paulson, a Representative in this offering, which served as placement
agent (the "Private Offering"). The Private Offering was designed, in part, to
meet the requirements of the Financing and the Financing Agreement.

In accordance with and fulfilling the terms of the Financing Agreement,
following the first closing of the private offering which occurred on August 31,
1995, the Company and Mitsui consummated the following transactions:

(1) The Company paid to Mitsui the sum of $250,000;

(2) The Company issued to Mitsui an additional 177,887 shares of Common
Stock;

53
<PAGE>
(3) The Company and Mitsui executed and delivered a Royalty Agreement
pursuant to which the Company agreed to pay to Mitsui a royalty equal to
one percent (1%) of the aggregate net sales of certain products for a
term of ten years; and

(4) Mitsui executed and delivered to the Company a Capital Contribution
Agreement pursuant to which it agreed to contribute to the capital and
equity of the Company $5,400,000 in aggregate principal debt obligation
of Cell Robotics, Inc. to Mitsui, together with all accrued and unpaid
interest in the aggregate amount of $358,338.

TRANSACTIONS WITH DIRECTOR

Mark Waller, a director of the Company, is also the managing member of BW.
In addition, Mr. Waller provided services to the Company in connection with
structuring the Private Offering and arranging on the Company's behalf for
Paulson to serve as placement agent, therefor. In consideration of his services
in connection with the Private Offering, Mr. Waller was granted non-qualified
stock options exercisable to purchase, in the aggregate, 200,000 shares of the
Company's Common Stock at an exercise price of $1.75 per share.

Any transactions between the Company and its officers, directors, principal
stockholders, or other affiliates have been, and will be, on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
on an arms-length basis and will be approved by a majority of the Company's
independent, disinterested directors.

CONTINGENT STOCK ISSUANCE

In May 1997, the Company entered into an agreement with GEM Edwards, Inc.
("GEM") terminating a License and Development Agreement between the parties
covering the development and marketing of the Lasette TM. Under the terms of the
agreement, the Company agreed to pay GEM the sum of $250,000, in four quarterly
installments through April 1, 1998, with $80,000 payable on April 1, 1998 as the
final installment. Should the Company default in such future installment, GEM
has the right to convert the payment amount in default into shares of the
Company's Common Stock at a conversion value of $1.75 per share. The Company
intends to retire the future installment under the GEM agreement in a timely
fashion; however, should it be unable to do so, GEM could exercise its
conversion privilege to acquire up to 45,715 shares of the Company's Common
Stock. If such conversion were to occur, it would have a dilutive impact upon
shareholders of the Company, including investors in this offering.

HALL UNITS

In August 1997, the Company sold to Richard Hall, a principal shareholder,
in a private transaction 200,000 shares of Common Stock at a price of $3.25 per
share. In view of the decline in the market price of the Company's Common Stock
since that investment and as an accomodation to Mr. Hall, the Company has agreed
to allow Mr. Hall to exchange the 200,000 shares of Common stock purchased in
August, 1997 for 78,788 of the same Units offered hereby.

54
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus, the stock
ownership of each person known by the Company to be the beneficial owner of five
(5%) percent or more of the Company's Common Stock, all executive officers of
the Company and directors individually and all directors and executive officers
of the Company as a group. Each person has sole voting and investment power with
respect to the shares shown, except as noted.

<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
AMOUNT AND NATURE OF ------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BEFORE OFFERING(2) AFTER OFFERING(2)(3)
- --------------------------------------------------- ---------------------- ------------------- ---------------------
<S> <C> <C> <C>
Ronald K. Lohrding(4) ............................. 475,000 8.8% 6.8%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Mitsui Engineering &(5) ........................... 409,406 7.8% 6.0%
Shipbuilding Co., Ltd.
405 Park Avenue, Suite
]501 New York, NY 10022
Mark T. Waller(6) ................................. 220,000 4.0% 3.1%
1820 North Shore Road
Lake Oswego, OR 97304
Craig T. Rogers(7) ................................ 180,800 3.4% 2.6%
c/o Rockies Fund, Inc.
4465 Northpark Drive
Colorado Springs, CO 80907
Raymond Radosevich(8) ............................. 26,000 0.5% 0.4%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Debra Bryant(9) ................................... 15,000 0.3% 0.2%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Richard S. Hall(10) ............................... 619,300 11.9% 9.1%
280 Estrellita Drive
Ft. Myers Beach, FL 33931
Travis Lee(11) .................................... -0- -0- -0-
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Jean Scharf(12) ................................... -0- -0- -0-
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
All Officers and Directors ........................ 916,800 16.0% 12.5%
as a Group (7 persons)
</TABLE>

- ------------------------

(1) Shares not outstanding but deemed beneficially owned by the virtue of the
individual's right to acquire them within sixty days of the date of this
Prospectus are treated as outstanding when determining the percent of the
class owned by such individual and when determining the percent owned by
the group.

55
<PAGE>
(2) Assumes no exercise by Paulson of the Placement Agent's Warrant to purchase
230,000 shares of Common Stock and 115,000 Class A Warrants issued to
Paulson in conjunction with the Company's Private Placement of securities
in September, 1995, and no subsequent exercise of the Class A Warrants by
Paulson. Also assumes no exercise by the Representatives of the
Representatives' Warrants.

(3) Assumes the conversion of all Preferred Stock sold in the offering into
1,600,000 shares of Common Stock.

(4) Includes Incentive Stock Options exercisable to purchase 150,000 shares of
Common Stock at an exercise price of $1.75 per share, and Incentive Stock
Options exercisable to purchase 25,000 shares of Common stock at an
exercise price of $1.875 per share, issued under the Plan. Does not include
additional Lohrding Options exercisable to purchase 450,000 shares of the
Company's Common Stock subject to future vesting. Of the Lohrding Options,
150,000 will vest and become exercisable upon completion of this offering,
resulting in Dr. Lohrding being the beneficial owner (as defined herein) of
an aggregate of 625,000 shares or 8.8%, of the total issued and outstanding
shares immediately after the offering.

(5) Mitsui Engineering & Shipbuilding Co., Ltd., a Japanese corporation, is the
record owner and exercises the sole power to vote and invest 409,406 shares
of the Company's Common Stock.

(6) Represents non-qualified stock options exercisable to purchase, in the
aggregate, 200,000 shares of Common Stock at $1.75 per share, and
Non-Qualified Stock Options exercisable to purchase 20,000 shares of Common
Stock at an exercise price of $2.81 per share.

(7) Mr. Rogers exercises the sole voting and investment power with respect to
40,800 shares of Common Stock. Also includes 10,000 shares of Common Stock
owned of record by Leslie Rogers, Mr. Roger's wife, and 70,000 shares of
Common Stock owned of record by R.O.I, Inc., a Colorado corporation, of
which Mr. Rogers is an officer, director and fifty percent stockholder, and
as a result would be deemed to exercise the shared voting and investment
power with respect to the securities. Mr. Rogers disclaims beneficial
ownership of 35,000 shares of Common Stock owned of record by R.O.I., Inc.
for purposes of Section 16 of the Exchange Act Also includes Incentive
Stock Options exercisable to purchase 50,000 shares of Common Stock at an
exercise price of $1.75 per share, and Incentive Stock Options exercisable
to purchase 10,000 shares of Common Stock at an exercise price of $1.875
per share, granted pursuant to the Company's 1992 Stock Incentive Plan.

(8) Reflects Non-Qualified Stock Options exercisable to purchase 6,000 shares
of Common Stock at an exercise price of $1.75 per share, and Non-Qualified
Stock Options exercisable to purchase 20,000 shares of Common Stock at an
exercise price of $2.81 per share.

(9) Represents nonqualified stock options exercisable to purchase 15,000 shares
of Common Stock at $3.56 per share.

(10) Includes 320,500 shares of Common Stock owned by Mr. Hall individually
and/or by the R.S. Hall IRA; 6,000 shares of Common Stock owned collectively
by the Hall Grantor Retained Annuity Trust and the R.S. Hall Gift Trust,
both of which were created and are controlled by Mr. Hall; 2,500 shares of
Common Stock owned by the Wildwood Foundation, Inc., a non-profit private
foundation founded by Mr. Hall, and for whom Mr. Hall serves as President of
the Board of Trustees and supervises investment decisions; and 1,000 shares
of Common Stock owned by the Hall Scholarship Trust which was created and
supervised by Mr. Hall. Also includes 139,000 shares of Common Stock owned
by Richard S. Hall, Jr., and 148,000 shares of Common Stock owned by Mr.
Hall's son, William R. Hall, with whom Mr. Hall shares voting and
dispositive power. Finally, includes 2,300 shares of Common Stock owned by
Tayloreel Corporation South, Inc., a controlled corporation of Mr. Hall. Mr.
Hall disclaims beneficial ownership of all shares of Common Stock owned by
Messrs. Richard S. Hall, Jr. and William R. Hall, the Hall Scholarship
Trust, and the Wildwood Foundation, Inc. for purposes of

56
<PAGE>
Section 16 of the Exchange Act. Does not reflect the exchange of 200,000
shares of Common Stock for 78,788 Units, consisting of 78,788 shares of
Preferred Stock and 157,576 Warrants, following completion of this offering.

(11) Does not reflect incentive stock options exercisable to purchase 74,174
shares of Common Stock at a price of $2.25 per share which are subject to
future vesting.

(12) Does not reflect incentive stock options exercisable to purchase 20,000
shares of Common Stock at a price of $3.50 per share which are subject to
future vesting.

57
<PAGE>
DESCRIPTION OF SECURITIES

The Company is authorized to issue up to 12,500,000 shares of $.004 par
value Common Stock and 2,500,000 shares of $.04 par value Preferred Stock. As of
December 15, 1997, 5,222,414 shares of Common Stock and no shares of Preferred
Stock were issued and outstanding, and there were 176 stockholders of record.

UNITS

The Company is offering hereby up to 400,000 Units (excluding the
Over-Allotment Option). Each Unit consists of one share of Series A Convertible
Preferred Stock and two Warrants. The Units will automatically separate 30 days
from the date of this Prospectus, at which time the Preferred Stock and the
Warrants will trade separately.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held of
record. There is no right to cumulative voting of shares for the election of
directors. The shares of Common Stock are not entitled to pre-emptive rights and
are not subject to redemption or assessment. Each share of Common Stock is
entitled to share ratably in distributions to stockholders and to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive, pro-rata, the
assets of the Company which are legally available for distribution to
stockholders. The issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.

PREFERRED STOCK

The Company is authorized to issue up to 2,500,000 shares of $.04 par value
Preferred Stock. The preferred stock of the corporation can be issued in one or
more series as may be determined from time-to-time by the Board of Directors. In
establishing a series the Board of Directors shall give to it a distinctive
designation so as to distinguish it from the shares of all other series and
classes, shall fix the number of shares in such series, and the preferences,
rights and restrictions thereof. All shares of any one series shall be alike in
every particular. The Board of Directors has the authority, without stockholder
approval, to fix the rights, preferences, privileges and restrictions of any
series of preferred stock including, without limitation: (1) the rate of
distribution, (2) the price at and the terms and conditions on which shares
shall be redeemed, (3) the amount payable upon shares for distributions of any
kind, (4) sinking fund provisions for the redemption of shares, and (5) the
terms and conditions on which shares may be converted if the shares of any
series are issued with the privilege of conversion, and (6) voting rights except
as limited by law.

Although the Company currently does not have any plans to issue shares of
Preferred Stock, other than those included in this offering, or to designate any
series of Preferred Stock, there can be no assurance that the Company will not
do so in the future. As a result, the Company could authorize the issuance of a
series of Preferred Stock which would grant to holders preferred rights to the
assets of the Company upon liquidation, the right to receive dividend coupons
before dividends would be declared to common stockholders, and the right to the
redemption of such shares, together with a premium, prior to the redemption to
Common Stock. The common stockholders of the Company have no redemption rights.
In addition, the Board could issue large blocks of voting stock to fend off
unwanted tender offers or hostile takeovers without further stockholder
approval.

SERIES A CONVERTIBLE PREFERRED STOCK

The Company has authorized the issuance of up to 578,788 shares of Series A
Convertible Preferred Stock (the "Preferred Stock"), of which 400,000 shares of
Preferred Stock are included in the Units being

58
<PAGE>
offered hereby, 60,000 shares included in Units subject to the Over-Allotment
Option, 40,000 shares included in Units subject to the Representative's Warrants
and 78,788 shares included in the Hall Units. The relative rights and
preferences of holders of shares of Preferred Stock are controlled by a
Certificate of Designation of Rights and Preferences of Series A Convertible
Preferred Stock (the "Certificate"), a copy of which is filed with the
Commission as an Exhibit to the Registration Statement, of which this Prospectus
forms a part. The following is a brief summary of the provisions of the
Certificate, does not purport to be a complete statement of all of the relative
rights and preferences of holders of Preferred Stock and is qualified in its
entirety by reference to the Certificate.

Holders of outstanding shares of Preferred Stock have an option to convert
each share of Preferred Stock into four shares of the Company's Common Stock
(the "Conversion Stock") (the "Conversion Ratio"). The Conversion Ratio is
subject to certain anti-dilution adjustments, including adjustments in the event
of stock splits, dividends, reclassifications and the like. In addition, the
shares of Preferred Stock will convert, automatically, into shares of the
Company's Common Stock, upon the earlier of (i) the third anniversary of the
date of this Prospectus and (ii) the sum of the closing bid prices of the
Preferred Stock and two Warrants included in the Units equals or exceeds $12.375
for ten consecutive trading days.

Dividends payable exclusively in the form of shares of the Company's Common
Stock shall accrue on all outstanding shares of Preferred Stock at the rate of
four-tenths of one share of Common Stock every six months, commencing the date
of this Prospectus. Such dividend, rounded down to the nearest whole share of
Common Stock, shall be issued and distributed within 30 days of accrual every
six months. Other than the dividend payable in the form of Common Stock, holders
of Preferred Stock are not entitled to receive payment of any additional
dividends on the Preferred Stock, but rather are entitled to participate pro
rata in dividends paid on outstanding shares of Common Stock when and if
declared and paid by the Company.

Holders of the Preferred Stock are not entitled to vote on any matters
presented to the Company's shareholders, except as required by law and as
provided to approve certain future actions. Further, the Preferred Stock is not
redeemable by the Company and holders of Preferred Stock have no right to compel
the redemption by the Company of any shares of the Preferred Stock.

Upon liquidation, dissolution, or winding up of the Company, holders of
Preferred Stock shall be entitled to receive, pro rata, cash or assets of the
Company which are legally available for distribution to shareholders equal to
$8.25 per share of Preferred Stock prior to any distributions to the common
stockholders. The issued and outstanding shares of Preferred Stock shall be,
when subscribed and paid for as provided for herein, validly issued, fully paid
and non-assessable.

WARRANTS

The Company has authorized the issuance of up to 1,157,576 Warrants,
including 800,000 Warrants included in the Units offered hereby, 120,000
Warrants subject to the Over-Allotment Option, 80,000 Warrants subject to the
Representative's Warrants and 157,576 Warrants included in the Hall Units. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at a
price of $2.40. The Warrant Exercise Price is subject to adjustment upon certain
events such as stock splits, stock dividends and similar transactions. The
Warrants are subject to redemption by the Company, as described below. The
exercise period for the Warrants expires at 5:00 p.m., Mountain time on the date
that is five years from the date of this Prospectus (the "Warrant Term"). The
Company may at any time and from time to time extend the Warrant Term or reduce
the Warrant Exercise Price, provided written notice of such extension or
reduction is given to the registered holders of the Warrants prior to the
expiration date then in effect. The Company does not presently contemplate any
extension of the Warrant Term or reduction in the Warrant Exercise Price.

Subject to compliance with applicable securities laws, Warrants certificates
may be transferred or exchanged for new certificates of different denominations
at the offices of the Warrant Agent described below. The holders of Warrants, as
such, are not entitled to vote, to receive dividends or to exercise any of

59
<PAGE>
the rights of shareholders for any purpose. The Warrants may be transferred
separately only after the Unit separates 30 days from the date of this
Prospectus.

EXERCISE. The Warrants may be exercised during the Warrant Term only upon
surrender of the Warrant certificate at the offices of the Company with the form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and signed, accompanied by payment of the full Exercise Price for the
number of Warrants being exercised. Warrantholders will receive one share of
Common Stock for each Warrant exercised, subject to any adjustment required by
the Warrant Agreement. For a holder to exercise Warrants, there must be a
current Registration Statement in effect with the Commission and various state
securities authorities registering the shares of Common Stock underlying the
Warrants or, in the sole determination of the Company and its counsel, there
must be a valid exemption therefrom. The Company has undertaken, and intends, to
maintain a current Registration Statement which will permit the exercise of the
Warrants during the Warrant Term. Maintaining a current effective Registration
Statement could result in substantial expense to the Company and there is no
assurance that the Company will be able to maintain a current Registration
Statement covering the shares issuable upon exercise of the Warrants. Holders of
Warrants will have the right to exercise the Warrants included therein for the
purchase of shares of Common Stock only if a Registration Statement is then in
effect and only if the shares are qualified for sale under securities laws of
the state in which the exercising warrantholder resides or if the Company, in
its and its counsel's sole discretion, is able to obtain valid exemptions from
the foregoing requirements. Although the Company believes that it will be able
to register or qualify the shares of Common Stock underlying the Warrants for
sales in those states where the securities are offered, there can be no
guarantee that such registration or qualification, or an exemption therefrom,
can be accomplished without undue hardship or expense to the Company. The
Warrants may be deprived of any value if a Registration Statement covering the
shares issuable upon exercise thereof or an exemption therefrom cannot be filed
or obtained without undue expense or hardship or if such underlying shares are
not registered or exempted from such registration in the states in which the
holder of a Warrant resides. In the latter event, the only option available to a
holder of a Warrant may be to attempt to sell his or her Warrants into the
market, if a market then exists and only then in compliance with applicable
securities laws and restrictions on transfer.

REDEMPTION. The Company shall have the right, at its discretion, to call
all or less than all of the Warrants for redemption on 30 days' prior written
notice at a redemption price of $.25 per Warrant if: (i) the closing bid price
of the Company's Common Stock exceeds $4.80 per share for at least ten
consecutive trading days; (ii) the Company has in effect a current Registration
Statement covering the Common Stock issuable upon exercise of the Warrants; and
(iii) the expiration of the 30 day notice period is within the Warrant Term. If
the Company elects to exercise its redemption right, holders of Warrants may
either exercise their Warrants, sell such Warrants in the market until the date
next preceding the date fixed for redemption, or tender their Warrants to the
Company for redemption. Within five business days after the end of the 30 day
period, the Company will mail a redemption check to each registered holder of a
Warrant who holds unexercised Warrants as of the end of the 30 day period,
whether or not such holder has surrendered the Warrant certificates for
redemption. The Warrants may not be exercised after the end of such 30 day
period.

PLACEMENT AGENT'S WARRANT

In connection with a private placement undertaken by the Company in 1995,
the Company issued to Paulson, a Representative in this offering, a warrant (the
"Placement Agent's Warrant") 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 Warrant is exercisable until September 30, 2000.
Each Class A Warrant included in the units gives to the holder the right to
purchase one additional share of the Company's Common Stock at an exercise price
of $1.75 share. The Class A Warrants are exercisable until December 31, 2000.

60
<PAGE>
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR

The transfer agent, registrar and Warrant Agent for the Company's Common
Stock is Corporate Stock Transfer, Inc., Denver, Colorado.

REPORTS TO STOCKHOLDERS

The Company intends to furnish annual reports to stockholders which will
include audited financial statements reported on by its certified public
accountants. In addition, the Company will issue unaudited quarterly or other
interim reports to stockholders as it deems appropriate.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been only a limited public market for the
Common Stock. No prediction can be made of the effect, if any, that future
market sales of shares of Common Stock or the availability of such shares for
sale will have on the prevailing market price of the Common Stock following this
offering. Nevertheless, sales of substantial amounts of such shares in the open
market following this offering could adversely affect the prevailing market
price of the Common Stock.

Upon completion of this offering, and assuming no exercise of outstanding
options and warrants to purchase shares of Common Stock, the Company will have
5,222,414, outstanding shares of Common Stock. Of those, 2,749,708 shares of
Common Stock that are currently outstanding, will, subject to any applicable
state law restrictions on secondary trading, be freely tradeable without
restriction under the Securities Act, except that any shares purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 under the
Securities Act) will be subject to the resale limitations of Rule 144.

The remaining 2,472,706 shares of Common Stock are "restricted" within the
meaning of Rule 144 under the Securities Act (the "Restricted Shares"). Of this
number, 1,415,106 shares are eligible for immediate sale in the public market
without restriction under Rule 144k. Beginning 90 days after the date of this
Prospectus (or earlier with the consent of the Underwriters), 840,100 additional
shares of Common Stock will become eligible for sale upon the expiration of a
lock-up agreement between the Underwriters and certain stockholders not to sell
such shares, subject to the volume limitation, set forth in Rule 144.

In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 52,224 shares immediately after the
offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq Small Cap Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are also subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and whose Restricted
Shares have been fully-paid for two years since the later of the date they were
acquired from the Company or the date they were acquired from an affiliate of
the Company may sell such Restricted Shares under Rule 144(k) without regard to
the limitations and requirements described above. Under Rule 701, shares
privately issued under certain compensatory stock-based plans, such as the Plan
or the ESPP, may be resold under Rule 144 by non-affiliates, subject only to the
manner of sale requirements, and by affiliates without regard to the two-year
holding period requirement.

Further, upon completion of this offering, and giving effect to the issuance
of the Hall Units, there will be outstanding shares of Preferred Stock
convertible into 1,915,152 shares of Common Stock and Warrants exercisable to
purchase an additional 957,576 shares of Common Stock, assuming no exercise of
the Over-Allotment Option. Further, assuming that no shares of Preferred Stock
are converted until the third anniversary of the date of this Prospectus, the
Company will issue as a dividend on the outstanding shares

61
<PAGE>
of Preferred Stock an additional 191,515 shares of Common Stock every six
months, or an aggregate of 1,149,090 shares of Common Stock over the three years
prior to the automatic conversion of the Preferred Stock. All shares of Common
Stock issuable upon conversion of the Preferred Stock, exercise of the Warrants
or as a dividend on the Preferred Stock will be free-trading and immediately
eligible for sale upon issuance.

The Company has filed a registration statement under the Securities Act
covering shares of Common Stock reserved for issuance under the Company's
outstanding stock options and stock option plans, which registration statement
was declared effective on June 14, 1996. Based on the number of options
outstanding and options and shares reserved for issuance, said registration
statement currently covers 1,250,000 shares.

Prior to the offering, there has been no public trading market for the Units
and only a limited and sporadic public market for the Common Stock. No
prediction can be made of the effect, if any, that sales of shares under Rule
144 or the availability of shares for sale will have on the market price of the
Units or Common Stock prevailing from time to time after the offering. The
Company is unable to estimate the number of shares that may be sold in the
public market under Rule 144, because such amount will depend on the trading
volume in, and market price for, the securities and other factors. Nevertheless,
sales of substantial amounts of shares in the public market, or the perception
that such sales could occur, could adversely affect the market price of the
securities of the Company. See "Underwriting."

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<PAGE>
UNDERWRITING

The Underwriter has agreed, subject to the terms and conditions contained in
the Underwriting Agreement between the Company and the Underwriter (the
"Underwriting Agreement"), to purchase from the Company the Units offered by
this Prospectus in the amounts set forth below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Paulson Investment Company, Inc................................................... 400,000
-----------
Total........................................................................... 400,000
-----------
-----------
</TABLE>

The Underwriting Agreement provides that the Underwriter is obligated to
purchase all of the Units offered by this Prospectus if any shares are
purchased. The Company has been advised that the Underwriter proposes to offer
the Units offered by this Prospectus to the public, initially at the offering
price set forth on the cover page of this Prospectus and to selected dealers,
including Underwriter, at that price less a concession to be determined by the
Representative. The Underwriter has informed the Company that it does not intend
to sell any of the Units to accounts for which it exercises discretionary
authority. After the initial offering of the Units offered by this Prospectus,
the public offering price and other offering terms may be changed.

The Company has granted the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus to purchase up to 60,000
additional Units on the same terms as the Units being purchased by the
Underwriter from the Company. The Representative may exercise this option only
to cover over-allotments, if any, incurred in the sale of the Units.

The Underwriter will purchase the Units offered hereby (including the shares
subject to the Over-Allotment Option) at a discount equal to 8% of the Unit
Offering Price, or $7.59 per Unit.

Paulson will also receive at the closing a non-accountable expense allowance
equal to 3% of the aggregate initial Unit Offering Price of the Units sold in
the offering, of which $25,000 has already been paid.

The Company has agreed to issue to the Representative the Representative's
Warrants giving the Representative the right to purchase up to 40,000 Units. The
Representative's Warrants are exercisable for a period of four years beginning
one year from the date of this Prospectus at a price equal to 120% of the public
offering price, or $9.90 per Unit. The Representative's Warrants are not
transferrable for a period of one year from the date of this Prospectus except
(i) to the Representative or to individuals who are either a partner or an
officer of the Representative, or (ii) by will or by the laws descent and
distribution. The holders of the Representative's Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. Any profits realized
by the Representative on the sale of the Units issuable upon exercise of the
Representative's Warrants or sale of the underlying securities may be deemed to
be additional underwriting compensation.

The Units underlying the Representative's Warrants are being registered on
the Registration Statement of which this Prospectus is a part. The Company has
agreed to maintain an effective Registration Statement with respect to such
shares to permit their resale at all times during the period in which the
Representative's Warrants are exercisable. The sale of the Units issuable upon
exercise of the Representative's Warrants could dilute the interest of other
holders of Units, Preferred Stock, Warrants and Common Stock and the existence
of the Representative's Warrants may make the raising of additional capital by
the Company more difficult. At any time at which exercise of Representative's
Warrants might be expected, it is likely that the Company could raise additional
capital on terms more favorable than the terms of the Representatives' Warrants.

63
<PAGE>
The Company has agreed that, for a period of 90 days following the closing
of this offering, it will not, subject to certain exceptions, offer, sell,
contract to sell, grant any option for the sale or otherwise dispose of any
securities of the Company without Paulson's prior written consent. All officers
and directors and 5% stockholders of the Company have agreed that for a period
of 90 days following the closing of this offering, they will not offer, sell,
contract to sell, grant any option for the sale or otherwise dispose of any
securities of the Company pursuant to Rule 144 under the Securities Act or
otherwise without Paulson's prior written consent.

Until the distribution of the Units is completed, rules of the Commission
may limit the ability of the Underwriter and certain selling group members to
bid for and purchase the securities. As an exception to these rules, the
Underwriter is permitted to engage in certain transactions that stabilize the
price of the securities. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the securities. If the
Underwriter creates a short position in the Units in connection with the
offering, i.e., if they sell more Units than are set forth on the cover page of
this Prospectus, the Underwriter may reduce that short position by purchasing
Units in the open market. The Underwriter may also elect to reduce any short
position by exercising all or part of the Over-Allotment Option described above.

The Underwriter may also impose a penalty bid on selling group members. This
means that if the Underwriter purchases Units in the open market to reduce the
Underwriter's short position or to stabilize the price of the Units, it may
reclaim the amount of the selling concession from the selling group members who
sold those securities as part of this offering.

In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor the Underwriter
makes any representation or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Units.
In addition, neither the Company nor the Underwriter makes any representation
that the Underwriter will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

Prior to this offering, there has been no public market for the Units,
Preferred Stock or Warrants and only a limited and sporadic public market for
the shares of Common Stock. Accordingly, the public offering price of the Units
offered by this Prospectus has been determined by negotiations between the
Company and Paulson. Among the factors considered in determining the public
offering price of the Units included the Company's net worth and earnings, the
amount of dilution per equivalent share of Common Stock to the public investors,
the history and the prospects of the Company and the industry in which it
operates, the status and development prospects for the Company's proposed
products and the trends of such results, the experience and qualifications of
the Company's executive officers and the general condition of the securities
markets at the time of the offering.

The Underwriting Agreement provides for indemnification between the Company
and the Underwriter against certain liabilities, including liabilities under the
Securities Act and for contribution by the Company and the Underwriter to
payments that may be required to be made in respect thereof.

64
<PAGE>
LEGAL MATTERS

The validity of the issuance of the Shares offered hereby will be passed
upon for the Company by Neuman & Drennen, LLC, Boulder, Colorado. Clifford L.
Neuman, a partner in the firm of Neuman & Drennen, LLC, is the beneficial owner
of 3,100 shares of the Company's Common Stock. Certain legal matters will be
passed upon for the Underwriters by Morse, Zelnick, Rose & Lander, LLP, New
York, New York.

EXPERTS

The consolidated financial statements of Cell Robotics International, Inc.
as of December 31, 1996 and 1995 and for the years then ended, have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

The report of KPMG Peat Marwick LLP covering the December 31, 1996 financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations and negative cash flows from operations raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements referred to above do not include any
adjustments that might result from the outcome of that uncertainty.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Exchange Act,
and in accordance with the Exchange Act files periodic reports, proxy statements
and other information with the Commission. Reports, proxy statements and other
information concerning the Company can be inspected and copied (at prescribed
rates) at the Commission's Public Reference Section, Room 1024, 450 Fifth
Street, N.W. Judiciary Plaza, Washington, D.C. 20549, as well as at the
following Regional Offices: Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material also may be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and are publicly
available through the Commission's website at http:\\www.sec.gov.

The Company has filed a Registration Statement on Form SB-2 with the
Commission in Washington, D.C., in accordance with the provisions of the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information pertaining to the Shares offered hereby and the Company, reference
is made to the Registration Statement, including the exhibits and financial
statement schedules filed as a part thereof. Statements herein contained
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
Exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement may be obtained from the
Commission upon payment of the fees prescribed therefor and may be examined at
the principal office of the Commission in Washington, D.C.

65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

This index relates to the consolidated financial statements set forth in
this Prospectus of Cell Robotics International, Inc.

<TABLE>
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-2

Consolidated Financial Statements

Consolidated Balance Sheets......................................................... F-3

Consolidated Statements of Operations............................................... F-4

Consolidated Statements of Stockholders' Equity (Deficit)........................... F-5

Consolidated Statements of Cash Flows............................................... F-6

Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<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, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit), 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, 1995 and 1996,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
12 to the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows from operations. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in note 12. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

KPMG Peat Marwick LLP

February 21, 1997
Albuquerque, New Mexico

F-2
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
---------------------- 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 739,952 1,724,671 559,060
Restricted cash (note 5)............................. 425,000 -- --
Accounts receivable, net of allowance for doubtful
accounts of $2,500 and $1,841 in December 1995 and
1996, respectively and $1,841 (unaudited) in
September 1997..................................... 389,608 69,845 352,024
Inventory............................................ 169,076 408,173 523,010
Other................................................ 29,067 19,121 63,820
---------- ---------- -----------
Total current assets............................... 1,752,703 2,221,810 1,497,914
Property and equipment, net (note 3)................... 213,447 256,635 214,895
Other assets, net (note 4)............................. 33,963 92,507 71,514
---------- ---------- -----------
$2,000,113 2,570,952 1,784,323
---------- ---------- -----------
---------- ---------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable..................................... $ 129,483 160,824 605,414
Payroll related liabilities.......................... 99,226 128,932 121,019
Royalties payable.................................... 56,587 42,029 152,943
Other current liabilities............................ 24,871 31,937 27,376
---------- ---------- -----------
Total current liabilities.......................... 310,167 363,722 906,752
---------- ---------- -----------
Stockholders' equity (note 5):
Preferred stock, $.04 par value. Authorized 2,500,000
shares, no shares issued and outstanding........... -- -- --
Common stock, $.004 par value. Authorized 12,500,000
shares, 3,825,914 and 5,003,414 shares issued and
outstanding in December 1995 and 1996, respectively
and 5,222,414 (unaudited) in September 1997........ 15,304 20,014 20,890
Additional paid-in capital........................... 11,271,008 13,327,672 13,996,305
Accumulated deficit.................................. (9,596,366) (11,140,456) (13,139,624)
---------- ---------- -----------
Total stockholders' equity......................... 1,689,946 2,207,230 877,571
Commitments and contingencies (notes 9 and 11).........
---------- ---------- -----------
$2,000,113 2,570,952 1,784,323
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1995 1996 1996 1997
------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Product sales............................................ $ 932,761 594,071 523,612 722,846
Research and development grants.......................... 9,906 69,190 69,190 105,720
------------- ----------- ----------- -----------
Total revenues....................................... 942,667 663,261 592,802 828,566
Product cost of goods sold............................... 718,813 427,341 331,807 491,358
SBIR direct expenses..................................... 9,906 69,190 69,190 105,941
------------- ----------- ----------- -----------
Total cost of goods sold................................. 728,719 496,531 400,997 597,299
------------- ----------- ----------- -----------
Gross profit......................................... 213,948 166,730 191,805 231,267
------------- ----------- ----------- -----------
Operating expenses:
Salaries............................................... 412,536 510,674 400,409 584,808
Payroll taxes and benefits............................. 51,086 78,466 56,220 97,259
Rent and utilities..................................... 122,484 119,371 88,553 108,606
Travel................................................. 100,211 68,499 51,854 80,793
Depreciation and amortization.......................... 114,708 110,752 79,893 79,222
Professional fees...................................... 93,100 235,722 172,245 474,237
Other operating expenses............................... 298,397 647,617 457,667 846,696
------------- ----------- ----------- -----------
Total operating expenses............................. 1,192,522 1,771,101 1,306,841 2,271,621
------------- ----------- ----------- -----------
Loss from operations................................. (978,574) (1,604,371) (1,115,036) (2,040,354)
------------- ----------- ----------- -----------
Other income (deductions):
Interest income........................................ 17,160 40,645 18,032 30,066
Interest expense....................................... (345,777) (1,413) (1,303) (680)
Other.................................................. (43,959) 21,049 16,650 11,800
------------- ----------- ----------- -----------
Total other income (deductions)...................... (372,576) 60,281 33,379 41,186
------------- ----------- ----------- -----------
Net loss............................................. $ (1,351,150) (1,544,090) (1,081,657) (1,999,168)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Average common shares outstanding........................ 2,039,280 4,197,499 3,926,416 5,054,026
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net loss per common share................................ $ (.66) (.37) (.28) (.40)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996

AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
CELL ROBOTICS INTERNATIONAL,
INC.
CELL ROBOTICS, INC. -------------------------------
------------------------------------
COMMON CLASS PREFERRED
COMMON CLASS A B STOCK COMMON STOCK
---------------------- ------------- ------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 1,101,279 $ 1,602,967 58,239 $81,174 -- $-- -- $-- $1,202,665 $(8,245,216)
Forfeiture of shares at
$.00 per share (note
5)..................... (491,499) -- -- -- -- -- -- -- -- --
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Cell Robotics, Inc.
(note 5)............... (609,780) (1,602,967) (58,239) (81,174) -- -- 668,019 2,672 1,681,469 --
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Intelligent
Financial Corporation
(note 5)............... -- -- -- -- -- -- 300,008 1,200 248,800 --
Sale of shares at $1.00
per share
(note 5)............... -- -- -- -- -- -- 380,000 1,520 378,480 --
Sale of shares at $1.25
per share, less costs
of offering (note 5)... -- -- -- -- -- -- 2,300,000 9,200 2,251,968 --
Payment to a stockholder
(note 5)............... -- -- -- -- -- -- -- -- (250,000) --
Conversion of a
stockholder's debt to
equity (note 5)........ -- -- -- -- -- -- -- -- 5,758,338 --
Issuance of shares at
$0.00 per share (note
5)..................... -- -- -- -- -- -- 177,887 712 (712) --
Net loss for 1995........ -- -- -- -- -- -- -- -- -- (1,351,150 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at December 31,
1995................... -- -- -- -- -- -- 3,825,914 15,304 11,271,008 (9,596,366 )
Issuance of shares for
asset acquisition (note
4)..................... -- -- -- -- -- -- 17,500 70 41,492 --
Exercise of warrants..... -- -- -- -- -- -- 1,150,000 4,600 1,997,712 --
Issuance of shares at
$1.75 per share........ -- -- -- -- -- -- 10,000 40 17,460 --
Net loss for 1996........ -- -- -- -- -- -- -- -- -- (1,544,090 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at December 31,
1996................... -- -- -- -- -- -- 5,003,414 20,014 13,327,672 (11,140,456)
Issuance of shares at
$3.25, less costs of
offering (unaudited)... -- -- -- -- -- -- 200,000 800 629,700 --
Issuance of shares at
$2.39 (unaudited)...... -- -- -- -- -- -- 9,000 36 21,474 --
Issuance of shares at
$1.75 (unaudited)...... -- -- -- -- -- -- 10,000 40 17,459 --
Net loss (unaudited)..... -- -- -- -- -- -- -- -- -- (1,999,168 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at September 30,
1997 (unaudited)....... -- $ -- -- $ -- -- $-- 5,222,414 $20,890 $13,996,305 $(13,139,624)
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------------
1995 1996 1996 1997
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,351,150) (1,544,090) (1,081,657) (1,999,168)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 114,708 126,096 88,893 94,567
Decrease (increase) in accounts receivable................ (327,913) 319,763 293,984 (282,179)
Decrease (increase) in inventory.......................... 39,422 (239,097) (125,074) (114,837)
Decrease (increase) in other current assets............... (21,231) 9,946 (1,737) (44,699)
Increase in other long-term assets........................ (11,120) (42,103) (62,701) --
Increase (decrease) in accounts payable and payroll
related liabilities..................................... (104,935) 61,047 (15,546) 436,677
Increase in accrued interest payable...................... 329,508 -- -- --
Increase (decrease) in other current liabilities and
royalties payable....................................... 64,791 (7,492) (14,600) 106,353
----------- ---------- ---------- ----------
Net cash used by operating activities................... (1,267,920) (1,315,930) (918,438) (1,803,286)
----------- ---------- ---------- ----------
Cash flows from investing activities--Purchase of property and
equipment................................................... (84,659) (144,163) (115,728) (31,834)
----------- ---------- ---------- ----------
Net cash used by investing activities......................... (84,659) (144,163) (115,728) (31,834)
Cash flows from financing activities:
Proceeds from loans......................................... 70,010 -- -- --
Repayments of loans......................................... (172,400) -- -- --
Payment to stockholder...................................... (250,000) -- -- --
Proceeds from issuance of common stock...................... 3,345,000 2,030,000 2,012,500 689,009
Costs of offering common stock.............................. (613,832) (10,188) (10,188) (19,500)
Restricted proceeds released (received) from issuance of
common
stock..................................................... (425,000) 425,000 425,000 --
----------- ---------- ---------- ----------
Net cash provided by financing activities............... 1,953,778 2,444,812 2,427,312 669,509
----------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......... 601,199 984,719 1,393,146 (1,165,611)

Cash and cash equivalents:
Beginning of period......................................... 138,753 739,952 739,952 1,724,671
----------- ---------- ---------- ----------
End of period............................................... $ 739,952 1,724,671 2,133,098 559,060
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Supplemental information:
Interest paid............................................... $ 12,659 -- 1,303 680
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Noncash financing activity:
Note payable to a stockholder and accrued interest
contributed to paid-in capital (note 5)................. $ 5,758,338 -- -- --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Stock issued in exchange for asset acquisition (note 4)... $ -- 41,562 41,562 --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Short-term borrowings repaid with common stock............ $ 160,000 -- -- --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(AMOUNTS AND INFORMATION WITH RESPECT TO
SEPTEMBER 30, 1996 AND 1997 ARE UNAUDITED)

(1) ORGANIZATION AND ACTIVITIES

(A) ORGANIZATION

Cell Robotics International, Inc., a Colorado corporation ("CRII"), was
organized on September 28, 1988 as Intelligent Financial Corporation ("IFC"). As
described in note 5, in 1995 the Company acquired Cell Robotics, Inc. ("CRI"), a
New Mexico corporation, in a transaction which resulted in the stockholders of
CRI owning 62.3 percent of IFC. Accordingly, the transaction was recorded as a
reverse purchase of IFC by CRI. Therefore, the historical financial information
in the accompanying 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 sample collection,
skin resurfacing, and IN VITRO fertilization markets. Currently, the Company
also develops, produces and markets a line of advanced scientific instruments
which increase the usefulness and importance of the conventional laboratory
microscope. The Company markets its scientific instruments in both domestic and
international markets. Currently, approximately two-thirds of the Company's
sales are in the United States, with Japan being the largest international
market.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) FINANCIAL STATEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(B) CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
short-term investments with original maturities of three months or less to be
cash equivalents.

Inventory is recorded at the lower of cost, determined by the first-in,
first-out method, or market.

F-7
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory at December 31 consists of the following:

<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Parts and components................................................... $ 161,311 267,273
Sub-assemblies......................................................... 7,765 140,900
---------- ---------
$ 169,076 408,173
---------- ---------
---------- ---------
</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) LICENSES

Licenses are recorded at cost and are amortized on a straight-line basis
over the shorter of economic or legal lives of the underlying patents.

(F) OTHER ASSETS

Certain legal fees and other related costs associated with start-up,
organization, license fees, software development costs, patents and noncompete
agreements have been capitalized. Start-up and organization costs are amortized
on a straight-line basis over five years, loan acquisition costs are amortized
over the life of the respective loan, license fees are amortized over the life
of the license, and software development costs are amortized as sales occur
based on the estimated total number of units to be sold.

(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company adopted the provisions of SFAS No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.

(H) FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, royalties payable and accrued liabilities are reflected in the
consolidated financial statements at fair value because of the short-term
maturity of these instruments.

F-8
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) INCOME TAXES

The Company follows the asset and liability method for accounting for income
taxes whereby deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.

(J) REVENUE

The Company recognizes revenue on sales of its products when the products
are shipped from the plant and ownership is transferred to the customer.

Total export sales, primarily in the Far East, were $443,653 and $248,278
for the years ended December 31, 1995 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>
1995 1996
---------- ---------
<S> <C> <C>
Mitsui, a related party (note 5)....................................... $ 229,043 201,314
Customer A............................................................. 230,200 105,421
Customer B............................................................. 149,494 --
Customer C............................................................. -- 92,821
---------- ---------
---------- ---------
</TABLE>

(K) RESEARCH AND DEVELOPMENT

Research and development costs related to both present and future products
are expensed as incurred. Research and development costs consist primarily of
salaries, materials and supplies.

(L) WARRANTIES

The Company warrants their microrobotic laser systems against defects in
materials and workmanship for one year. The warranty reserve is reviewed
periodically and adjusted based upon the Company's historical warranty costs and
its estimate of future costs.

(M) STOCK OPTION PLAN

Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

F-9
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) NET LOSS PER COMMON SHARE

Net loss per common share is based on the weighted average shares of common
stock and, if dilutive, common equivalent shares (options and warrants)
outstanding during the period. None of the common stock equivalents were
dilutive during the periods presented.

(O) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS

The unaudited consolidated financial statements as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997 have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the financial position, results of operations and
cash flows on a consistent basis. Such adjustments consisted only of normal
recurring items. The results of operations are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.

(P) RECLASSIFICATION

Certain prior period amounts have been reclassified to conform with the
current presentation.

(3) PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Furniture and fixtures............................................... $ 8,028 8,028
Computers............................................................ 250,164 299,894
Equipment............................................................ 272,239 366,672
Leasehold improvements............................................... 48,150 48,150
----------- ----------
578,581 722,744
Accumulated depreciation............................................. (365,134) (466,109)
----------- ----------
Net property and equipment......................................... $ 213,447 256,635
----------- ----------
----------- ----------
</TABLE>

F-10
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) OTHER ASSETS

Other assets consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Software development costs............................................ $ 11,120 59,019
Patents............................................................... -- 48,246
License and prepaid royalties......................................... 36,320 --
Start-up and organization costs....................................... 33,116 33,116
Noncompete agreements................................................. -- 8,116
---------- ----------
80,556 148,497
Accumulated amortization.............................................. (46,593) (55,990)
---------- ----------
Net other assets.................................................... $ 33,963 92,507
---------- ----------
---------- ----------
</TABLE>

In January, 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 expensed the remaining net costs relating to the
license and prepaid royalty on specific technology. That technology is not
currently incorporated into the Company's product lines and it is not
anticipated that it will be used in future products.

During 1995, the Company expensed the remaining net costs relating to the
acquisition of notes payable since all the principal and interest has been
forgiven and contributed to capital (note 7).

During 1995 and 1996, the Company capitalized $11,120 and $47,899 of
software development costs relating to a project whose technological feasibility
has been established. During 1996, the Company recorded amortization of $15,345
as cost of goods sold.

(5) CAPITAL TRANSACTIONS

In February 1995, IFC acquired 100 percent of CRI's issued and outstanding
shares of Class A and B common stock (the "Acquisition"). In connection with the
Acquisition, IFC issued 668,019 shares of IFC common stock to shareholders of
CRI, which represents 62.3 percent of the issued and outstanding IFC common
stock immediately following the transaction. In addition, the options to
purchase CRI's common stock described in note 6 were exchanged for options to
purchase the same number of IFC shares of common stock with identical terms. The
Acquisition was accounted for using the purchase method of accounting, treating
the merger as a reverse purchase of the assets and liabilities of IFC by CRI.
Immediately prior to the Acquisition, all operations, assets and liabilities of
IFC, except $250,000 of receivables from CRI and cash, were transferred to a
separate entity ("IFHC"). The assets, liabilities and results of operation of
IFHC are excluded from the accompanying consolidated financial statements. Pro
forma results of operations of the combined entities are substantially identical
to the results of operations of CRI presented in the accompanying consolidated
statements of operations.

On September 19, 1995, the Company successfully closed a private equity
offering to selected qualified investors at a price of $25,000 per Unit (the
"Private Offering"). Each Unit consisted of

F-11
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) CAPITAL TRANSACTIONS (CONTINUED)
20,000 shares of Common Stock and Class A Warrants exercisble to purchase an
additional 10,000 shares of common stock at an exercise price of $1.75 per
share. Proceeds of this private offering, net of offering costs, were $2,261,168
of which $425,000 was held in escrow until the Company's SB-2 was declared
effective on February 14, 1996, at which time the funds were released. During
1996, 100 percent of the Class A Warrants were exercised generating net proceeds
of $2,002,312. As part of the Private Offering, the placement agent was issued
warrants to purchase 230,000 shares of common stock at $1.25 per share and, if
these placement agent warrants are exercised, the placement agent will receive
up to 115,000 additional Class A Warrants, exercisable at $1.75 per share.

At December 31, 1994, CRI had outstanding notes payable of $5,400,000 due to
a wholly owned subsidiary of Mitsui Engineering and Shipbuilding Company
("Mitsui"), a Japanese corporation, and majority stockholder of CRI's Class A
common stock at the time. Immediately prior to the Acquisition, Mitsui
voluntarily surrendered to CRI, for cancellation, a total of 491,499 shares of
common stock of CRI. During 1995, in conjunction with the Private Offering and
in accordance with agreements entered into prior to the Acquisition, the Company
paid to Mitsui the sum of $250,000, issued to Mitsui 177,887 shares of CRII
common stock, increasing their ownership to approximately 8 percent, and Mitsui
contributed to the capital of the Company the $5,400,000 of notes payable
together with unpaid interest totaling $358,338.

(6) STOCK OPTIONS

The Company has adopted a Stock Incentive Plan ("the Plan") pursuant to
which the Company's Board of Directors may grant to eligible participants
options in the form of Incentive Stock Options ("ISO's") under Section 422 of
the Internal Revenue Code of 1986, as amended, or options which do not qualify
as ISO's (Non-Qualified Stock Options of "NQSO's"). An aggregate of 1,000,000
shares of the Company's Common Stock is reserved for issuance under the Plan.
Generally, stock options granted under the Plan have five-year terms and become
fully exercisable after three or four years from the date of grant.

During 1995, 97,579 options were re-priced to an exercise price of $1.75,
all vesting requirements were eliminated and the expiration date was extended to
December 31, 2003. The exercise price of $1.75 is only effective if the options
are exercised after January 1, 2000. If the options are exercised before that
date, the exercise price reverts back to the original grant with an exercise
price range of $2.39 to $2.50. During 1996, the vesting requirements were
eliminated on 360,000 options having original, and in some cases amended,
exercise prices of $1.75.

F-12
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) STOCK OPTIONS (CONTINUED)
The following is a summary of the stock options granted under the Plan:

<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Options at December 31, 1994....................................... 102,594 $ 2.39
Options expired.................................................. (19,115) 2.39
Options granted.................................................. 672,100 1.85
Options repriced................................................. (97,579) 2.41
Options repriced................................................. 97,579 1.75
----------- -----
Options at December 31, 1995....................................... 755,579 1.83
Options expired.................................................. (34,753) 1.75
Options granted.................................................. 175,000 2.17
Options exercised................................................ (10,000) 1.75
----------- -----
Options at December 31, 1996....................................... 885,826 $ 1.91
----------- -----
----------- -----
</TABLE>

At December 31, 1996, range of exercise prices and weighted-average
remaining contractual life of outstanding options were $1.75--$2.875, and 4.20
years, respectively.

At December 31, 1996, the number of options exercisable was 665,826 and the
weighted-average exercise price of those options was $1.77.

During 1995, the Board of Directors and stockholders approved an Employee
Stock Purchase Plan ("ESPP"). As of December 31, 1995 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.

At December 31, 1996, there were 104,174 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted and modified during 1995 and 1996 was $908,019 and $239,818,
respectively, on the date of grant or amendment using the Black Scholes option-
pricing model with the following weighted-average assumptions: 1995--expected
dividend yield 0 percent, risk-free interest rate of 6.0 percent, expected life
of 4 years for original grants and 7 years for modified grants, and an expected
volatility of 80 percent; 1996--expected dividend yield 0 percent, risk-free
interest rate of 6.6 percent, expected life of 4 years, and an expected
volatility of 80 percent.

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>
1995 1996
------------- -----------
<S> <C> <C>
Reported net loss................................................ $ (1,351,150) (1,544,090)
Pro forma net loss............................................... (1,751,909) (1,997,271)
Pro forma net loss per share..................................... (.86) (.48)
</TABLE>

F-13
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) STOCK OPTIONS (CONTINUED)
Pro forma net loss reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period
and compensation cost for options granted prior to January 1, 1995 is not
considered.

(7) EMPLOYMENT AGREEMENTS

At the closing of the Acquisition, the Company executed written employment
agreements, having terms of five years each, with two officers of the Company.
The employment agreement with one officer provides that he will serve the
Company as its Chairman, President and CEO, on a full-time basis, for a minimum
base salary of $100,000 per year. The employment agreement with the other
officer provides for his serving as Vice President of Finance, on a part-time
basis, for a minimum base salary of $27,000 per year.

In December 1996, the Company executed a written employment agreement with a
new officer of the Company. The employment period ends upon discharge or
resignation of the employee. The employment agreement provides that the officer
will serve the Company as Vice President of Marketing, on a full-time basis, for
a minimum base salary of $110,000 per year.

(8) OPERATING EXPENSES

For the years ended December 31, 1995 and 1996, operating expense consists
of the following:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
General and administrative...................................... $ 488,972 710,330
Marketing....................................................... 262,799 420,976
Research and development........................................ 450,657 708,985
------------- -------------
$ 1,202,428 1,840,291
------------- -------------
------------- -------------
</TABLE>

(9) ROYALTY AGREEMENTS

The Company is party to four royalty agreements under which it must make
payments to the original holders of patents on components used in its products.
Such royalties are generally due upon sale of products containing patented
components.

The first royalty agreement, with the University of California, pertains to
the Company's exclusive license agreement which continues until February 14,
2007. The royalty is calculated as either (a) $1,000 for each patentable item
included on a product sold for an amount in excess of $75,000, or (b) one
percent of the selling price of a product sold for less than $75,000 which
includes a patentable item. Minimum annual royalty payments required to retain
the license are $15,000 each year. This royalty agreement was renegotiated on
January 5, 1996. Pursuant to the renegotiation, the licensor agreed to accept
$15,000 for full satisfaction of the old license agreement. The new agreement
consists of two underlying patents. The new agreement continues until the
expiration of the last underlying patent which is February 14, 2007. Under the
terms of the new agreement, the Company agrees to pay a royalty equal to 4
percent of the net selling price of products utilizing one patent and two
percent of the net selling price of products utilizing

F-14
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) ROYALTY AGREEMENTS (CONTINUED)
the other patent. Minimum annual royalty payments required to retain the license
are $5,000 per year. The Company currently feels the technology covered in this
license agreement is no longer needed for future product development and intends
to terminate the license.

The second royalty agreement, with AT&T, requires a royalty payment equal to
5 percent of revenue generated from sales by the Company's products and pertains
to the Company's major, worldwide, exclusive license agreement which continues
until March 31, 2016. Minimum royalty payments required to retain this license
are as follows:

<TABLE>
<CAPTION>
TWELVE-MONTH PERIOD ENDED MARCH 31
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 150,000
1999............................................................................ 200,000
2000............................................................................ 250,000
2001............................................................................ 300,000
2002............................................................................ 400,000
Thereafter...................................................................... 4,550,000
------------
$ 5,850,000
------------
------------
</TABLE>

The third royalty agreement is with Mitsui (note 5). Under the terms of the
agreement, which continues until September 11, 2005, the Company agrees to pay
Mitsui a royalty equal to 1 percent of the aggregate net sales of certain
products.

The fourth royalty agreement, with Tecnal Products, Inc., requires quarterly
royalty payments equal to 1 percent of the net revenues from sales of a certain
product. The royalty agreement stipulates that lifetime maximum royalty payments
will not exceed $20,000. The Company has the option to relieve itself of this
obligation by paying an amount equal to the difference between royalties
previously paid and the lifetime maximum of $20,000.

F-15
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) INCOME TAXES

No provision for federal or state income tax expense has been recorded due
to the Company's losses. The Company has net operating loss carryforwards and
temporary differences that give rise to the following deferred tax assets and
liabilities:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 2,800,000 3,400,000
Inventory capitalization...................................... 63,000 104,000
Obsolete inventory reserve.................................... 8,000 15,000
Vacation and sick leave payable............................... 31,500 27,000
Allowance for doubtful accounts............................... 625 625
Legal fees.................................................... 11,000 9,000
------------- -------------
2,914,125 3,555,625
Less valuation allowance...................................... (2,897,925) (3,536,625)
------------- -------------
Net deferred tax asset...................................... 16,200 19,000
Deferred tax liabilities:
Depreciation.................................................. (16,200) (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 $10,000,000 expires beginning in 2006. Ownership
changes resulting from the Acquisition (note 5) will limit the use of this net
operating loss under applicable Internal Revenue Service regulations.

(11) COMMITMENTS

The Company is obligated under a noncancelable operating lease for building
facilities which require minimum rental payment of $86,196 in 1997. Rent expense
for 1995 and 1996 was $108,054 and $104,336, respectively.

The Company is obligated under a noncancelable purchase agreement to
purchase 1,000 units of a particular inventory component at $125 per unit for a
total commitment of $125,000 during 1997.

(12) CAPITAL RESOURCES

Since inception, the Company has incurred operating losses which resulted in
an accumulated deficit of $11,140,456 at December 31, 1996 and operations using
net cash of $1,315,930 in 1996.

The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Although the Company believes future sales of its scientific instrument line
will improve, it does not expect these products to materially contribute to its
goal of achieving

F-16
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) CAPITAL RESOURCES (CONTINUED)
future profitability. Accordingly, the Company has begun development on, and is
preparing to manufacture and market a series of laser-based medical devices
which leverage the Company's existing base of patented technology. The Company
believes the markets for these new products are broader than that of the
scientific instrumentation market and, as such, offer a greater opportunity to
significantly increase sales. In addition, the Company is pursuing development
and marketing partners for several of its new medical products. These
partnerships will enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.

Although the Company has refocused its strategy to concentrate on the
development of its laser based medical devices while continuing to market its
scientific instrument line, it does not anticipate achieving profitable
operations during fiscal 1997. As a result, the Company's working capital
surplus at December 31, 1996 is expected to erode over the next twelve months.
Nevertheless, the Company expects that its working capital surplus at December
31, 1996 will be sufficient to cover its expected operational deficits during
fiscal 1997.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. The ultimate continuation of the
Company is dependent on attaining profitable operations.

(13) SUBSEQUENT EVENTS (UNAUDITED)

At its present level of research and development and product introduction,
the Company requires approximately $200,000 per month to cover operating
expenses in excess of cash flow currently generated by operations. The proceeds
of an August 1997 private equity sale, resulting in net proceeds of $630,500,
and a $500,000 short-term loan in December 1997 are being used to satisfy the
Company's working capital requirements pending completion of the proposed
offering described below. The short-term loan is repayable without interest from
the proceeds of the proposed 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 introduction and sales. Accordingly, the Company will rely exclusively
upon the proceeds of the proposed public offering described below to satisfy its
working capital requirements for the foreseeable future.

The Board of Directors of the Company has authorized management to offer
400,000 Units, each Unit consisting of one share of Series A Convertible
Preferred Stock and two common stock purchase warrants, in a registered offering
to the public. If successful, the net proceeds will be used for product
development, future research and development, manufacturing equipment and
personnel, marketing and sales, working capital and the repayment of the
short-term loan.

In conjunction with this offering, the Company will issue to the President
and CEO, warrants exercisable to purchase in the aggregate, 450,000 shares of
the Company's common stock at an exercise price equal to 25% of the offering
price of the Units described above. Of the total 450,000 warrants, 150,000 vest
at the closing of the offering. The remaining 300,000 warrants vest on November
30, 2002, however, earlier vesting occurs if certain pre-tax and net income
targets are met.

In October 1997, a competitor filed a civil suit against the Company
claiming that 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,

F-17
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
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. There has been, and the
Company believes that there will continue to be, significant litigation in the
laser-based biotechnological industry regarding patent and other intellectual
property rights. Any litigation, including the claim described above, could
consume a substantial portion of the Company's financial and personnel resources
and, regardless of the outcome of such litigation, have a material adverse
impact on the Company's business, results of operations and financial condition.

F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO UNDERWRITER, DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND IF,
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THAT DATE.

--------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 9
Use of Proceeds................................ 21
Dividend Policy................................ 22
Capitalization................................. 23
Dilution....................................... 24
Certain Market Information..................... 25
Selected Financial Data........................ 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 27
Business....................................... 32
Management..................................... 45
Certain Transactions........................... 53
Principal Stockholders......................... 55
Description of Securities...................... 58
Underwriting................................... 63
Legal Matters.................................. 65
Experts........................................ 65
Available Information.......................... 65
Financial Statements ........................... F-1 to F-18
</TABLE>

--------------------------

UNTIL MARCH 14, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF THE DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

400,000 UNITS

CELL ROBOTICS
INTERNATIONAL, INC.

---------------------

PROSPECTUS

---------------------

PAULSON INVESTMENT
COMPANY, INC.

FEBRUARY 2, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------