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As filed with the Securities and Exchange Commission on December 29, 2000
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST EFFECTIVE AMENDMENT NO. 6 POST EFFECTIVE AMENDMENT NO. 4
TO TO
FORM SB-2 FORM SB-2
REGISTRATION STATEMENT REGISTRATION STATEMENT
UNDER UNDER
THE SECURITIES ACT OF 1933 THE SECURITIES ACT OF 1933
REGISTRATION NO. 33-80347 REGISTRATION NO. 333-40895
POST EFFECTIVE AMENDMENT NO. 1 POST EFFECTIVE AMENDMENT NO. 1
TO ON FORM SB-2
FORM SB-2 TO
REGISTRATION STATEMENT FORM S-3
UNDER REGISTRATION STATEMENT
THE SECURITIES ACT OF 1933 UNDER
REGISTRATION NO. 333-89225 THE SECURITIES ACT OF 1933
REGISTRATION NO. 333-55951
CELL ROBOTICS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
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Colorado 5049-05 84-1153295
(State or other jurisdiction of (Primary Standard Industrial Classification Code Number) (IRS Employer Identification Number)
incorporation or organization)
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Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Dr. Ronald K. Lohrding, President and CEO
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
(Name, address, including zip code, and telephone number
of agent for service of process)
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Copy to:
W. Crews Lott
Baker & McKenzie
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
(214) 978-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the date this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND
RELATES TO AND CONSTITUTES POST EFFECTIVE AMENDMENT NO. 6 TO REGISTRATION NO.
33-80347, POST EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION NO. 333-89225, POST
EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION NO. 333-40895 AND POST EFFECTIVE
AMENDMENT NO. 1 TO REGISTRATION NO. 333-55951.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 29, 2000
PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
1,757,051 SHARES OF COMMON STOCK
297,576 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This offering relates to the resale of an aggregate of 379,475 shares of our
common stock and 217,576 of our redeemable common stock purchase warrants, or
Redeemable Warrants, by persons who are referred to in this prospectus as
selling securityholders. The selling securityholders holding Redeemable Warrants
may also resell 217,576 shares of their common stock when they exercise their
Redeemable Warrants.
We are also registering our offering of 920,000 shares of our common stock
issuable upon exercise of the Redeemable Warrants sold in the 1998 public
offering of our securities. Further, we are offering 160,000 shares of our
common stock and 80,000 of our Redeemable Warrants, which may be acquired upon
exercise of warrants, or Representative Warrants, issued to an underwriter and
its officers in connection with the 1998 public offering of our securities. This
prospectus also relates to our offering of 80,000 shares of our common stock
issuable upon exercise of the Redeemable Warrants underlying the Representative
Warrants.
Our common stock is quoted on the OTC Bulletin Board under the trading symbol
"CRII" and our Redeemable Warrants are quoted on the OTC Bulletin Board under
the trading symbol "CRII.W." On December 19, 2000, the closing bid price per
share of our common stock and the closing bid price of our Redeemable Warrants
were $0.71875 and $0.3125, respectively.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD PURCHASE OUR SECURITIES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER ___, 2000.
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TABLE OF CONTENTS
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SUMMARY............................................................................1
The Company........................................................................1
How to Contact Us..................................................................2
The Offering.......................................................................2
Summary Financial Data.............................................................3
Market Price Information...........................................................3
Dividends..........................................................................4
RISK FACTORS.......................................................................5
Risks Related to Our Business and Industry.........................................5
Risks Related to Our Securities and This Offering.................................11
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS........................................12
USE OF PROCEEDS...................................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................................................13
Results of Operations -- Three Months Ended September 30, 2000
Compared to the Three Months Ended September 30, 1999........................13
Results of Operations -- Nine Months Ended September 30, 2000 Compared to the Nine
Months Ended September 30, 1999..............................................14
Results of Operations -- Year Ended December 31, 1999 Compared to the Year Ended
December 31, 1998............................................................15
Liquidity and Capital Resources...................................................15
BUSINESS..........................................................................18
Overview..........................................................................18
Products..........................................................................18
Laser-Based Medical Devices -- The Lasette........................................18
Scientific Research Instruments -- The Cell Robotics Workstation..................22
Continuing Interest in the IVF Workstation........................................22
Competition.......................................................................23
Business Strategy.................................................................23
Intellectual Property.............................................................23
Research and Development..........................................................24
Government Regulation; Product Approval Process...................................24
Employees.........................................................................25
Facilities........................................................................25
Legal Proceedings.................................................................25
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES...................................25
EXECUTIVE COMPENSATION............................................................27
Summary Compensation Table........................................................27
Employment Agreements.............................................................27
Stock Incentive Plan..............................................................28
Option Exercises and Option Values................................................28
Board Structure...................................................................29
Director Compensation.............................................................29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................29
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................30
INDEMNIFICATION...................................................................30
DESCRIPTION OF SECURITIES TO BE REGISTERED........................................32
Common Stock......................................................................32
Preferred Stock...................................................................32
Redeemable Warrants...............................................................32
SELLING SECURITYHOLDERS...........................................................34
PLAN OF DISTRIBUTION..............................................................35
Selling Securityholders' Securities...............................................35
Redeemable Warrants...............................................................36
LEGAL MATTERS.....................................................................36
EXPERTS...........................................................................36
WHERE YOU CAN FIND MORE INFORMATION...............................................36
INDEX TO FINANCIAL STATEMENTS....................................................F-1
INDEX TO EXHIBITS...............................................................II-8
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You should rely only on the information contained in, or incorporated by
reference into, this prospectus. We have not authorized anyone to provide you
with information that is different from what is contained in this prospectus.
The delivery of this prospectus shall not, under any circumstances, create any
implication that there has been no change in the affairs of the company since
the date of this prospectus.
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SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information that you
should consider before deciding to invest in our securities. We urge you to read
this entire prospectus carefully, including the "Risk Factors" section and the
consolidated financial statements and related notes included elsewhere in this
prospectus. As used in this prospectus, the words "we," "us," "our" and "the
company" refer to Cell Robotics International, Inc. and its subsidiary, Cell
Robotics, Inc. Lasette(R), Personal Lasette(TM), Professional Lasette(TM),
LaserTweezers(R), LasorScissors(TM), CellSelector(TM) and SmartStage(TM) are
trademarks of the company used in this prospectus. This prospectus also includes
trademarks of other companies.
THE COMPANY
We were incorporated in Colorado on September 28, 1988, under the name
Intelligent Financial Corporation. In February 1995, we acquired all of the
issued and outstanding shares of Cell Robotics, Inc., a New Mexico corporation,
which had been formed in 1988 to develop the Cell Robotics Workstation. In May
1995, we changed our name from Intelligent Financial Corporation to Cell
Robotics International, Inc. We have developed, and are manufacturing, marketing
and selling, sophisticated laser-based medical devices and scientific research
instruments.
As a pioneer in the development of optical trapping technology, we have evolved
from being a developer of laser-based laboratory instruments to a supplier of
novel medical laser products. Our product lines include a laser-based medical
device, which uses a laser to draw a blood sample to allow diabetics to measure
their glucose levels, and the laser-based research workstation marketed under
the name Cell Robotics Workstation. Until recently, we also produced and
marketed the In Vitro Fertilization Workstation, or the IVF Workstation. The IVF
Workstation and associated technology were sold to Hamilton Thorne Research in
May 2000 for $100,000 cash and future royalty payments of 12% of net sales of
the IVF Workstation and related products.
Our primary focus is distributing and selling our laser-based medical device to
consumers, hospitals, clinics and doctors' offices. We previously marketed two
laser-based medical devices, the Personal Lasette and the Professional Lasette.
The Personal Lasette was marketed for home use, while the Professional Lasette
was targeted for clinical applications. In the third quarter of 2000, we made a
strategic decision to discontinue marketing the Professional Lasette and adapted
the Personal Lasette so that it could be used for either home or clinical use.
In this prospectus, we sometimes refer to the Personal Lasette as the "Lasette."
The primary difference between the Lasette used in these home and clinical
environments is that a different disposable lens shield is attached to the
product for clinical applications than that attached for home use. We believe
that focusing on a single product line will reduce direct costs associated with
manufacturing the Lasette and promote brand awareness of the Lasette.
The Lasette is a compact, lightweight, portable laser skin perforator that
allows diabetics to perform capillary blood sampling with little pain and
residual soreness. The Lasette is the only alternative to the steel lancet or
needle that has been approved by the Food and Drug Administration, or the FDA,
that allows diabetics to sample their blood for glucose testing so they can
determine their subsequent insulin injections. The Lasette has also been cleared
by the FDA for all blood screening test applications for home and clinical
settings. The FDA clearance allows us to commercially market the Lasette in the
United States to diabetics for home and clinical use. The Lasette has also
received the European Community's CE Mark. The CE Mark certification permits us
to market the Lasette in countries comprising the European Union, as well as
certain other countries such as Brazil and Australia.
We also believe the following trends in blood sampling will provide us with
unique opportunities:
o an increasing demand for less painful alternatives for capillary
blood sampling;
o an increasing desire to eliminate cross-contamination from accidental
needle or lancet sticks in hospitals and clinics;
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o the enactment of the Needlestick Safety and Prevention Act, or the
Needlestick Safety Act, which requires health facilities to employ
measures to reduce or eliminate the accidental needlesticks suffered
by health care workers;
o a growing number of diagnosed diabetics seeking better insulin
control; and
o a growing understanding of the need to provide testing methods for
needle-phobic individuals.
To capitalize on these opportunities, we introduced the Lasette and intend to
position the company as a leader in the development of technologically-advanced
medical devices that offer more effective, safer and less painful solutions than
conventional procedures.
Our scientific research instrument includes the Cell Robotics Workstation. The
Cell Robotics Workstation allows scientists to use a laser to manipulate objects
in micro-space, upgrading the microscope to an interactive micro-laboratory. The
Cell Robotics Workstation enhances the usefulness and importance of the
conventional laboratory microscope as a tool in medical, biological and genetic
applications in the life sciences. Scientists can use the technology for cell
separation, cell-to-cell interaction, micro-dissection and intercellular
manipulation of living cells. Third parties currently use the Cell Robotics
Workstation for cancer, immunology, neurobiology, assisted reproductive
techniques and genome research. Principal markets for the Cell Robotics
Workstation are colleges, universities, research laboratories, biotechnology and
pharmaceutical companies and commercial laboratories conducting biological
research. The Cell Robotics Workstation has received the European Community's CE
Mark. It is not subject to FDA regulatory clearances. While we intend to focus
on the development, distribution and sale of laser-based medical devices, we
will continue to promote and market the Cell Robotics Workstation through direct
sales, dealers, representatives and distribution arrangements.
Other products and technology that we are considering for development include
the following:
o a laser finger perforator that will also test the patient's glucose
level using the same instrument;
o a new broad-based technology based upon our United States patent that
applies laser energy to initiate a molecular reaction, including
amplifying DNA molecules in a process known as polymerase chain
reaction, or PCR; and
o a low-cost laser myringotomy instrument that could provide a safer
and less damaging alternative to placing tubes in children's ears as
a treatment for repeat ear infections.
HOW TO CONTACT US
Our principal offices are located at 2715 Broadbent Parkway N.E., Albuquerque,
New Mexico 87107. Our telephone number is (505) 343-1131.
THE OFFERING
This prospectus relates to multiple offerings by the company and the selling
securityholders identified in this prospectus under the section entitled
"Selling Securityholders." See also "Description of Securities To Be
Registered." The offerings by the selling securityholders under this prospectus
consist of the following:
o The resale by five securityholders of 379,475 shares of our common
stock. Of the 379,475 shares being registered, three selling
securityholders acquired 329,475 shares of common stock upon their
February 2000 exercise of warrants, or Placement Agent's Warrants,
issued for services provided in connection with our September 1995
private offering of our securities. The remaining 50,000 shares were
acquired by two selling securityholders in connection with previous
private offerings.
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o The resale by six selling securityholders of 217,576 Redeemable
Warrants. We are also registering the resale by these selling
securityholders of 217,576 shares of our common stock issuable upon
the exercise of their Redeemable Warrants. These Redeemable Warrants
were acquired in connection with previous private offerings.
The offerings by the company under this prospectus consist of the following:
o The offering by the company of 920,000 shares of our common stock
issuable to the Redeemable Warrant holders upon the exercise of their
Redeemable Warrants. These Redeemable Warrants were acquired in
connection with the 1998 public offering of our securities.
o The offer by the company of 160,000 shares of our common stock and
80,000 of our Redeemable Warrants. We are also registering the
issuance by the company of 80,000 shares of our common stock upon
exercise of those Redeemable Warrants. The Representative Warrants
were issued to an underwriter and its officers in connection with the
1998 public offering of our securities. The Representative Warrants
are exercisable for 40,000 units, each unit consisting of four shares
of common stock and two Redeemable Warrants. The securities comprising
the units will be immediately separated and transferable. The units
are not being separately registered and there will be no public
trading market developed for the units.
We will receive $396,000 as gross proceeds from exercise of the Representative
Warrants, if and when exercised. Additionally, if the Redeemable Warrants
underlying the Representative Warrants are exercised then we will receive gross
proceeds of $192,000. We will also receive $2,208,000 as gross proceeds from
exercise of the Redeemable Warrants sold in the February 1998 offering, if and
when exercised. If all of the selling securityholders exercise their Redeemable
Warrants, then we will receive additional proceeds of $522,182. We cannot assure
you that any securityholders will exercise any of the Redeemable Warrants or the
Representative Warrants. We will not receive any proceeds from the resale of our
common stock or the resale of our Redeemable Warrants by the selling
securityholders.
SUMMARY FINANCIAL DATA
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YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
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1998 1999 1999 2000
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Statement of Operations:
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Total revenues $ 1,429,001 $ 1,417,317 $ 1,381,257 $ 766,378
Operating expenses $ 2,269,263 $ 2,165,551 $ 1,660,104 $ 2,377,271
Net loss applicable to common $ (2,057,573) $ (2,424,630) $ (1,306,725) $ (4,088,825)
shareholders
Basic and diluted loss per share $ (0.39) $ (0.31) $ (0.24) $ (0.45)
Shares used in computing basic and 5,278,347 7,734,762 7,658,249 9,057,133
diluted loss per share
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MARKET PRICE INFORMATION
Our common stock and Redeemable Warrants are traded over-the-counter and quoted
on the OTC Bulletin Board on a limited and sporadic basis under the symbol
"CRII" and "CRII. W," respectively. The reported high and low bid prices for our
common stock and the closing bid and ask prices for our Redeemable Warrants,
each as reported by the OTC Bulletin Board, are shown below for the three-year
period through December 19, 2000. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
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BID
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COMMON STOCK LOW HIGH
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1998
First Quarter $ 1.938 $ 2.797
Second Quarter $ 1.375 $ 2.469
Third Quarter $ 0.844 $ 1.625
Fourth Quarter $ 0.688 $ 3.000
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BID
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LOW HIGH
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1999
First Quarter $ 1.813 $ 2.813
Second Quarter $ 1.500 $ 2.188
Third Quarter $ 1.531 $ 2.125
Fourth Quarter $ 1.563 $ 2.125
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BID
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LOW HIGH
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2000
First Quarter $ 1.531 $ 7.750
Second Quarter $ 3.128 $ 5.813
Third Quarter $ 1.8125 $ 4.125
Through December 19, 2000 $ 0.6875 $ 2.25
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REDEEMABLE WARRANTS BID ASK
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1998
First Quarter $ 0.56250 $ 0.93750
Second Quarter $ 0.50000 $ 0.87500
Third Quarter $ 0.18750 $ 0.50000
Fourth Quarter $ 1.03125 $ 1.12500
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BID ASK
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1999
First Quarter $ 0.81250 $ 0.93750
Second Quarter $ 0.81250 $ 1.06250
Third Quarter $ 0.87500 $ 0.96875
Fourth Quarter $ 0.6875 $ 0.9375
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BID ASK
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2000
First Quarter $ 2.8125 $ 3.00
Second Quarter $ 1.75 $ 2.00
Third Quarter $ 0.90625 $ 1.0625
Through December 19, 2000 $ 0.2813 $ 0.3750
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As of December 19, 2000, there were approximately 163 shareholders of record of
our common stock and 8 holders of record of our Redeemable Warrants.
DIVIDENDS
We have not paid any cash dividends on our common stock and do not expect to do
so in the foreseeable future. We anticipate that any earnings generated from our
operations will be used to finance our ongoing operations. No contractual
restrictions presently exist upon our ability to pay dividends.
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RISK FACTORS
An investment in our securities is very speculative and involves a high degree
of risk. You should carefully consider the following risk factors, along with
the other matters referred to in this prospectus, before you decide to buy our
securities. If you decide to buy our securities, you should be able to afford a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE HAVE A HISTORY OF LOSSES, AND EXPECT TO INCUR LOSSES IN THE FUTURE. IF WE DO
NOT ACHIEVE PROFITABILITY, OUR FINANCIAL CONDITION AND THE PRICE OF OUR COMMON
STOCK AND THE REDEEMABLE WARRANTS WILL SUFFER. To date, we have generated only
limited revenues from the sale of our products and have been unable to
profitably market our products. We incurred net losses of $2,057,573 and
$2,424,630 in 1998 and 1999, respectively, and $4,088,825 for the nine months
ended September 30, 2000. We expect to experience operating losses and negative
cash flow for the foreseeable future. We anticipate that our existing current
working capital and future product sales will be sufficient to allow us to meet
operational obligations through February 2001. However, we do not have
sufficient cash to sustain continuing operating losses after February 2001
without additional financing. Even if we are able to obtain additional financing
to allow us to continue operations, we will still need to generate significant
revenues to fund anticipated manufacturing and marketing costs and to achieve
and maintain profitability. We cannot assure you that we will ever generate
sufficient revenues to achieve profitability, which will have a negative impact
on the price of our common stock and the Redeemable Warrants. If we do achieve
profitability, we cannot assure you that we will be able to sustain or increase
profitability in the future.
TO DATE, WE HAVE BEEN UNABLE TO FUND OUR OPERATIONS WITH CASH GENERATED FROM
SALES OF OUR PRODUCTS. IF WE DO NOT GENERATE SUFFICIENT CASH TO FUND OUR
OPERATIONS, WE WILL NEED ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE TO US
ON FAVORABLE TERMS OR AT ALL. To date, we have funded our operations primarily
from the sale of equity securities and short term borrowings as we have not
generated sufficient cash from our operations. We expect that our existing
current working capital and future product sales will be sufficient to allow us
to meet operational obligations through February 2001. Accordingly, it is
imperative that we complete a significant financing before the end of February
2001. Although we have had discussions with potential investors, we cannot
assure you that we will be able to obtain additional financing on favorable
terms, if at all Our capital requirements depend on numerous factors, most
notably the market acceptance of the Lasette. We will need additional cash to
fund the costs associated with manufacturing, marketing and selling our
products. We may also need cash to file, prosecute, defend and enforce patent
claims and other intellectual property rights, purchase capital equipment,
develop new products and maintain or obtain necessary regulatory approvals.
Borrowing money may involve pledging some or all of our assets. Raising
additional funds by issuing common stock or other types of equity securities
would further dilute our existing shareholders and the purchasers of the
securities offered under this prospectus. If new equity securities are issued,
those securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot obtain additional financing as
needed, we may not be able to continue our operations, grow our market share,
take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements. This would have a material adverse effect on our
business, financial condition, results of operation and our ability to continue
as a going concern.
THE PERSONAL LASETTE WAS ONLY INTRODUCED IN DECEMBER 1999 AND IT IS DIFFICULT TO
PREDICT WHETHER IT OR OTHER PRODUCTS THAT WE MAY DEVELOP IN THE FUTURE WILL GAIN
MARKET ACCEPTANCE OR PROFITABILITY. Demand and market acceptance for newly
developed products are subject to a high level of uncertainty and risk. The
risks associated with the introduction of innovative technologies, like our
medical laser products, include the following, among others:
o the difficulty in predicting the medical laser product's future
growth rate;
o the possibility that the cost of the product may not be covered by
private insurance or Medicare;
o our current and future products may have features which render them
uneconomical, either to manufacture or to market;
5
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o the demand for our products may fail to develop or develop slower
than expected or our products may not achieve or sustain market
acceptance;
o the prices at which our products are accepted by purchasers may be
too low, which may prevent us from operating profitably;
o third parties may manufacture and market a product superior in
performance and price; and
o the possibility that any proposed product, or enhancement to existing
products, may fail to receive necessary regulatory clearances.
We cannot assure you that we will be successful in addressing these risks, and
our failure to do so could have a negative impact on our business, operating
results and financial condition.
WE HAVE LIMITED EXPERIENCE IN MARKETING, DISTRIBUTING AND SELLING LASER-BASED
MEDICAL AND RESEARCH PRODUCTS. We have limited experience marketing,
distributing and selling our products. To successfully market, distribute and
sell our current or future products, we must build a more extensive marketing
sales force and distribution network. Alternatively, we can enter into
arrangements with third parties to market, distribute and sell our products. We
cannot assure you that we will be able to successfully develop such a network or
that we will enter into acceptable agreements with third parties to provide our
products. If we maintain our own marketing, distribution and sales capabilities,
we will compete against other companies with experienced and well-funded
marketing, distribution and sales operations. Alternatively, if we enter into a
marketing arrangement with a third party, we will likely have to pay a sales
commission or discount the retail price of our products. Further, our revenues
would depend on the efforts of third parties. If we are unable to develop a plan
to market, distribute and sell our products, we may be unable to successfully
bring them to market. We cannot assure you that we will be able to recruit and
retain marketing personnel with the required skills or that we will be able to
enter into the strategic relationships needed to effectively market and
distribute our products.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO HIRE AND RETAIN KEY
PERSONNEL. To successfully operate and grow our business, we must retain key
scientific, technical, managerial, marketing and financial personnel as well as
attract and retain additional highly qualified personnel for these areas. We
face intense competition for qualified personnel in these areas, and we cannot
assure you that we will be able to attract and retain qualified personnel. If we
lose our key personnel or are unable to hire and retain additional qualified
personnel in the future, our business, financial condition and operating results
could be adversely affected.
We have employment agreements with Ronald K. Lohrding, Ph.D., our President,
Chief Executive Officer and Chairman of the Board of Directors, Mr. H. Travis
Lee, our Vice President of Marketing and Sales and Paul Johnson, our Chief
Financial Officer and Secretary. Our key employees, including those with
employment agreements, may voluntarily terminate their employment with us at
any time. We do not have key person life insurance covering our management
personnel or other key employees, other than a $500,000 term policy on the life
of Dr. Lohrding.
WE DO NOT HAVE A BROAD RANGE OF PRODUCTS TO SELL. Since selling the IVF
Workstation and associated technology to Hamilton Thorne Research in May 2000,
our exclusive product lines consist of the Lasette and the Cell Robotics
Workstation. Our primary focus is distributing and selling the Lasette, a laser
skin perforator that replaces the steel lancets or needles diabetics primarily
use. There is an inherent risk in not having a broad base of products in
development, because we will not have alternate sources of revenue if we are not
successful with our current lines. We cannot assure you that we will be able to
profitably sell this narrow line of products. The failure of the Lasette would
have a material adverse affect on the future of our business.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, INCLUDING OUR PATENTS,
WHICH COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT. Our success will
depend, in part, upon our ability to develop superior products that we can
market at competitive prices. Our ability to do this will depend, in part, on
our ability to protect and defend our intellectual property rights and the
competitive advantages those rights offer. We rely primarily on patent, trade
secret, copyright and trademark laws, confidentiality procedures and other
intellectual property protection methods to protect our proprietary technology.
Despite the precautions we have taken, unauthorized parties may attempt to
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engineer, reverse engineer, copy or obtain and use our products and other
proprietary information. Misappropriations of our intellectual property could
adversely affect our business, results of operations and financial condition.
As of the date of this prospectus, we have been issued two patents and have
applied for additional patent protection for our laser-based medical devices. We
cannot assure you that any additional patents will be issued. Our scientific
research instruments have only limited patent protection. We are aware of
several patents held by third parties that relate to certain aspects of our
products. Others may use these patents to challenge our current or future
patents, limit the scope of our patents or limit our ability to obtain
additional or broader patent rights. A successful challenge to our existing or
future patents would materially adversely affect our competitive position.
Any proceeding in the United States or abroad involving our intellectual
property can be expensive and can divert the attention of our technical and
management personnel. We may be required to litigate to enforce our patents,
protect trade secrets or know-how and defend against infringement charges. An
adverse ruling in such proceedings could subject us to significant liability or
require us to seek licenses from third parties. Patent and intellectual property
disputes in the medical and research device areas have often been settled
through licensing or similar arrangements. The costs associated with these
arrangements could be substantial and include ongoing royalties. Furthermore, we
cannot assure you that necessary licenses would be available to us on
satisfactory terms, if at all. An adverse ruling or judgment or a failure to
obtain necessary licenses could prevent us from manufacturing and selling our
products, which could materially adversely affect us.
OUR INDUSTRY IS HEAVILY REGULATED, AND STRINGENT ONGOING REGULATION AND
INSPECTION OF OUR PRODUCTS COULD LEAD TO DELAYS IN THEIR MANUFACTURE, MARKETING
AND SALE. United States government agencies and comparable agencies in countries
outside the United States regulate the testing, manufacture, labeling,
distribution, marketing and advertising of the Lasette and our ongoing research
and development activities. While the Lasette has received all necessary FDA
clearances and has received the European Community's CE Mark, its manufacture
and marketing will be subject to ongoing regulation. We are subject to
inspection and market surveillance by the FDA and the European Community for
compliance with good manufacturing practices and other requirements, which
include testing, design, quality control and documentation procedures. The FDA
conducts periodic audits of the Lasette, and has notified us that it intends to
conduct an audit in the first quarter of 2001. In order to manufacture and sell
the Lasette under the CE Mark, we must also pass annual International Standards
Organization, or ISO, maintenance audits, as well as comprehensive ISO audits
every three years. While we have historically been in compliance with all FDA
and ISO requirements, there can be no assurance that we will continue to do so
in the future. Our failure to meet FDA or ISO requirements or the loss of the CE
Mark could bar us from further marketing the Lasette in the United States and in
other markets, which would have a material adverse affect on our business.
Besides the FDA and the European Community, the Occupational Safety and Health
Act, or OSHA, regulates our manufacturing activities. If we fail to comply with
OSHA regulations, the government may impose 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. We have historically been in compliance with
all OSHA requirements; however, there can be no assurance that we will continue
to do so in the future.
WE MAY BE REQUIRED TO OBTAIN ADDITIONAL REGULATORY CLEARANCES FOR ANY NEW
PRODUCTS OR IMPROVEMENTS TO EXISTING PRODUCTS AND WE MUST OBTAIN REGULATORY
APPROVALS IN SOME FOREIGN JURISDICTIONS TO MARKET OUR PRODUCTS ABROAD. We have
received all necessary FDA clearances to commercially market the Lasette in the
United States. Further, CE Mark certification of the Lasette will also allow us
to commercially market the Lasette for home and clinical use in countries
comprising the European Union, and several other countries, such as Brazil and
Australia. However, comparable government agencies in a number of other foreign
countries require lengthy and detailed clinical testing and other compliance
procedures before they permit the introduction of enhancements to the Lasette
and new medical laser products in the marketplace. The cost of complying with
these regulations is significant and time consuming. These applications may
require the completion of preclinical and clinical studies and disclosure of
information relating to manufacturing and controls.
Based upon new data or design review, we may modify our products to enhance
their functionality and performance. Any improvements may require further
regulatory review, which would delay testing, approval and
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commercialization of our products. Any improvements to the Lasette may not
ultimately receive FDA or CE Mark clearance, which would have a material
adverse affect on our business.
Any new products we may develop in the future may require regulatory approval.
However, the time required for completing testing and obtaining additional
approvals is uncertain, and FDA and CE Mark clearance may never be obtained for
new products or applications. The FDA or the European Community may reject our
new products and future applications. Furthermore, we may encounter delays or
rejections based upon changes in FDA or European Community policy during the
period of product development. We may also encounter delays with similar
agencies in other markets. Even if the FDA, the European Community or comparable
agencies grant clearance for our future products, it may limit the indicated
uses for which our products may be marketed.
WE MAY BE ADVERSELY AFFECTED BY REFORMS IN THE HEALTH CARE INDUSTRY OR BY
LIMITATIONS IMPOSED ON THIRD PARTY REIMBURSEMENT OF HEALTH CARE COSTS. The
United States government and third parties continue efforts to contain or reduce
the costs of health care, which may adversely affect our future success. We
cannot predict the effect health care reforms may have on us, and we cannot
assure you that any reforms will not have a material adverse affect on our
business. In both the United States and elsewhere, the use of elective medical
procedures by many consumers depends on such consumer's ability to be reimbursed
by third-party payers, such as government and private insurance plans.
Third-party payers are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement. Some health insurance
companies have covered the consumer's costs of the Lasette if a physician
provides documentation indicating a medical necessity. However, currently the
cost of the Lasette does not qualify as a reimbursable expense under all health
insurance programs. Further, although we are pursuing obtaining Medicare
coverage for the Lasette, this is a lengthy approval process of which we are
only in the early stages. There can be no assurance that Medicare coverage will
be obtained. Our failure to obtain Medicare or third-party coverage of the
Lasette will limit our ability to successfully target the Lasette for home use
to those persons that cannot purchase the Lasette without such assistance, which
could adversely affect the growth of our business.
THE COMPETITIVE ADVANTAGE OF OUR LASER PRODUCTS IS DEPENDENT, IN PART, UPON OUR
RELATIONSHIP WITH THE SOLE SUPPLIER OF CRYSTALS USED IN OUR ERBIUM:YAG LASERS.
The Erbium:YAG laser rod we use in the Lasette is made from crystals that are
produced and processed from a single supplier in Russia. Although we believe
alternative crystal suppliers will be available, prices quoted by these
alternative crystal suppliers are significantly higher than the prices we
currently pay. Therefore, we realize a significant cost savings by having our
crystals manufactured by this Russian supplier. Our business could be materially
adversely effected if we had to use these alternative suppliers.
To date, we have experienced no material interruptions in the supply of our
laser components. However, if our source of supply were restricted due to events
flowing from Russia's political or economic instability, or due to the
supplier's non-performance of its obligations under our agreement, it is likely
that alternative sources of supply would be more expensive. If any of these or
other events beyond our control occur, we could lose our strategically important
source of supply for laser crystals. This would increase our manufacturing costs
and impair our competitive advantage.
Also see the risks entitled "We do business internationally, which subjects us
to various risks" and "We depend on various manufacturers for our product
components. If any of these manufacturers fail to provide the components, it
could adversely affect our business."
WE DEPEND ON VARIOUS MANUFACTURERS FOR OUR PRODUCT COMPONENTS. IF ANY OF THESE
MANUFACTURERS FAIL TO PROVIDE THE COMPONENTS, IT COULD ADVERSELY AFFECT OUR
BUSINESS. We rely on third parties to produce and manufacture certain components
for our products. We do not have written agreements with these third party
suppliers and they are not obligated to supply these components to us on an
on-going basis. Consequently, these third parties may not commit resources to us
as we need them. Any interruption in the supply of a sole-sourced component
could have a material adverse affect on our ability to manufacture products
until a new source of supply was found. We cannot assure you that we would be
successful in finding alternative sources of supply on a timely basis, if ever.
This failure could have a material adverse affect on our business, financial
condition and results of operations.
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THE COMPETITION IN THE LASER BIOMEDICAL PRODUCTS INDUSTRY IS INTENSE AND OUR
BUSINESS MAY BE ADVERSELY AFFECTED BY NEW TECHNOLOGIES. Our industry is
characterized by extensive research efforts, rapid technological progress,
evolving industry standards, frequent new product and service introductions and
enhancements and intense competition. The principal factor affecting our
competitive position is the suitability of our instruments for, and performance
in, a particular application.
Our competition includes pharmaceutical and medical diagnostic equipment
companies, academic institutions and others. Many of these companies and
institutions are engaged in developing products that will be used for the same
purposes as our products. In many cases, our competitors have substantially
greater resources, research and development staffs and facilities than we do, as
well as greater experience in developing and marketing products. Our competitors
may succeed in developing products that are more effective or less costly than
our products. If these new products are developed and become widely available
and accepted, then we may be forced to reduce the price of our products. As a
result, we may not be able to sell our products at a price that will allow us to
realize a return on our investment. Further, these new technologies may render
some or all of our products non-competitive, obsolete and/or unmarketable, which
would have a material adverse affect on our business. For example, our
competitors are developing glucose-testing products based on partially invasive
or non-invasive technologies that could be an alternative to the Lasette. These
non-invasive technologies include needle implants, watches with skin patches and
non-invasive laser products that are designed to read glucose levels through the
skin. If these products or other new products are approved for sale and become
commercially available in the United States or Europe in the future, they could
have a material adverse affect on sales of the Lasette and on our business and
financial condition.
OUR PRODUCTS MAY NOT GAIN MARKET ACCEPTANCE AND MAY NOT ACHIEVE A COMPETITIVE
POSITION IN THE MARKETPLACE. We cannot assure you that the marketplace will
accept our products or that customers will be willing to pay more for our
products than for existing products. For example, the Lasette will compete
directly with stainless steel lancets, which cost pennies apiece, as well as
with non-invasive procedures and products that are currently being developed by
other companies. Market acceptance will depend, in large part, upon our ability
to educate potential customers, including third-party distributors, about our
products' distinctive benefits. We cannot assure you that we will be successful
in these educational efforts or that our products will gain market acceptance or
be competitive.
OUR SUCCESS DEPENDS IN PART ON ENHANCING OUR CURRENT PRODUCTS AND DEVELOPING NEW
PRODUCTS; HOWEVER, WE ARE NOT CERTAIN THAT THOSE PRODUCTS WILL BE CLEARED FOR
SALE OR ACCEPTED IN THE MARKET. In order to be successful, we will need to
continue to enhance our existing products and develop new products. Enhanced and
new products may require a significant investment, including preclinical and
clinical testing, before we can sell them in the marketplace.
From time to time, we have experienced delays or setbacks in the development of
our products. We cannot assure you that we will be able to successfully address
problems that may arise during the development and commercialization process. In
addition, we cannot assure you that any of our products or their enhancements
can or will:
o be successfully developed;
o prove to be safe and effective in clinical trials;
o meet applicable regulatory standards;
o be capable of being manufactured in commercial quantities at a
reasonable cost;
o be marketed successfully; or
o achieve market acceptance.
Any unsuccessful development programs, our failure to obtain regulatory
approvals and/or a commercial failure of any of our products could materially
adversely affect our business, financial condition and results of operations.
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WE DO BUSINESS INTERNATIONALLY, WHICH SUBJECTS US TO VARIOUS RISKS. We sell our
products internationally and purchase some of the components used in their
manufacture from an international supplier. In particular, we purchase the
Erbium:YAG laser we use in the Lasette from a single supplier in Russia. The
risks associated with these international activities include, but are not
limited to, the following:
o regulation of fund transfers by foreign governments and the United
States;
o foreign export and import duties and tariffs;
o political and economic instability;
o compliance by our foreign suppliers with export laws and licenses;
and
o fluctuating exchange rates.
We cannot assure you that any of the foregoing will not have a material adverse
affect on our business.
WE MAY NOT MANAGE OUR GROWTH PROPERLY. The medical device industry is
characterized by extensive research efforts, rapid technological progress,
evolving industry standards and frequent new product and service introductions.
Our success depends on our ability to timely deliver state-of-the-art products
and provide meaningful customer support for a highly technical product. For this
reason, our long-term growth strategy is to develop our product lines,
particularly the Lasette, strengthen our market position through continued
research and development efforts and make appropriate acquisitions. This
strategy will require the continued improvement and expansion of our management,
operational and financial systems and controls. Any measurable growth in our
business will demand more from our customer support, sales, marketing,
administrative and technical resources. It will also place significant strain on
our management and financial resources. We cannot assure you that we will be
able to successfully address these additional demands. Additionally, we cannot
assure you that our operating and financial control systems will be adequate to
support our future operations and anticipated growth. Failure to manage our
growth properly could have a material adverse effect on our business, financial
condition and results of operations.
OUR LICENSE WITH LUCENT TECHNOLOGIES IS COSTLY, AND THERE CAN BE NO ASSURANCE
THAT THE LASERTWEEZERS PRODUCT WILL GAIN WIDE MARKET ACCEPTANCE. Our Cell
Robotics Workstation is based on our LaserTweezers, LaserScissors, CellSelector
and SmartStage technologies. The LaserTweezers application of our Cell Robotics
Workstation is based upon a non-exclusive patent license from AT&T, which was
transferred by AT&T to Lucent Technologies, Inc. Our license will expire at the
end of the term of the licensed patent. We were in default under this license
agreement, and renegotiated its terms in 1998. Under the renegotiated agreement,
we paid Lucent $100,000 in lieu of all sums due and owing for prior years.
Additionally, we agreed to increase the royalty from five to seven percent of
the value of each product sold utilizing the patent. Finally, the minimum annual
royalties under the license have been reduced to $35,000 per year for the term
of the license. Even with these changes to the license, we may not be able to
increase sales of the Cell Robotics Workstation that include the LaserTweezers
application to a level that renders use of that application in our product
economically attractive.
Furthermore, at least two European companies have developed and are marketing
products that we believe violate Lucent's patent. These products compete with
the Cell Robotics Workstation. To date, Lucent has elected not to pursue patent
infringement claims against these companies and their distributors. Under the
terms of the license, we cannot compel Lucent to initiate these proceedings.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS WHETHER OR NOT THEY ARE CONCLUDED IN OUR FAVOR.
The design, development, manufacture and use of our products can involve product
liability claims and associated adverse publicity. Producers of medical products
such as ours may face substantial liability for damages if their products fail
or consumers allege that their products caused harm. We currently maintain
$2,000,000 of product liability insurance, but this insurance is expensive and
difficult to obtain. We cannot assure you that we will not be subject to product
liability claims. Additionally, we cannot assure you that our current insurance
would cover any claims, or that adequate insurance will continue to be available
on acceptable terms in the future. If damages for successful product liability
claims exceed our insurance coverage limits, or if any
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claim or product recall creates significant adverse publicity, then our
business, financial condition and results of operations could be materially and
adversely affected.
WE COULD BE ADVERSELY AFFECTED IF THE GOVERNMENT REDUCES ITS SUPPORT OF
SCIENTIFIC RESEARCH AND DEVELOPMENT. The principal markets for our Cell Robotics
Workstation 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 our 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 lower demand for our
products, which could adversely affect our ability to become profitable.
RISKS RELATED TO OUR SECURITIES AND THIS OFFERING
WE MAY CONTINUE TO SELL STOCK OR OTHER SECURITIES TO RAISE MONEY. IF WE DO SO,
THESE SALES COULD SUBSTANTIALLY DILUTE OUR SECURITYHOLDERS' INVESTMENT. We have
the authority to issue up to 50,000,000 shares of common stock and to issue
options and warrants to purchase shares of our common stock without shareholder
approval. Further, we may authorize the issuance, without shareholder approval,
of our preferred stock with rights preferential to the rights of investors in
this offering. We will be required to raise additional funds before the end of
February 2001, which may be through the issuance of these equity securities. We
may issue these additional equity securities without shareholder approval. The
issuance of additional equity securities could substantially dilute the holdings
of our existing shareholders and the investors in this offering.
TRADING IN OUR SECURITIES IS LIMITED AND SPORADIC, THEREFORE YOU MAY NOT BE ABLE
TO LIQUIDATE YOUR INVESTMENT WITHOUT CONSIDERABLE DELAY, OR AT ALL.
ADDITIONALLY, OUR SECURITIES MAY BE REGULATED BY THE SECURITIES ENFORCEMENT AND
PENNY STOCK REFORM ACT OF 1990. While there currently exists a limited and
sporadic public trading market for our common stock and the Redeemable Warrants,
the price paid for these securities and the amount of securities traded are
volatile. We cannot assure you that these markets will improve in the future. As
a result, you may not be able to liquidate your investment without considerable
delay, if at all.
Because our common stock is not listed or quoted on any exchange or on NASDAQ,
and no other exemptions currently apply, the Securities and Exchange Commission,
or SEC, "penny stock" rules govern the trading in our common stock. These rules
require any broker engaging in a transaction in our securities to provide its
customers with certain disclosures and information both before and after
effecting the transaction. Brokers are generally less willing to effect
transactions in our securities because of these rules. This may make it more
difficult for investors to dispose of our common stock. In addition, the broker
prepares the information provided to its customer. Because we do not prepare the
information, we cannot assure you that such information is accurate, complete or
current.
WE HAVE NOT PAID DIVIDENDS TO OUR SHAREHOLDERS IN THE PAST, AND WE DO NOT
ANTICIPATE PAYING DIVIDENDS IN THE NEAR FUTURE. We have not declared or paid
cash dividends on our common stock. We intend to retain all future earnings, if
any, to fund the operation of our business, and therefore we do not anticipate
paying dividends on our common stock in the future.
PROVISIONS OF OUR CHARTER DOCUMENTS AND CERTAIN AGREEMENTS WITH OUR OFFICERS MAY
HAVE ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE OR PREVENT A CHANGE OF CONTROL,
WHICH MAY SUPPRESS OUR STOCK PRICE OR CAUSE IT TO DECLINE. Our articles of
incorporation authorize the issuance of up to 2,500,000 shares of preferred
stock. Our board of directors has the authority to fix and determine the
relative rights and preferences of preferred stock, as well as issue preferred
stock without shareholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock which would grant to
holders preferred rights to our assets upon liquidation, the right to receive
dividends before dividends would be declared to common shareholders, and the
right to the redemption of preferred shares, together with a premium, prior to
the redemption of common stock. Common shareholders have no redemption rights.
In addition, we have agreements with some of our officers that have change of
control provisions. The ability to issue preferred stock without shareholder
approval and our arrangements with officers may discourage, delay or prevent
someone from acquiring or merging with us.
WE MAY REDEEM THE REDEEMABLE WARRANTS AT TIMES WHICH MAY BE DISADVANTAGEOUS TO
THE HOLDERS. We may redeem the Redeemable Warrants at a price of $0.25 per
Redeemable Warrant upon 30 days notice, mailed after the
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closing bid price of our common stock has equaled or exceeded $4.80 for a
period of ten consecutive trading days. Holders of the Redeemable Warrants have
exercise rights until the close of the business day preceding the date fixed
for redemption. Redemption of the Redeemable Warrants could force the holders
to exercise their Redeemable Warrants and pay the exercise price at a time when
it may be disadvantageous for them to do so, to sell the Redeemable Warrants at
the then-current market price when they might otherwise wish to hold the
Redeemable Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Redeemable Warrants at the time
of redemption. The Redeemable Warrants may not be redeemed or exercised unless
a registration statement covering the underlying shares of common stock has
been filed and 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 holder's state of residence. See "Description of
Securities to be Registered."
HOLDERS OF REDEEMABLE WARRANTS MAY EXERCISE THE REDEEMABLE WARRANTS TO ACQUIRE
SHARES OF OUR COMMON STOCK ONLY IF THERE IS A CURRENT REGISTRATION STATEMENT AND
PROSPECTUS COVERING THOSE SHARES OF COMMON STOCK. Holders of the Redeemable
Warrants may exercise their Redeemable Warrants to acquire shares of our common
stock only if there is a current and effective registration statement and
prospectus covering the shares of common stock issuable upon such exercise, and
only if the shares are qualified for sale under the securities laws of the
applicable state or states. While we have undertaken and plan to do so, there
can be no assurance that a current registration statement and prospectus will be
in effect when any of the holders attempt to exercise their Redeemable Warrants.
Although we will seek to qualify the shares of common stock underlying the
Redeemable Warrants for sale in those states in which the securities are to be
offered, we cannot assure you that we will be successful in achieving
qualification in the necessary states. The Redeemable Warrants may be deprived
of any value if a prospectus covering the shares issuable upon their exercise 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 to be
Registered."
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology, for instance the
terms "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms or
other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of our financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o our ability to manufacture and distribute our products.
Potential investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties, including, without limitation,
those identified under "Risk Factors" and
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elsewhere in this prospectus. Actual results will differ and could differ
materially from these forward-looking statements. In light of these risks and
uncertainties, there can be no assurance that the matters referred to in the
forward-looking statements contained in this prospectus will in fact occur. We
are under no duty to update any of the forward-looking statements after the
date of this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock offered by
the selling securityholders, or the resale of our Redeemable Warrants. We will,
however, receive proceeds if any of the following occurs:
o If the Representative Warrants are exercised in full, then we will
receive gross proceeds of $396,000. Additionally, if the Redeemable
Warrants underlying the Representative Warrants are exercised, then
we will receive gross proceeds of $192,000;
o If all of the shares we are offering are purchased pursuant to the
exercise of the Redeemable Warrants sold in the February 1998 public
offering in full, then we will receive additional gross proceeds of
$2,208,000; and
o If all of the selling securityholders exercise their Redeemable
Warrants in full, then we will receive additional gross proceeds of
$522,182.
If we were to receive proceeds from any of the foregoing, we anticipate that the
proceeds will be used as working capital in our day-to-day operations. While we
regularly evaluate possibilities for the acquisition of other businesses,
technologies and products, we do not have any arrangements, agreements or
understandings with respect to any such acquisitions. At this time, we do not
anticipate the proceeds we receive from the exercise of the Representative
Warrants or the Redeemable Warrants will be used to repay debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1999
Sales for the three-month period ended September 30, 2000 increased $18,186 or
7% to $282,662 from $264,476 in the three-month period ended September 30, 1999.
The increase in sales resulted from our scientific research instruments
products. The sales of scientific instrumentation products increased $85,561
during the quarter ended September 30, 2000 to $207,303 from $121,742 when
compared to the same quarter of the prior year. Sales of our laser-based medical
products decreased $18,672 from $84,002 during the quarter ended September 30,
1999 to $65,330 for the quarter ended September 30, 2000. The decrease is due to
the sale of our the IVF Workstation and associated technology in May 2000. All
sales of laser-based medical products in the third quarter of 1999 were
attributable to this technology.
Sales of our laser-based medical products for the diabetic market increased
$45,958 in the quarter ended September 30, 2000 when compared with no sales in
the same period in the prior year. This increase resulted from our strategic
decision made in the first quarter of 2000 to focus our efforts in developing
and marketing these types of products. The sale of the IVF Workstation and
associated technology noted above also was made because of our decision to
pursue the development and sale of the Lasette.
Our gross margin decreased from 11% for the quarter ended September 30, 1999 to
a negative gross margin of 166% for the quarter ended September 30, 2000. The
decrease is primarily due to an accrual of $400,000 that we estimate we will
make to Big Sky Laser Technologies in connection with the settlement of our
lawsuit with that company. Additionally, we have accrued approximately $64,000
in cost of sales to pay the cost associated with a design improvement in one of
the main components of the laser-based medical products. As a result of the
modification, certain parts in stock had to be reworked. The cost of this rework
was charged to cost of sales in the quarter ended September 30, 2000.
Additionally, the negative gross margin is due to a lack of efficiencies in the
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production of our laser-based medical products marketed to the general public.
We expect our margins to increase as sales increase and our manufacturing
process becomes more efficient; however, there are several risk factors that
need to be considered, such as our ability to effectively market the products
and significantly increase sales and our ability to achieve economies of scale
and efficiently manufacture the products. We are working to achieve sales and
manufacturing efficiencies, but no assurances can be given that we will succeed
in these areas.
Operating expenses increased $423,017 from $483,451 for the quarter ended
September 30, 1999 to $906,468 for the quarter ended September 30, 2000. The
increase is primarily due to a significant increase in marketing and selling
expenses as we launched an aggressive campaign to sell the Lasette.
Interest income increased in the quarter ended September 30, 2000 over the
amount in the quarter ended September 30, 1999 due to additional cash
investments primarily as a result of the $2 million private placement that was
completed in May 2000 and proceeds from the issuance of the $1.2 million
convertible note in March 2000. Interest expense increased because of a required
conversion charge to interest expense associated with the conversion of the $1.2
million convertible note in August 2000 into 500,000 shares of our common stock.
In accordance with accounting rules, we were required to include a non-cash
charge to interest expense when the $1.2 million note was converted into our
common stock.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales for the nine-month period ended September 30, 2000 decreased $614,879 or
45% to $766,378 from $1,381,257 in the comparable period of 1999. The decrease
is due to our change in emphasis from our scientific instrumentation products
and our laser-based medical products marketed to the professional medical
community to our laser-based medical products marketed to the general public for
home use. Sales of scientific instrumentation products and laser-based medical
products marketed to the professional medical community decreased $253,214 and
$380,725, respectively, in the nine-month period ended September 30, 2000 when
compared with the nine-month period ended September 30, 1999. The sales decline
in scientific instrumentation products is primarily due to fewer resources being
allocated to achieve sales of those products. Our distributor of the laser-based
medical products marketed to the professional medical community only purchased
$10,182 of these products from us during the nine-month period ended September
30, 2000, as compared with $263,396 in the same period of the prior year. Also,
as noted above, in May 2000 we sold our IVF Workstation and associated
technology. This resulted in a decline of revenues in the nine-month period
ended September 30, 2000 of approximately $112,000 when compared with the same
period of the prior year.
Sales of laser-based medical products marketed to the general public increased
$205,124 or 100% in the nine-month period ended September 30, 2000 when compared
with no sales in the same period in the prior year. As previously mentioned, we
have made a strategic decision to focus our efforts to develop and market these
types of products.
Our gross margin decreased from 26% for the period ended September 30, 1999 to a
negative gross margin of 67% for the nine-month period ended September 30, 2000.
The reason for the decrease is explained above.
Operating expenses increased $717,167 from $1,660,104 for the period ended
September 30, 1999 to $2,377,271 for the period ended September 30, 2000. The
increase is primarily due to legal fees incurred in the second quarter for the
filing of registration statements with the SEC and, as noted above, to a
significant increase in marketing and selling expenses as we launched an
aggressive campaign to sell our laser-based medical products. The cost of legal
fees incurred was paid by issuing shares of our common stock rather than by
expending working capital resources.
Interest income increased in the period ended September 30, 2000 over the amount
in the period ended September 30, 1999 due to additional cash investments
primarily as a result of the $2 million private placement that was completed in
May 2000 and proceeds from the issuance of the $1.2 million note in March 2000.
Interest expense increased because of a required conversion charge to interest
expense associated with the conversion of the $1.2 million note in August 2000
into 500,000 shares of our common stock. In accordance with accounting rules, we
were required to include a non-cash charge to interest expense when the $1.2
million note was converted into our common stock.
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RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998
During the year ended December 31, 1999, our operating activities included
continuing efforts to complete the development of our laser-based medical
devices and marketing of the Lasette. Product sales for the period were
generated from sales of our scientific research instruments and our clinical
laser-based medical devices.
o Total revenues from product sales and grant revenue decreased .8%
from $1,429,001 during the 1998 period to $1,417,317 during 1999.
o Research and development grant revenue decreased 31.7% from $179,298
during 1998 to $122,381 during 1999.
o The gross profit realized by our product sales generated during
fiscal 1999 was $230,806, or 17.8%, compared to a gross profit of
$401,463, or 32.1%, realized during fiscal 1998. This decrease was
primarily attributed to a reduction in retail selling prices due to
competitive pricing pressures as well as increased warranty expenses
associated with newly released products.
Operating expenses incurred during fiscal 1999 were $2,165,551, a decrease of
$103,712, or 4.6%, compared to fiscal 1998 operating expenses of $2,269,263.
This decrease was principally attributable to a reduction in research and
development expenses.
o Research and development expenses decreased by $297,680, or 35.1%, in
1999 due primarily to a reduction in professional design and
engineering consulting fees required by our laser-based medical
devices.
o Marketing and sales related expenses incurred during fiscal 1999 were
$625,777, an increase of $16,489, or 2.7%, when compared to fiscal
1998 marketing and sales related expenses of $609,288. Expenses
related to the marketing introduction of our new Personal Lasette
product were primarily responsible for this increase.
o General and administrative expenses associated with the conduct of
our business increased from $810,809 during the year ended December
31, 1998 to $988,288 for the year ended December 31, 1999, an
increase of $177,479 or 21.9%. This increase is primarily attributed
to our effort to maintain ISO 9001 certification, increased product
liability premiums, increased SEC compliance costs and increased
investor relations' activities.
During the fiscal period ended December 31, 1999, other income and expenses
decreased from an $84,454 net contribution to income for the year ended December
31, 1998 to a $25,395 net contribution to income. This decrease was due almost
exclusively to the reduction of interest earned on declining cash balances.
As a result of the foregoing, our net loss applicable to common shareholders for
the year ended December 31, 1999 increased by $367,057, or 17.8%, when compared
to the year ended December 31, 1998. Our net loss applicable to common
shareholders was $2,057,573 for the year ended December 31, 1998, and $2,424,630
for the comparable period ended December 31, 1999. We had a net loss of $0.31
per share on 7,734,762 weighted average shares outstanding for the year ended
December 31, 1999 compared to a net loss of $0.39 per share on 5,278,347
weighted average shares outstanding for the comparable period ended December 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have relied principally upon the proceeds of both debt
and equity financing to provide working capital for our product development and
marketing activities and, to a lesser extent, the proceeds of Small Business
Innovative Research grants. We have not been able to generate sufficient cash
from operations and, as a consequence, we must seek additional financing to fund
ongoing operations.
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o In August 1997, we completed a private sale of 200,000 shares of our
common stock for gross proceeds of $650,000. We agreed to exchange
the 200,000 shares of common stock for 78,788 of the units offered in
the secondary offering completed in February 1998 referred to below.
o In December 1997, we obtained a short-term loan from Paulson
Investment Company in the principal amount of $500,000. This loan was
repaid, without interest, with a portion of the proceeds of our
February 1998 offering.
o In February 1998, we sold 460,000 units, each unit consisting of one
share of Series A Convertible Preferred Stock, convertible into four
shares of our common stock, and two Redeemable Warrants, in a
registered offering to the public. Each unit was sold at a price to
the public of $8.25. The units were traded over-the-counter and
quoted on the OTC Bulletin Board under the symbol "CRIIU" for a
period of 30 days through March 4, 1998. In March 1998, the units
automatically separated and, as a result, the Preferred Stock and
Redeemable Warrants traded separately over-the-counter, and were
quoted on the OTC Global Change Bulletin Board under the symbols
"CRII.P" and "CRII.W," respectively. In January 1999, the Preferred
Stock automatically converted into shares of our common stock.
o In July 1999, we sold 9.5 units to four investors in a private
placement of our securities. Each unit consisted of 35,000 shares of
our common stock and 7,500 Redeemable Warrants. We also granted
15,000 Redeemable Warrants to two placement agents. Gross proceeds
received from this private placement totaled $475,000. We also
granted an additional 15,000 Redeemable Warrants for legal services
rendered that were unrelated to this private placement.
Cash used in operations for the years ended December 31, 1999 and 1998 was
$1,584,722 and $1,935,800, respectively. The primary reasons for the decrease in
cash used in operations during the year ended December 31, 1999, as compared to
the prior period, are the decreases in product development expenses during that
period, and an increased level of accounts payable and accrued liabilities.
Cash provided by financing activities for the years ended December 31, 1999 and
1998 was $887,551 and $2,852,504, respectively. These figures reflect the equity
financings discussed above and our receipt in December 1999 of a note in the
principal amount of $250,000 payable to a company in which a member of our board
of directors is a majority shareholder.
Our liquidity and capital resources continued to decrease during the year ended
December 31, 1999, due primarily to the company's ongoing operating losses. Our
current ratio at December 31, 1999 was 1.6 to 1, compared to a current ratio of
4.3 to 1 on December 31, 1998. This decrease in liquidity is primarily due to
the use of proceeds for continued operating activities that we raised from the
secondary offering completed in February 1998 and the July 1999 private
placement. Total assets decreased from $2,583,052 at December 31, 1998 to
$2,013,666 at December 31, 1999, a decrease of $569,386 or 22%.
o The decrease in our current assets of $772,497, or 34%, was the
result of a decrease in cash and cash equivalents, which declined
from $1,375,575 at December 31, 1998 to $358,379 at December 31,
1999, a decrease of $1,017,196, or 73.9%. Our use of cash for
continued operating activities and the purchase of product component
inventory led to this decrease.
o An increase in bad debt allowance and a more timely accounts
receivable collection process led to a decrease in accounts
receivable of $40,295, from $246,573 at the end of 1998, to $206,278
at December 31, 1999. Inventory increased by $371,722, or 70.6%, due
to manufacturing ramp up of our laser-based medical devices compared
to the year ended December 31, 1998.
o At December 31, 1999, our total current liabilities increased
$375,504 from $533,329 at December 31, 1998 to $908,833 at December
31, 1999. Increases in accounts payable of $356,717, or 108.9%, and
royalties payable of $34,009, or 101.5%, were directly related to
the purchase of manufacturing inventory and increased delivery of
royalty bearing products.
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Based upon the above, our working capital decreased from $1,738,339 at December
31, 1998 to $590,338 at December 31, 1999, a decrease of $1,148,001. This
decrease was due almost exclusively to our use of cash for continued operations
discussed above.
At December 31, 1999, we had a net operating loss carryforward for income tax
purposes of approximately $15,800,000, which expires beginning in 2006. Under
the Internal Revenue Code of 1986, as amended, the amounts of and the benefits
from net operating loss carryforwards are subject to certain limitations in the
amount of net operating losses that we may apply to offset future taxable
income. The ownership changes in 1995 in connection with the acquisition of Cell
Robotics, Inc. will limit the use of this net operating loss carryforward under
applicable Internal Revenue Service regulations.
Our working capital increased to $2,139,584 at September 30, 2000 from $590,338
at December 31, 1999. Our current ratio increased to 2.7:1 at September 30, 2000
compared with 1.7:1 at December 31, 1999. Total assets also increased from
$2,013,666 at December 31, 1999 to $3,919,928 at September 30, 2000. This
increase in liquidity and total assets is primarily due to the following:
o A $2 million private placement that we completed in May 2000.
o Advances under a $1.2 million secured convertible note issued in
March 2000. The note converted into 500,000 shares of our common
stock in August 2000.
o The February 2000 exercise of the warrants issued to an underwriter
and its officers in connection with a previous offering of our
securities, or the Private Placement Warrants, and underlying class A
warrants resulting in $466,756 of proceeds to the company. The
Private Placement Warrants were issued to Paulson Investment Company,
Inc. and its officers, who served as placement agent in connection
with a 1995 private offering. The Private Placement Warrants were
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
our common stock and our class A warrants exercisable for 10,000
shares of our common stock.
Accounts receivable and inventory increased $59,866, or 29%, and $175,391, or
20%, respectively, as of September 30, 2000 when compared with December 31,
1999. This was a result of increased sales during the quarter ended September
30, 2000 when compared with the quarter ended December 31, 1999.
As of September 30, 2000, our total liabilities were $1,275,909 compared to
$1,158,833 at December 31, 1999. This increase was primarily due to an accrual
of $400,000 for our potential settlement of the dispute with Big Sky Laser
Technologies, Inc., that was established during the period ended September 30,
2000.
To date, we have funded our operations primarily from the sale of equity
securities and short term borrowings as we have not generated sufficient cash
from our operations. We expect cash used in operating activities will increase
throughout the remainder of 2000 as a more aggressive sales and marketing
campaign is launched and as full-scale production of the Lasette is implemented.
We expect that our existing current working capital and future product sales
will be sufficient to allow us to meet operational obligations through February
2001. Accordingly, it is imperative that we complete a significant financing
before the end of February 2001. Although we have had discussions with potential
investors, we cannot assure you that we will be successful in obtaining
additional financing on favorable terms, if at all. Our capital requirements
depend upon numerous factors, most notably the market acceptance of the Lasette.
Borrowing money may involve pledging some or all of our assets. Raising
additional funds by issuing common stock or other types of equity securities
would further dilute our existing shareholders. If we are unable to obtain
additional financing as needed, we may not be able to continue our operations,
grow our market share, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. This would have a material
adverse effect on our business, financial condition, results of operation and
our ability to continue as a going concern.
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BUSINESS
OVERVIEW
We manufacture, market and sell sophisticated laser-based medical devices and
scientific research instruments. Our key targets include the diabetes care
market for the Lasette and the scientific research market for the Cell Robotics
Workstation. We were incorporated in Colorado on September 28, 1988, under the
name Intelligent Financial Corporation. In February 1995, we acquired all of the
issued and outstanding shares of Cell Robotics, Inc., a New Mexico corporation,
which had been formed in 1988 to develop the Cell Robotics Workstation. In May
1995, we changed our name from Intelligent Financial Corporation to Cell
Robotics International, Inc.
PRODUCTS
LASER-BASED MEDICAL DEVICES -- THE LASETTE
GENERAL. The Lasette is a compact, lightweight, portable crystal laser that
utilizes laser light to vaporize a small hole in the finger for capillary blood
sampling. At nine ounces, the Lasette is slightly larger than a handheld
cellular telephone and it fits into a suit-coat pocket or a purse. The Lasette
is a better alternative for capillary blood sampling for many diabetics because,
in many patients, it causes less pain and residual soreness than the traditional
steel lancet. The Lasette may be a better alternative for children with
diabetes, newly diagnosed diabetics and needle-phobic or needle-adverse
individuals.
Previously, we marketed two laser-based medical devices, the Personal Lasette
and the Professional Lasette. The Personal Lasette was marketed for home use,
while the Professional Lasette was targeted for clinical applications. In the
third quarter of 2000, we made a strategic decision to discontinue marketing the
Professional Lasette to begin focusing on a single Lasette product that can be
adapted for either home or clinical use. The primary difference between the
Lasette used in these home and clinical environments is that a different
disposable lens shield is attached to the product for clinical applications than
that attached for home use. We believe that focusing on a single product line
will reduce direct costs associated with manufacturing the Lasette and promote
brand awareness of the Lasette.
The Lasette for home use allows diabetics to test their glucose levels at home.
This application requires a disposable lens shield, which is a cassette of
specialized plastic film. The film advances with each use of the device and has
the capacity for 120 applications. We designed the disposable cassette to
provide a one-month supply of film for diabetic patients who test four times per
day.
The Lasette for clinical use is used to draw blood for various tests, including
testing glucose levels, in the clinical setting. This application requires a
single disposable lens shield that inserts into the device for each use. The
patented disposable lens shield is replaced after each use in a clinical setting
which prevents the patient's blood from contaminating the Lasette unit and
therefore minimizes the risk of cross-contamination. The disposable shield also
uses a specialized plastic film to prevent any vapors from condensing on the
laser lens.
We have encountered some design and quality problems with the Lasette since we
introduced it on a limited basis in December 1999. For instance, we had to
modify the design to limit the effect extreme temperatures had on the Lasette's
functionality. We believe that we have resolved these problems; however, we
cannot provide any assurances that quality and design problems will not occur in
the future with the Lasette or enhancements to the Lasette.
The Lasette has received several awards. In June 2000, the Personal Lasette
received the Silver "Medical Design Excellence Award" from the Medical Design
and Manufacturing Conference and Exposition in New York City. In making their
selection, the nine judges focused on criteria such as form and function,
aesthetics, efficiency, business impact, innovation, ease of use and
cost-benefit ratio. The Personal Lasette was a winner in the "Over-the-Counter
and Self-Care Product" category. The laser industry's Photonics Spectra journal,
which has the "Circle of Excellence" award, has recognized the Lasette
technology as one of the 25 most significant worldwide laser developments in
1999. R&D Magazine gave the Lasette its "R&D 100" award for being one of the 100
most
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significant overall technical worldwide developments in 1999. In November
2000, the Lasette received the GOOD DESIGN(R) award for product distinction by
the Chicago Athenaeum: Museum of Architecture and Design.
MARKETS. There are an estimated 100 million people with diabetes worldwide. In
the United States, an estimated 15.7 million people have some form or variation
of diabetes. However, only 10.3 million people in the United States have been
diagnosed with diabetes. Approximately 4.7 million diabetics must inject insulin
on a daily basis to survive. Further, doctors diagnose approximately 800,000 new
cases annually in the United States. Most of the insulin-injecting diabetic
patients are required to test their glucose levels approximately four times per
day to determine when and how much insulin to inject. The Lasette collects
capillary blood from fingertips, which according to industry data is a procedure
performed approximately one billion times per year in homes, hospitals, clinics
and doctors' offices.
We will market the Lasette for home use primarily to children with diabetes,
newly diagnosed diabetics, high frequency testing diabetics with sore fingers
and needle-phobic and needle-adverse patients. The needle-phobic and
needle-adverse market is an attractive market for this model. Presently, a
diabetic must stick himself or herself with a steel lancet or needle to draw a
blood sample for glucose testing. Diabetics' needle phobia prevents them from
testing their glucose levels on the regularly recommended basis. Others dislike
the pain of the steel lancet sticks and the continual residual soreness in their
fingertips from the multiple daily sticks. In medical literature, needle phobics
are estimated to number between 5 and 25% of the diabetic population. The
Lasette draws blood in a way that eliminates the effects of needle phobia,
minimizes pain and eliminates the long-term finger soreness.
Capillary blood sampling is performed in virtually all clinical settings. These
include hospitals, dialysis clinics, blood banks, nursing facilities, home
health agencies and physicians' offices. Presently, 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. We believe that the Lasette for clinical use can
substantially reduce the pain and trauma involved with this procedure as well as
the risk of inadvertent cross-contamination for both the clinician and the
patient.
The Needlestick Safety Act was recently enacted, which requires health
facilities to employ measures to reduce or eliminate the accidental needlesticks
suffered by health care workers. The needle-free, laser-based design of the
Lasette eliminates the risk of accidental needlesticks because a patient's blood
sample is obtained by the use of a laser pulse rather than by a needle or
lancet. The company believes this feature of the Lasette will be an important
selling strategy for developing the market for the Lasette for clinical use.
MANUFACTURING. We are currently manufacturing the Lasette at our Albuquerque,
New Mexico facility. We have instituted the record keeping, quality control and
production procedures needed to meet the manufacturing regulatory requirements
of the FDA MDQSR, ISO 9001 and EN 46001. We believe our manufacturing capacity
at our existing facilities are adequate to meet customer demands for the Lasette
for the foreseeable future.
MARKETING AND DISTRIBUTION. We employ different marketing and distribution
strategies for the Lasette for home use and the Lasette for clinical use.
Currently, we are selling the Lasette for home use directly to home-use
customers, eliminating distributor costs. However, we are pursuing distribution
and marketing partners for this Lasette product line. If we can obtain these
partnerships, we believe they will enhance our ability to rapidly ramp-up our
marketing and distribution of the Lasette to end users. Several of the drug
store, supermarket and superstore chains have expressed interest in distributing
the Lasette for home use, but we have not entered into any formal discussions or
reached any definitive agreements.
We advertise the Lasette for clinical use in journals placed with clinics and
direct marketing to medical device distributors. The Lasette for clinical use is
distributed through several regional distributors within and outside the United
States, but to date these distribution relationships have not generated
significant revenues. We believe that we will accomplish marketing and
distribution of this Lasette product line through a collection of large national
and international distributors of diabetic supplies or through manufacturers'
representatives. We have begun discussions with certain large national and
international distributors; however, no definitive agreements have been reached.
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COMPETITION. The Lasette 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. We
designed it to reduce the pain, fear and anxiety associated with drawing blood.
It also eliminates the cost and risk of lancet waste disposal. While the cost
for each stainless steel lancet may be minimal, it has indirect costs associated
with it, such as disposal costs. By eliminating these indirect costs, we believe
we can market the Lasette at a price that will make it competitive to the
stainless steel lancet.
In October 1997, Transmedica (formerly Venisect) commenced a patent infringement
action against us in which it claimed the Lasette infringed the United States
patent underlying Transmedica's skin perforator. A federal court dismissed the
suit on procedural grounds. Transmedica appealed the federal court ruling, but
subsequently withdrew its appeal. Transmedica was recently purchased by Norwood
Abbey Ltd. Transmedica did not begin any further proceedings against us prior to
its being acquired by Norwood Abbey. As of the date of this prospectus, Norwood
Abbey has also not begun any further proceedings against us.
While we believe there is no direct competition to the Lasette, its position in
the market is threatened by corporate research and development efforts
throughout the world that are focusing on the development of new, advanced
non-invasive and partially invasive technologies for determining and/or
controlling glucose levels in diabetic patients. Several companies are
attempting to develop minimally invasive or non-invasive glucose testing
products. The technologies that appear to be receiving the most attention are
the GlucoWatch(R) by Cygnus, Inc. and the continuous glucose monitoring system,
or CGMS, by MiniMed Inc.
According to publicly-available information, Cygnus' GlucoWatch(R) is under
consideration by the FDA for detecting trends and tracking patterns in adult
diabetics' glucose levels. Information released by MiniMed states that the CGMS
has been cleared by the FDA for use by physicians to track trends and patterns
in patients' glucose levels as well. The CGMS is only for use by physicians and
is not for determining the amount of insulin to inject or pump into a patient at
a given time. The GlucoWatch(R) and CGMS study the trends or track the patterns
of diabetics who do not have their diabetes under control. For those particular
patients, either the GlucoWatch(R) or the CGMS is a good supplement to the
Lasette product line as each require multiple daily finger sticks to calibrate
the devices. Currently, neither product is a substitute or a replacement for
testing the blood from a traditional finger-stick and meter. We are not aware of
any product similar to the Lasette that has received FDA clearance or the CE
Mark certification for commercial marketing in either the United States or
European Union.
REGULATORY STATUS. Our products are subject to a great deal of regulation. The
following details the regulatory clearances we have obtained for the Personal
Lasette and the Professional Lasette since mid-1997:
o FDA clearance for use of the Professional Lasette for testing glucose
and hematocrit in healthy adult patients in a clinical setting
(August 1997);
o FDA clearance for use of the Professional Lasette for testing glucose
and hematocrit in diabetic adult patients in a clinical setting
(October 1997);
o CE Mark testing complete for Professional Lasette (May 1998);
o FDA clearance for use of the Professional Lasette for testing glucose
and hematocrit in all juveniles patients in a clinical setting (June
1998);
o ISO 9001/EN 46001/Medical Device Directive Certification (September
1998; recertified in September 1999 and September 2000);
o FDA clearance for use of all glucose meters with the Professional
Lasette (September 1998);
o FDA Variance for Professional Lasette design (October 1998);
o FDA clearance for home use of the Professional Lasette for glucose
monitoring (December 1998);
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<PAGE> 24
o FDA approval of 501(k) amendment to include Personal Lasette safety
and efficacy (January 1999);
o FDA clearance for all screening blood tests in a clinical setting
(January 1999);
o CE Mark certification for the Professional Lasette (March 1999);
o Registration Certificate for medical devices granted by China (May
1999);
o CE Mark certification for the Personal Lasette (August 2000); and
o Medical device license granted in Canada for the Personal Lasette
(August 2000).
The Lasette has received 510(k) clearance from the FDA for drawing capillary
blood samples. In addition, the FDA has cleared the Lasette for capillary blood
sampling for all clinical screening tests. The Lasette has also received the CE
Mark designation. The Lasette is the only alternative to the steel lancet or
needle that has been approved by the FDA that allows diabetics to sample their
blood for glucose testing so they can determine their subsequent insulin
injections. Clearance of the Lasette by the FDA allows us to market the Lasette
in the United States. The CE Mark designation of the Lasette also permits us to
market the Lasette in the European Union and certain other countries such as
Brazil and Australia.
INTELLECTUAL PROPERTY. The Lasette was originally developed using the
multifaceted crystal resonator, or MCR, patent acquired from Tecnal Products, a
subsidiary of Lovelace Scientific Resources, Inc., in January 1996. The patent
expires in 2014. We have also acquired a foreign patent application and a
strategic license from Tecnal Products. These acquisitions comprised a package
of technological assets covering two laser products: (1) a low-cost, high-power,
solid-state laser that eliminates many of the delicate optical components
required by conventional solid-state lasers and (2) a laser perforator. The MCR
patent was originally developed under a license agreement with New Technology
Engineering Center of Russia. However, new developments in crystal laser coating
technologies have decreased the value of the MCR patent.
We have since advanced the Lasette's laser design and have sought, or are
preparing to seek, continuations of existing patents and/or new patents
protecting those designs. Two issued United States patents cover certain
technological foundations of the current Lasette product line. These patents
were issued in September 1996 and June 1999 and include claims regarding
mechanisms to create and control laser energy distribution profiles that are
essential for reducing pain in laser lancing devices. In November 1999, we
received a United States patent for the disposable finger shield used with the
Lasette for clinical use. We also have filed a United States patent application
covering the disposable finger shield mechanism used in the Lasette for home
use. Other mechanisms for reducing the size and cost and improving the
reproducibility and painlessness of laser lancing devices are regarded as trade
secrets, or are the subject of planned patent applications. Finally, we have
registered the mark "Lasette" with the United States Patent and Trademark
Office.
Mr. Tankovich, a former employee of the Russian Academy of Science now residing
in San Diego, California, holds the United States patent relating to the use of
a laser for blood sample collection. Becton Dickinson Corporation, a leading
producer of blood collection products, licensed this patent from Mr. Tankovich
in December 1995. Becton Dickinson Corporation was allegedly working with a San
Diego laser technology company, JMAR, in the reportedly now abandoned
development of a product for laser skin perforation. We believe that the patent
is invalid and unenforceable due to public disclosure of the laser perforation
concept in the international scientific literature, as well as public
commercialization of primitive perforator products in the former Soviet Union,
as early as October 1990.
In October 1997, Transmedica commenced a patent infringement action against us
claiming the Lasette infringed the United States patent underlying Transmedica's
skin perforator. The action was later dismissed. As of the date of this
prospectus, neither Transmedica nor its successor, Norwood Abbey, has begun any
further proceedings against us.
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SCIENTIFIC RESEARCH INSTRUMENTS -- THE CELL ROBOTICS WORKSTATION
APPLICATIONS OF THE SCIENTIFIC RESEARCH INSTRUMENTS. The Cell Robotics
Workstation allows scientists to manipulate objects in micro-space, upgrading
the microscope to an interactive micro-laboratory. The scientific research
instruments enhance the usefulness and importance of the conventional laboratory
microscope as a tool in medical, biological and genetic applications in the life
sciences. Scientists can use the technology for cell separation, cell-to-cell
interaction, micro-dissection and intercellular manipulation of living cells.
Third parties currently use the Cell Robotics Workstation for cancer,
immunology, neurobiology, assisted reproductive techniques and genome research.
DESCRIPTION. In 1996, we introduced the computer-controlled Cell Robotics
Workstation for optical trapping, micromanipulation and microsurgery. This
workstation is based on our core LaserTweezers, LaserScissors, CellSelector and
SmartStage technologies. The LaserTweezers application of the Cell Robotics
Workstation is based upon a non-exclusive license from AT&T, which was
transferred by AT&T to Lucent Technologies, Inc. Computer control provides
powerful, user-friendly features such as interactive software with mouse or
keyboard control, a unique motorized stage and a motorized focus drive providing
motion in three directions. The Cell Robotics Workstation integrates our
research instruments into a complete computer-controlled optical trapping and
ablation workstation.
MARKETS. Principal markets for the Cell Robotics Workstation are colleges,
universities, research laboratories, biotechnology and pharmaceutical companies
and commercial laboratories conducting biological research. We intend to
identify scientists that have specific research applications particularly well
suited to the company's instruments.
MANUFACTURING. To minimize capital outlay, we outsource parts of the Cell
Robotics Workstation to machine shops and circuit board companies. We complete
final assembling and testing at our Albuquerque, New Mexico, facility to ensure
the quality of the final product. We plan to continue this approach for the
foreseeable future.
MARKETING AND DISTRIBUTION. While we intend to focus on the distribution and
sale of our laser-based medical devices, we will continue to promote and market
the scientific research instruments through direct sales, dealers,
representatives and distribution arrangements. We currently have an agreement
with Mitsui Engineering and Shipbuilding granting exclusive distribution rights
for the Cell Robotics Workstation in Japan. The agreement expires in September
2005. Mitsui has assigned these distribution rights to Meiwa Shoji Company Ltd.
We have also expanded domestic and international non-exclusive distribution
channels for the Cell Robotics Workstation to include distributors in 17
countries.
COMPETITION. Third party competitors of the Cell Robotics Workstation include
P.A.L.M. and S&L Microtest, both German companies, Sigma Koki, a Japanese
company, and Arcturus, a United States company. P.A.L.M., S&L Microtest and
Sigma Koki make multi-trap and custom trapping instruments that compete with
the Cell Robotics Workstation. Arcturus offers a laser micro-dissection system.
REGULATORY STATUS. We received the CE Mark for the Cell Robotics Workstation in
September 1997. This product line does not currently require other regulatory
clearances, including clearance from the FDA.
CONTINUING INTEREST IN THE IVF WORKSTATION
In May 2000, we sold the IVF Workstation product line to Hamilton Thorne
Research, a major producer and marketer of sperm analysis equipment worldwide,
for $100,000 in cash and 12% royalty payments on future net sales. We do not
expect these royalty payments will have a material effect on our cash flow. We
decided to sell the IVF Workstation and associated technology to further focus
our efforts on the development and sale of the Lasette.
The IVF Workstation is a computer-controlled multi-functional workstation that
combines, for the first time, a technological solution to both the functional
and informational requirements of clinicians working in the In Vitro
Fertilization environment. Utilizing a microscope, computer-controlled motorized
stage, video camera, sophisticated laser-based technology and data storage and
retrieval systems, the IVF Workstation permits standardized evaluation,
measurement and diagnosis of eggs and embryos, sperm injection and
laser-assisted
22
<PAGE> 26
embryo hatching in one integrated system. With its computer hardware and
software, the IVF Workstation also permits the detailed cataloguing and
documentation of each In Vitro Fertilization procedure and the organization and
retrieval of data and other information.
In Vitro Fertilization is a rapidly-growing area of human fertility treatment.
However, success rates with current procedures vary significantly from clinic to
clinic. The IVF Workstation is designed to improve success rates for clinics and
In Vitro Fertilization patients.
COMPETITION
While the Lasette currently has no direct competitors and the Cell Robotics
Workstation has a few competitors as detailed above, specialized laser-based
medical device companies as well as other companies, colleges, universities,
governmental agencies and other public and private research institutions will
continue to conduct research and protect technologies that they may develop or
have developed, some of which will be directly competitive to us. The principal
factor affecting our competitive position is the suitability of our instruments
for, and their performance in, a particular application. We face potential
competition from a number of established domestic and international companies,
all of which have substantially greater engineering, manufacturing, marketing
and financial capabilities. Our ability to compete successfully in existing and
future markets will depend on elements both within and outside of our control.
BUSINESS STRATEGY
We hope to become a leader in the development and sale of technologically
advanced laser-based medical devices. To achieve this goal, our business
strategy capitalizes on our core laser technologies to develop unique products
targeted at large markets in which we can compete effectively. Key components of
our business strategy include the following:
o DEVELOP UNIQUE TECHNOLOGY. Through know-how and core technology, we
plan to develop products that offer more effective, safer and less
painful solutions than conventional procedures. This development
strategy includes using patents, licenses and collaboration where
appropriate.
o DEVELOP MARKET RECOGNITION. We are positioning our laser-based
medical devices as preferred technological solutions to
clearly-defined medical needs. We seek to create significant brand
awareness for the Lasette, our signature product, particularly with
consumers that use the Lasette for home use. To accomplish this, we
are advertising in diabetes-related publications, direct mailings,
tradeshows and print, radio, television and Internet media. We use
trademarked product names that can be clearly recognized by
customers, such as Lasette and LaserTweezers.
o EXPAND DISTRIBUTION CHANNELS. Currently, we are marketing and selling
the Lasette for home use directly to the end user. Several drug
store, supermarket and superstore chains have inquired about
distributing the Lasette for home use; however, we have not entered
into any formal discussions with them. We are presently pursuing
non-exclusive distribution agreements for our Lasette for clinical
use with national distributors of medical products to take advantage
of their existing distribution channels and name recognition. We sell
the Cell Robotics Workstation in the United States and
internationally through distributors and manufacturers'
representatives.
INTELLECTUAL PROPERTY
Our success will depend, in part, upon our ability to develop superior products
that we can market at competitive prices. Our ability to do this will depend, in
part, on our ability to protect and defend our intellectual property rights and
the competitive advantages those rights offer. We rely primarily on patent,
trade secret, copyright and trademark laws, confidentiality procedures and other
intellectual property protection methods to protect our proprietary technology.
As of the date of this prospectus, we have been issued two patents and have
applied for additional patent protection for our laser-based medical devices.
Our scientific research instruments have only limited patent protection. It is
our policy to require our employees to execute confidentiality agreements upon
the commencement of such relationships.
23
<PAGE> 27
RESEARCH AND DEVELOPMENT
To succeed, we must continually enhance existing products and develop new
products incorporating the latest improvements in laser technology. Accordingly,
we are committed to investing resources in research and development activities.
During the years ended December 31, 1999 and 1998, we spent $551,486 and
$849,166, respectively, on internal research and development programs. As of
December 31, 1999, three of our scientists and engineers were engaged primarily
in research and development activities. We channeled the majority of the
proceeds from equity financing, short-term borrowings and the sale of securities
in 1995 through 1998 to fund our internal research and development activities.
We do not have research arrangements with any outside research and development
firms. We received a Small Business Innovative Grant from the National Cancer
Institute in April 1997. Originally, the grant awarded funds for two years of
development of a proprietary laser instrument for semi-automated single cell
sorting. The grant was recently modified to validate capabilities of applying
laser energy in connection with a polymerase chain reaction or PCR.
Additionally, the period during which funds can be expended was extended until
September 30, 2001. The total grant award is approximately $727,000. We have
received approximately $487,000 to date.
GOVERNMENT REGULATION; PRODUCT APPROVAL PROCESS
Government regulations govern various aspects of our marketing, sales and
manufacturing processes. We have successfully obtained many of the regulatory
clearances necessary to market and sell our products in our current markets;
however, we may require additional clearances if we enter new markets, improve
existing products or develop new products. We must also maintain our current FDA
clearances by periodic audits. There can be no assurance that we will obtain,
maintain or receive additional necessary clearances.
For research applications, our products are subject only to FDA safety
regulations. However, the European Community requires that research instruments
receive the CE Mark before they can be exported to Europe. We received the CE
Mark for the Cell Robotics Workstation and all of its modules in September 1997.
We also received the CE Mark for the Personal Lasette in August 2000.
In the United States, federal and state statutes regulate the testing,
manufacture, safety and efficacy, labeling, record keeping, approval,
advertising and promotion of our 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, we must register and seek FDA approval for each manufacturing
establishment. These establishments must be certified to meet ISO 9001 and EN
46001 requirements.
The FDA has separate review procedures for medical devices before such products
may 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, or 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. The manufacturer must obtain
written clearance from the FDA before it can commence marketing the product.
Among other requirements, 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) Notification procedure, the manufacturer must file a
Pre-Market Approval Application. The Pre-Market Approval Application requires
more extensive pre-filing testing than the 510(k) Notification procedure and
involves a significantly longer FDA review process. See "Business -- Products --
Laser-Based Medical Devices -- the Lasette -- Regulatory Status" for a listing
of the regulatory clearances we have obtained for the Personal Lasette and
Professional Lasette since mid-1997.
We can market the Lasette for essentially all applications requiring capillary
blood drawing for blood screening and/or sampling in the United States. For
marketing outside of the United States, we will be subject to foreign regulatory
requirements governing clinical trials and marketing approval for the products.
Requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. Although we have
employees who are experienced with the regulatory procedures of the European
Community and
24
<PAGE> 28
other jurisdictions, we do not currently have any facilities or employees
outside of the United States. In some cases, we will rely on our strategic
partners in foreign markets to satisfy the regulatory requirements imposed by
those jurisdictions.
EMPLOYEES
As of December 19, 2000, we had 29 employees, comprised of 28 full-time
employees and 1 temporary employee. Of the full-time employees, 5 were
principally engaged in product development, 9 in manufacturing, including
quality control, 9 in marketing and sales and the balance in administration and
finance. Our employees are not represented by a labor organization or covered by
a collective bargaining agreement. We have not experienced work stoppages and we
believe that our relationship with our employees is good.
FACILITIES
Our facilities are located in approximately 12,000 square feet in Albuquerque,
New Mexico. This facility contains our executive and administrative offices, as
well as facilities for our assembly, production, testing, storage and inventory
functions. Our monthly rent payments are $8,745, subject to a three percent
annual increase. We renegotiated our lease to terminate in November 2002. We
believe that this facility is adequate for our present and near-term
requirements. Our equipment, fixtures and other assets located within the
facility are insured against loss.
LEGAL PROCEEDINGS
Big Sky Laser Technologies, Inc., an original equipment manufacturer and
developer of laser-based medical devices, filed a lawsuit in the United States
District Court in the District of New Mexico alleging that we are in breach of
contract, have committed fraud and misrepresentation and are in violation of the
Racketeer Influenced and Corrupt Organizations Act. The total damages claimed by
Big Sky approximate $8,200,000. We disagree with these allegations and will
vigorously defend the lawsuit. We have received extensions of time to answer or
otherwise respond to the complaint in court while the company and Big Sky
attempt to negotiate an amicable resolution to the various disputes. We
anticipate making various payments to Big Sky in connection with any settlement
and have accrued $400,000 as of September 30, 2000 to cover our estimated costs
of settling this lawsuit. However, we cannot assure you that we will be able to
settle the lawsuit on terms satisfactory to us, if at all.
Other than the lawsuit with Big Sky, we are currently not subject to any
material legal proceedings; however, we may from time to time become a party to
various legal proceedings arising in the ordinary course of business.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The name, age and position of our directors, executive officers and key
employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Ronald K. Lohrding 59 President, Chief Executive Officer and Chairman of the Board of Directors
Paul Johnson 37 Chief Financial Officer and Secretary
H. Travis Lee 40 Vice President of Sales and Marketing
Richard Zigweid 51 Vice President of Manufacturing
Steve Aiken 57 Vice President of Research and Development
Dr. Larry Keenan 52 Product Manager, Cell Robotics Workstation
Mark T. Waller 49 Director
Dr. Raymond Radosevich 61 Director
Dr. Debra Bryant 45 Director
Dipl. Ing. Oton Tisch 69 Director
Steven A. Crees 45 Director
</TABLE>
DR. RONALD K. LOHRDING has served as our Chief Executive Officer, President and
Chairman of the Board of Directors since February 23, 1995. He co-founded our
wholly-owned subsidiary, Cell Robotics, Inc., in 1988, and
25
<PAGE> 29
has served as the Chairman, President and Chief Executive Officer of the
subsidiary since its incorporation. Dr. Lohrding has over 25 years of
management experience. He received his Ph.D. in mathematical statistics from
Kansas State University in 1969. Dr. Lohrding worked at Los Alamos National
Laboratory as a manager and as a scientist from 1968 to 1988. While at Los
Alamos National Laboratory, Dr. Lohrding served as Assistant Director for
Industrial and International Initiatives, Deputy Associate Director for
Environment and Biosystems and Program Director for Energy, Environment and
Technology, among other senior management positions. Concurrently, he has been
a general partner in seven successful real estate partnerships, two of which
are still currently active.
PAUL JOHNSON was appointed as our Chief Financial Officer in July 2000 and
Secretary in November 2000. From September 1994 to July 2000, he served as
Assistant Controller and then the Controller for Helen of Troy Limited, a $300
million manufacturer and distributor of personal care products. From November
1987 to September 1994, he was employed by KPMG Peat Marwick LLP, now known as
KPMG LLP. He has a degree in accounting and a masters degree in accountancy from
Brigham Young University.
H. TRAVIS LEE was appointed as our Vice President of Sales and Marketing in
January 1997. From September to December 1996, Mr. Lee was responsible for
International Marketing and Business Development at Laser Scope Surgical
Systems, San Jose, California, 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 in Graphic Design from San Jose State
University.
RICHARD ZIGWEID was appointed as our Vice President of Manufacturing 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 from 1991 to
1994 and as engineering manager and manufacturing engineer at Baxter Healthcare
from 1983 to 1991. He received his B.S. degree in Mechanical Engineering from
the University of Wyoming.
STEVE AIKEN was appointed as our Vice-President for Research and Development in
October 2000. Mr. Aiken joined the company as a laser engineer in July 2000.
Mr. Aiken worked as an engineer from March 1995 to June 2000 for Decade Optical
Systems and from May 1991 to February 1995 for the Core Group.
DR. LARRY KEENAN was appointed as our Sales Representative 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.
MARK T. WALLER has served as a director of the company since February 1995.
Since 1990, Mr. Waller has been President and founder of BridgeWorks Capital, a
sole proprietorship that 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 was elected as a director of the company in 1992. From
November 1998 to the present, Dr. Radosevich has been a special limited partner
for Valley Ventures II, a venture capital fund. Dr. Radosevich was a director
of BioDetect, Inc. from 1997 to November 1999. He is currently a director of
three additional companies: Charter Bank since 1994, Cryo Fuel Systems Inc.
since 1997 and Quasar International Inc. since January 2000. From 1985 to 1989,
he was Dean of the Anderson School of Management at the University of New
Mexico. Dr. Radosevich was also a Professor of Management at the University of
New Mexico from 1976 until he retired from active teaching in December 1997. As
a Professor of Management, he specialized in business strategy and the
management of technology. In addition, he taught a course in Technology
Entrepreneurship and lectured on the subject nationally and internationally.
Dr. Radosevich earned his Ph.D. from Carnegie-Mellon University and a B.S. in
Mechanical Engineering and an M.S. in Industrial Engineering from the
University of Minnesota.
DR. DEBRA BRYANT was elected to our board of directors in July 1997. She is
President, Chief Executive Officer and majority shareholder of Humagen
Fertility Diagnostics, Inc., the largest manufacturer of micropipets 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
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<PAGE> 30
Diagnostics, Inc. She has been with Humagen Fertility Diagnostics, Inc. since
1991. Dr. Bryant received her Ph.D. in Medical Microbiology from Bowman Gray
School of Medicine, Wake Forest University, and completed a National Institutes
of Health postdoctoral fellowship in molecular biology at the University of
Virginia.
DIPL. ING. OTON TISCH was appointed to our board of directors as an interim
director in February 2000 and was elected as a director in May 2000. Mr. Tisch
is an international businessman and is the President, Chief Executive Officer
and sole owner of Obras Electromecanicas TKV, Caracas, Venezuela, and its
subsidiary in Zurich, Switzerland, both of which were incorporated in 1980. Mr.
Tisch's business specializes in equipment procurement and building and
financing high voltage turn-key substations up to 400 kV, including the
electronic and/or digital automatic control.
STEVEN A. CREES previously served as an advisor to our board of directors and
was elected as a director in May 2000. In March 2000, Mr. Crees started
HaeMedic, a medical distribution and manufacturing company. In March 2000, he
resigned as Senior Vice President and General Manager of the Medical Diagnostic
Products Division of Chronimed, Inc., where he had been employed since 1994.
While at Chronimed, Mr. Crees was responsible for planning and implementing
distribution strategies for proprietary and licensed medical products to the
hospital, long term care, physician, alternative care and retail markets for
this $32 million dollar business unit emphasizing the diabetic market. He also
served as Vice President for Marketing and Sales and managed the diabetes
centers. Prior to 1994, he was Territory Manager for the Medical Products
Division of Baxter Healthcare Corporation. He has a B.S. in Economics and
Business Administration from the University of Minnesota.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation paid to our Chief
Executive Officer and our other most highly compensated executive officer in
fiscal years 1997 through 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
---------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Ronald K. Lohrding, Chief Executive Officer, 1999 $ 123,115 $ 6,343
President and Chairman of the Board 1998 $ 123,115 $ 6,343
1997 $ 123,115 $ 6,079
H. Travis Lee, Vice President of Sales and Marketing 1999 $ 110,000 $ 3,898
1998 $ 110,000 $ 4,204
1997 $ 110,000 $ 4,293
</TABLE>
EMPLOYMENT AGREEMENTS
On July 1, 2000, we entered into a new employment agreement with Dr. Lohrding
under which he will serve as our Chief Executive Officer, President and Chairman
of the Board. The employment agreement expires on June 30, 2003. Dr. Lohrding
agreed to serve as Chief Executive Officer and President on a full-time basis
through June 30, 2002. During the third year of his contract, Dr. Lohrding has
asked to be able to resign as Chief Executive Officer and President, but agreed
that he will continue to serve as a consultant to the company through June 2003.
As a consultant, Dr. Lohrding agreed to devote no less than one-half of his time
to the company's business. Dr. Lohrding will receive a base salary of $130,513
during the first year of the contract, which will be increased in the second
year by the average increase of compensation to all of our employees, or as
determined by the Compensation Committee of our board of directors. Dr. Lohrding
will be paid one-half of his second year base salary during the third year of
his contract. The contract granted Dr. Lohrding 100,000 stock options that
vested immediately and expire on July 1, 2005. These options were granted
outside of the company's Stock Incentive Plan. Dr. Lohrding is also entitled to
27
<PAGE> 31
bonuses based upon the achievement of specified target sales of the Lasette. If
a third party acquires at least 30% of our capital stock, then Dr. Lohrding will
be entitled to the following:
o a lump sum payment, in cash, equal to his base salary under his
employment agreement, which may not be less than $50,000;
o a lump sum payment, in cash, equal to any accrued but unpaid bonus;
and
o all options, warrants and other rights subject to vesting will
accelerate and vest on his termination of employment.
We also have an employment agreement with Mr. H. Travis Lee, Vice President of
Sales and Marketing. Under Mr. Lee's agreement, he receives a base salary as
agreed upon by the company and Mr. Lee. During 1999, we paid Mr. Lee a base
salary of $110,000. Either party may terminate the employment relationship upon
10 working days' prior written notice. If a change of control occurs under Mr.
Lee's employment agreement and his employment is terminated within 45 days after
the change of control, then he will be entitled to a severance payment of his
then base salary payable over a 12-month period commencing one month after
termination.
We entered into an employment agreement with Paul Johnson on June 28, 2000. If
there is a change in control under Mr. Johnson's employment agreement that
results in his termination or he resigns within 45 days of the change in
control, then we must pay Mr. Johnson in 12 equal monthly installments
commencing after the termination date an aggregate amount equal to Mr. Johnson's
then prevailing annual total compensation, including base salary but excluding
fringe benefits.
STOCK INCENTIVE PLAN
During fiscal 1992, we adopted a Stock Incentive Plan. Pursuant to the Stock
Incentive Plan, stock options granted to eligible participants may be incentive
stock options, or ISOs, under Section 422 of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options, or NSOs. Eligible participants under
the Stock Incentive Plan include our directors, officers and other salaried key
employees.
Under the Stock Incentive Plan, an option is not transferable, except by will or
the laws of descent and distribution. The board of directors may administer the
Stock Incentive Plan, or delegate administration of the plan to a committee
comprised of disinterested directors. Currently, the Stock Incentive Plan is
administered by our board of directors. The administrator decides 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 1,500,000 shares of our common stock is
available for issuance under the Plan.
At December 19, 2000, we have granted a total of 830,242 options to purchase
830,242 shares of our common stock under the Stock Incentive Plan consisting of
ISOs and NSOs to purchase 650,272 shares and 179,970 shares, respectively. The
ISOs are exercisable at prices ranging from $1.375 to $4.47 per share. The NSOs
are exercisable at prices ranging from $1.75 to $4.38 per share. All options
have been issued with exercise prices at or above market value on the date of
grant.
OPTION EXERCISES AND OPTION VALUES
The following tables sets forth certain information concerning the exercise of
options during the last completed fiscal year by each of the named executive
officers and the fiscal year-end value of such named executive officers'
unexercised options on an aggregated basis:
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<PAGE> 32
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)(2)
SHARES ------------------- -------------------
ACQUIRED ON VALUE REALIZED(1) UNEXERCISABLE/ UNEXERCISABLE/
NAME EXERCISE (#) ($) EXERCISABLE EXERCISEABLE
---------------------------- ---------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Dr. Ronald K. Lohrding -0- -0- 300,000/325,000 $0/$618,750
H. Travis Lee -0- -0- 0/74,174 $0/$101,989
</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 our 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.
BOARD STRUCTURE
Our board of directors currently has six members. Each director is elected to
serve for a term of one year until the next annual meeting of shareholders or
until a successor is duly elected and qualified.
DIRECTOR COMPENSATION
The members of our board of directors that are not employees of the company are
reimbursed for the expenses they incur in attending meetings of the board. No
officer of the company receives any additional compensation for his services as
a director, and we do not contribute to any retirement, pension or profit
sharing plans covering our directors. We do, however, maintain a group health
insurance plan and retirement plan for our employees, and those directors who
are also our employees are eligible to participate in each plan. Our directors
are also entitled to participate in the Stock Incentive Plan. Non-employee
directors may also receive stock option grants outside of the Stock Incentive
Plan. No member of any committee of our board of directors receives any
additional compensation for his service as a member of that committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 19, 2000, for the following: (1)
each person who is known by us to own beneficially five percent or more of our
outstanding common stock, (2) each of our directors and officers who
beneficially own such shares and (3) our officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
-------------------------------------------------------------------------- ------------------- ------------------
<S> <C> <C>
Chester L. Paulson(1) 1,057,625(2) 9.6
Paulson Investment Company(3) 1,004,975(4) 9.2
Dr. Ronald K. Lohrding(5) 725,000(6) 6.6
Dipl. Ing. Oton Tisch(5) 505,000(8) 4.6
Mark T. Waller(7) 220,000(9) 2.0
Dr. Debra Bryant(5) 16,250(10) *
Dr. Raymond Radosevich(5) 26,000(11) *
Steven Crees(5) 5,000(12) *
Travis Lee(5) 74,174(13) *
All officers and directors as a group (7 persons) 1,571,424(14) 14.3
</TABLE>
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<PAGE> 33
----------
* Less than one percent.
(1) The business address is c/o Paulson Investment Company, 811 S.W., Naito
Parkway, Suite 200, Portland, Oregon 97204.
(2) Includes 959,975 shares beneficially owned as a controlling shareholder of
Paulson Capital Corp., the parent company of Paulson Investment Company.
Mr. Paulson disclaims beneficial ownership of the foregoing shares.
(3) The business address of Paulson Investment Company is 811 S.W., Naito
Parkway, Suite 200, Portland, Oregon 97204.
(4) Includes 200,400 shares subject to the Representative Warrant and
underlying Redeemable Warrants exercisable within 60 days of December 19,
2000.
(5) The business address is c/o Cell Robotics International, Inc., 2715
Broadbent Parkway N.E., Albuquerque, New Mexico 87107.
(6) Includes 425,000 shares subject to options exercisable within 60 days of
December 19, 2000.
(7) The business address of Mr. Waller is 1820 North Shore Road, Lake Oswego,
Oregon 97304.
(8) Includes 5,000 shares subject to options exercisable within 60 days of
December 19, 2000. Also includes 500,000 shares issued upon conversion of a
$1,200,000 secured promissory note in August 2000.
(9) Represents shares subject to options exercisable within 60 days of
December 19, 2000.
(10) Includes 11,250 shares subject to options exercisable within 60 days of
December 19, 2000.
(11) Represents shares subject to options exercisable within 60 days of
December 19, 2000.
(12) Represents shares subject to options exercisable within 60 days of
December 19, 2000.
(13) Represents shares subject to options exercisable within 60 days of
December 19, 2000.
(14) Includes 966,824 shares subject to options exercisable within 60 days of
December 19, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1999, we obtained a note payable for $250,000 from Humagen Fertility
Diagnostic, Inc., whose majority shareholder is Dr. Debra Bryant, a director of
the company. The note did not bear interest until June 2000. In June 2000, the
unpaid balance of the note began to accrue interest at six percent.
In February 2000, as subsequently amended in March 2000, we executed a secured
convertible promissory note in the principal amount of $1,200,000 payable to
Dipl. Ing. Oton Tisch, a director of the company. In August 2000, we paid the
principal amount of the note by issuing to Mr. Tisch 500,000 shares of our
common stock. In connection with the conversion of this note, we recorded a
charge of $1,200,000 upon registration of the common stock with the SEC and
conversion of the note into our common stock.
Bridgeworks Capital, Inc., of which Mark Waller, one of our directors, is an
officer and majority owner, received a placement fee of 5% (or $100,000) in
connection with our May 2000 private placement.
We believe that any transactions between us and our officers, directors,
principal shareholders or other affiliates have been on terms no less favorable
to us than could be obtained from unaffiliated third parties on an arms-length
basis.
INDEMNIFICATION
Section 7-109-102 of the Colorado Business Corporation Act, or the CBCA,
provides that a company may indemnify a person who was, is or is threatened to
be made a named defendant or respondant in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (a "proceeding"), because the
person is or was a director against liability incurred in the proceeding if:
30
<PAGE> 34
o the person conducted himself or herself in good faith;
o the person reasonably believed, in the case of conduct in an official
capacity with the company, that his or her conduct was in the
company's best interests;
o in all other cases, that his or her conduct was at least not opposed
to the company's best interests; and
o in the case of any criminal proceeding, the person had no reasonable
cause to believe his or her conduct was unlawful.
A company may not indemnify a director in connection with a proceeding by or in
the right of the company in which the director was adjudged liable to the
company or in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which proceeding the director was adjudged liable on the
basis that he or she derived an improper personal benefit. Unless limited by its
articles of incorporation, Sections 7-109-103 and 7-109-107 of the CBCA states
that a company shall indemnify a person who was wholly successful, on the merits
or otherwise, in the defense of any proceeding to which the person was a party
because the person is or was a director or officer against reasonable expenses
(including attorneys' fees) incurred in connection with the proceeding. Section
7-109-107 also states that unless provided in its articles of incorporation, a
company may indemnify an officer, employee, fiduciary or agent of the company to
the same extent as a director.
Our Articles of Incorporation provide that we may and shall indemnify each of
our directors, officers, employees or agents, and their respective heirs,
executors and administrators, against any and all expenses or liability
reasonably incurred by them in connection with any action, suit or proceeding to
which he may be a party by reason of his being or having been a director,
officer, employee or agent of the company to the full extent required or
permitted by the CBCA.
Article XIII of our Amended and Restated Bylaws also states that may indemnify
against liability incurred in any proceeding an individual who was, is or is
threatened to be made a named defendant or respondant in any proceeding because
he is or was a director if that person meets the conditions for indemnification
under Section 7-109-102 of the CBCA, as described above. We may not indemnify a
director in connection with a proceeding by or in the right of the company in
which the director was adjudged liable to the company or in connection with any
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. We must
indemnify a person who is or was a director or officer of the company and who
was wholly successful, on the merits or otherwise, in defense of any proceeding
to which he was a party against reasonable expenses incurred by him in
connection with the proceeding.
Under the sections of the CBCA and the company's Bylaws included in this
prospectus, a "director" includes an individual who is or was a director of a
company or an individual who, while a director of a company, is or was serving
at the company's request as a director, an officer, an agent, an associate, an
employee, a fiduciary, a manger, a member, a partner, a promoter or a trustee
of, or to hold any similar position with, another domestic or foreign
corporation or other person or of an employee benefit plan.
We may purchase and maintain insurance on behalf of an individual who is or was
a director, officer, employee, fiduciary or agent of the company and who, while
a director, officer, employee, fiduciary or agent of the company, is or was
serving at the request of the company as a director, officer, partner, trustee,
employee, fiduciary or agent of any other foreign or domestic company or of any
partnership, joint venture, trust, other enterprise or employee benefit plan.
The insurance may cover any liability asserted against or incurred by him in any
of the above capacities or arising out of his status as such, whether or not we
would have the power to indemnify him against such liability under the
provisions of Article XIII of the our Bylaws. We currently maintain a $1,000,000
insurance policy that covers directors and officers' liability.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or
31
<PAGE> 35
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
Each holder of our 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 preemptive rights and
are not subject to redemption or assessment. Each share of common stock is
entitled to share ratably in distributions to shareholders and to receive
ratably any dividends we may declare out of funds legally available for the
payment of dividends. Upon our liquidation, dissolution or winding up, the
holders of common stock are entitled to receive, pro-rata, that portion of our
assets which are legally available for distribution to shareholders, subject to
the rights of preferred shareholders, if any. The issued and outstanding shares
of common stock are validly issued, fully paid and non-assessable.
PREFERRED STOCK
We are authorized to issue up to 2,500,000 shares of preferred stock. Our
preferred stock can be issued in one or more series as may be determined from
time to time by our board of directors. Our board of directors has the
authority, without shareholder approval, to fix the rights, preferences,
privileges and restrictions of any series of preferred stock, including:
o the rate of distribution;
o the price at and the terms and conditions on which shares can be
redeemed;
o the amount payable upon shares for distributions of any kind;
o sinking fund provisions for the redemption of shares;
o the terms and conditions on which shares may be converted if shares
of any series are issued with the privilege of conversion; and
o voting rights except as limited by law.
We do not currently have any plans to issue shares of preferred stock, or to
designate any series of preferred stock. However, there can be no assurance that
we will not issue preferred stock in the future. In the near future, we will be
required to raise additional funds to finance our operations, which may be
through the issuance of preferred stock. Any issuance of preferred stock may
grant to holders preferred rights to our assets upon liquidation, the right to
receive dividend coupons before dividends would be declared to common
shareholders, and the right to redemption of their preferred shares, together
with a premium, prior to the redemption of our common stock. Common shareholders
have no redemption rights. The ability to issue preferred stock without
shareholder approval may discourage, delay or prevent someone from acquiring or
merging with us.
REDEEMABLE WARRANTS
Redeemable Warrants exercisable for 1,503,826 shares of our common stock have
been issued or reserved for issuance upon exercise of Representative Warrants.
Each Redeemable Warrant is exercisable to purchase one share of our common stock
at a price of $2.40, subject to adjustment. The exercise price of the Redeemable
Warrants is subject to adjustment upon certain events such as stock splits,
stock dividends and similar transactions. We can redeem the Redeemable Warrants
in accordance with the provisions described below. The Redeemable Warrants
expire at 5:00 p.m., Mountain time, on February 2, 2003. We may at any time and
from time to time extend the term of the Redeemable Warrants or reduce their
exercise price, provided written notice of any extension or reduction is given
to the registered holders of the Redeemable Warrants prior to the expiration
date then in effect. We do not
32
<PAGE> 36
presently contemplate any extension of the Redeemable Warrant term or reduction
in the Redeemable Warrant exercise price.
Subject to compliance with applicable securities laws, Redeemable Warrant
certificates may be transferred or exchanged for new certificates of different
denominations at the offices of the warrant agent described below. The holders
of Redeemable Warrants, as such, are not entitled to vote, to receive dividends
or to exercise any of the rights of shareholders for any purpose.
EXERCISE. The Redeemable Warrants may be exercised during their term only upon
surrender of the Redeemable Warrant certificate at our offices with the
completed and signed form of "Election to Purchase" on the reverse side of the
Redeemable Warrant certificate. The Election to Purchase must be accompanied by
payment of the full exercise price for the number of Redeemable Warrants being
exercised. Holders of the Redeemable Warrants will receive one share of our
common stock for each Redeemable Warrant exercised, subject to any adjustment
required by the warrant agreement with the warrant agent. For a holder to
exercise his or her Redeemable Warrants, there must be a current registration
statement in effect with the SEC and various state securities authorities
registering the shares of common stock underlying the Redeemable Warrants, or
alternatively, in our sole determination, there must be a valid exemption from
these requirements.
We have undertaken, and intend, to maintain a current registration statement,
which will permit the exercise of the Redeemable Warrants during their term.
Maintaining a current effective registration statement could result in
substantial expense. Although we believe that we will be able to register or
qualify the shares of common stock underlying the Redeemable Warrants for sales
in those states where the securities are offered, we cannot assure you that any
registration or qualification, or an exemption from these requirements, can be
accomplished without undue hardship or expense. The Redeemable Warrants may be
deprived of any value if a registration statement covering the shares issuable
upon exercise of the Redeemable Warrants, or an exemption from these
requirements, cannot be filed or obtained without undue expense or hardship or
if the underlying shares are not registered or exempted from registration in the
states in which the holder of a Redeemable Warrant resides. In the latter event,
the only option available to a holder of a Redeemable Warrant may be to attempt
to sell his or her Redeemable Warrants into the market, if a market then exists,
and only then in compliance with applicable securities laws and restrictions on
transfer.
REDEMPTION. We have the right, at our discretion, to call all or less than all
of the Redeemable Warrants for redemption on 30 days' prior written notice at a
redemption price of $.25 per Redeemable Warrant if:
o the closing bid price of our common stock exceeds $4.80 per share for
at least ten consecutive trading days;
o we have in effect a current registration statement covering the
common stock issuable upon exercise of the Redeemable Warrants; and
o the expiration of the 30-day notice period is within the term of the
Redeemable Warrant.
If we elect to exercise our redemption right, holders of Redeemable Warrants may
either exercise their Redeemable Warrants, sell the Redeemable Warrants in the
market until the date next preceding the date fixed for redemption or tender
their Redeemable Warrants to us for redemption. Within five business days after
the end of the 30-day period, we will mail a redemption check to each registered
holder of a Redeemable Warrant who holds unexercised Redeemable Warrants as of
the end of the 30-day period, whether or not the holder has surrendered the
Redeemable Warrant certificates for redemption. The Redeemable Warrants may not
be exercised after the end of the 30-day notice period.
NO RIGHT TO COMPEL EXERCISE. We do not have the right to compel the exercise of
our outstanding Redeemable Warrants and no one has committed to exercise any of
our outstanding Redeemable Warrants. Whether any Redeemable Warrants are
exercised will depend upon several factors, including the prevailing market
price of our common stock, the liquidity of that market, if any, and the
personal investment objectives of the warrant holders. Accordingly, there can be
no assurance of the number of shares, if any, that will be purchased pursuant to
the exercise of our outstanding Redeemable Warrants.
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<PAGE> 37
WARRANT SOLICITATION FEES. We have no agreement or any arrangement whereby any
fees or other compensation will be paid to any person or entity upon exercise of
the Representative Warrants or Redeemable Warrants.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR. The transfer agent, warrant agent
and registrar for our common stock and Redeemable Warrants is Corporate Stock
Transfer, Inc., located in Denver, Colorado.
SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders who may
sell their common stock or Redeemable Warrants pursuant to this prospectus. No
selling securityholder has, or within the past three years has had, any
position, office or other material relationship with us or any of our
predecessors or affiliates, except as noted below.
The following table sets forth certain information as of December 19, 2000, to
the best of our knowledge, regarding the ownership of our common stock and our
Redeemable Warrants by the selling securityholders and as adjusted to give
effect to the sale of all the common stock and our Redeemable Warrants offered
by the selling securityholder pursuant to this prospectus.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES BEING
SHARES OFFERED
BENEFICIALLY -------------------------- NUMBER OF SHARES PERCENTAGE BENEFICIAL
SELLING OWNED BEFORE REDEEMABLE BENEFICIALLY OWNED OWNERSHIP AFTER THE
SECURITYHOLDER OFFERING(1) COMMON STOCK WARRANTS AFTER THE OFFERING OFFERING
----------------------------- --------------- ------------- ----------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Paulson Investment Company(2) 1,004,975(3) 281,175(4) -- 723,800 6.6
Chester L. Paulson(5) 1,057,625(6) 31,050(7) -- -- --
Wayne Hamersly 26,850(8) 17,250(7) -- -- --
Richard S. Hall 157,576 78,788(9) 78,788 -- --
Richard S. Hall, Jr. 48,788 39,394(10) 39,394 -- --
William R. Hall 43,788 39,394(10) 39,394 -- --
Paul Bardacke(11) 70,000 70,000(12) 30,000 -- --
Thomas Pennello 10,000 10,000 -- -- --
GL Investment Group, Inc.(13) 20,000 20,000(13) 20,000(13) -- --
Jean Ellan Canavan(14) 12,000 10,000(14) 10,000(14) 2,000 --
------- -------
TOTAL 597,051 217,576
</TABLE>
----------
(1) Includes shares of our common stock issuable upon exercise of our warrants
within 60 days of December 19, 2000.
(2) Paulson Investment Company is an investment banking firm that has served as
our underwriter and placement agent in our prior private and public
offerings. For their services as our underwriter and placement agent, we
have paid Paulson Investment Company various fees as well as issued our
securities to them, including shares of common stock and warrants.
(3) Includes 178,800 shares issuable upon exercise of Representative Warrants
and the underlying Redeemable Warrants.
(4) Includes 281,175 shares of our common stock acquired from the February 2000
exercise of the Placement Agent's Warrants and underlying class A warrants.
The Placement Agent's Warrants were issued in connection with services
rendered in the September 1995 private offering of our securities.
(5) Serves as an officer of Paulson Investment Company.
(6) Includes 21,600 shares issuable upon exercise of Representative Warrants
and the underlying Redeemable Warrants.
(7) Represents shares of our common stock acquired from the February 2000
exercise of the Placement Agent's Warrants and underlying class A warrants.
The Placement Agent's Warrants were issued in connection with services
rendered in a previous private offering of our securities.
(8) Includes 9,600 shares issuable upon exercise of Representative Warrants and
the underlying Redeemable Warrants.
(9) Represents 78,788 shares of our common stock issuable upon exercise of
Redeemable Warrants.
(10) Represents 39,394 shares of our common stock issuable upon exercise of
Redeemable Warrants.
(11) Mr. Bardacke is an attorney who has provided services to us.
34
<PAGE> 38
(12) Includes 30,000 shares of our common stock issuable upon the exercise of
Redeemable Warrants.
(13) GL Investments Group, Inc. served as one of our placement agents in our
private placement for which it received Redeemable Warrants exercisable
for 5,000 shares of our common stock. In addition, it has provided various
investment banking services to us for which we issued it an additional
Redeemable Warrant exercisable for 15,000 shares of our common stock.
(14) Ms. Canavan served as a placement agent in our private offering for which
she received Redeemable Warrants exercisable for 10,000 shares.
We will pay all expenses to register the common stock and the Redeemable
Warrants. The selling securityholders will pay any underwriting and brokerage
discounts, fees and commissions, specified attorneys' fees and other expenses to
the extent applicable to them.
PLAN OF DISTRIBUTION
SELLING SECURITYHOLDERS' SECURITIES
The selling securityholders may offer their shares of common stock and/or
Redeemable Warrants at various times in one or more of the following
transactions:
o on any of the United States securities exchanges where our common
stock and/or Redeemable Warrants are listed or may be listed in the
future;
o in the over-the-counter market;
o in transactions other than on such exchanges or in the
over-the-counter market;
o in connection with short sales of our common stock and Redeemable
Warrants;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
o in a combination of any of the above transactions.
The selling securityholders may sell their common stock and/or Redeemable
Warrants at market prices prevailing at the time of sale, prices related to such
prevailing market prices, negotiated prices or fixed prices.
The selling securityholders may use broker/dealers to sell their shares of
common stock and/or Redeemable Warrants. In this event, the broker/dealers will
either receive a discount or commission from the selling securityholder, or they
will receive commissions from the purchaser of common stock and/or Redeemable
Warrants for whom they acted as agent.
The selling securityholders and any broker/dealers who sell their shares of
common stock and Redeemable Warrants may be deemed to be "underwriters" within
the meaning of the Securities Act. The commissions, discounts or other
compensation paid to such persons may be regarded as underwriters' compensation.
These shares may later be distributed, sold, pledged, hypothecated or otherwise
transferred. In addition to any other applicable laws or regulations, selling
securityholders must comply with regulations relating to distributions by
selling securityholders, including Regulation M under the Securities Exchange
Act of 1934.
To comply with the securities laws of certain jurisdictions, the securities
offered in this prospectus will be offered or sold in those jurisdictions only
through registered or licensed broker/dealers. In addition, in certain
jurisdictions the securities offered in this prospectus may not be offered or
sold unless they have been registered or qualified for sale in those
jurisdictions, or unless an exemption from registration or qualification is
available and is complied with.
35
<PAGE> 39
REDEEMABLE WARRANTS
We are also offering up to 920,000 shares of our common stock issuable upon
exercise of 920,000 Redeemable Warrants currently owned by certain investors who
acquired the Redeemable Warrants as part of the units sold in the 1998 public
offering or purchased from the secondary trading markets. The shares of common
stock to be issued upon exercise of the Redeemable Warrants are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.
LEGAL MATTERS
The legality of the common stock and Redeemable Warrants offered under this
prospectus will be passed on for us by Neuman & Drennen, LLC.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998, and for
the years then ended, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file with the SEC at the SEC's Public Reference Room in
Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, in New York,
New York at 7 World Trade Center, Suite 1300, New York, New York 10048 and in
Chicago, Illinois at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. Our electronic SEC filings are also
available on the web site maintained by the SEC, which is found at
http://www.sec.gov. Our SEC filings are also available from commercial document
retrieval services.
36
<PAGE> 40
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report....................................................................................F-2
Consolidated Balance Sheets December 31, 1999 and 1998..........................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998............................F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 and 1998..................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998............................F-6
Notes to Consolidated Financial Statements......................................................................F-7
Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999............................F-18
Consolidated Statements of Operations for the Three Months ended September 30, 2000 and September
30, 1999 (unaudited)......................................................................................F-19
Consolidated Statements of Operations for the Nine Months ended September 30, 2000 and September
30, 1999 (unaudited)......................................................................................F-20
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2000 and September
30, 1999 (unaudited)......................................................................................F-21
Notes to Unaudited Consolidated Financial Statements...........................................................F-22
</TABLE>
F-1
<PAGE> 41
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, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cell Robotics
International, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
March 28, 2000
F-2
<PAGE> 42
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 358,379 $ 1,375,575
Accounts receivable, net of allowance for
doubtful accounts of $23,841 in 1999 and
$1,841 in 1998 (note 12) 206,278 246,573
Inventory (note 12) 897,971 526,249
Other 36,543 123,271
------------- -------------
Total current assets 1,499,171 2,271,668
Property and equipment, net (note 3) 485,556 272,894
Other assets, net (note 4) 28,939 38,490
------------- -------------
Total assets $ 2,013,666 $ 2,583,052
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 684,403 $ 327,686
Payroll related liabilities 116,617 144,188
Royalties payable 67,519 33,510
Other current liabilities 40,294 27,945
------------- -------------
Total current liabilities 908,833 533,329
Note payable (note 10) 250,000 0
------------- -------------
Total liabilities 1,158,833 533,329
------------- -------------
Stockholders' equity (notes 5 and 9):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero and 465,533 shares
issued and outstanding at December 31, 1999
and 1998, respectively 0 18,622
Common stock, $.004 par value. Authorized
12,500,000 shares, 8,244,121 and 5,739,248
shares issued and outstanding at December 31,
1999 and 1998, respectively 32,976 22,957
Additional paid-in capital 19,154,908 17,916,565
Accumulated deficit (18,333,051) (15,908,421)
------------- -------------
Total stockholders' equity 854,833 2,049,723
------------- -------------
Commitments and contingencies (notes 6 and 8)
$ 2,013,666 $ 2,583,052
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 43
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Product sales $ 1,294,936 $ 1,249,703
Research and development grants 122,381 179,298
------------- -------------
Total revenues 1,417,317 1,429,001
------------- -------------
Product cost of goods sold (1,064,130) (848,240)
SBIR direct expenses (122,381) (179,298)
------------- -------------
Total cost of goods sold (1,186,511) (1,027,538)
------------- -------------
Gross profit 230,806 401,463
------------- -------------
Operating expenses:
General and administrative 988,288 810,809
Marketing & Sales 625,777 609,288
Research and development 551,486 849,166
------------- -------------
Total operating expenses 2,165,551 2,269,263
------------- -------------
Loss from operations (1,934,745) (1,867,800)
------------- -------------
Other income (deductions):
Interest income 26,111 85,429
Interest expense (716) (975)
Other 0 0
------------- -------------
Total other income 25,395 84,454
------------- -------------
Net loss (1,909,350) (1,783,346)
------------- -------------
Preferred stock dividends (515,280) (274,227)
------------- -------------
Net loss applicable to common shareholders $ (2,424,630) $ (2,057,573)
============= =============
Weighted average common shares
outstanding, basic and diluted 7,734,762 5,278,347
============= =============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.31) $ (0.39)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 44
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- -------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 -- $ -- 5,245,414 $ 20,982 $ 14,037,243 $(13,613,348)
Issuance of units at $8.25, less
costs of offering 460,000 18,400 -- -- 3,009,104 --
Exchange of outstanding
common shares for units 78,788 3,152 (200,000) (800) 235,148 (237,500)
Options issued for services -- -- -- -- 60,688 --
Conversion of series A preferred stock (73,255) (2,930) 293,020 1,172 1,758 --
Stock dividend paid on
series A preferred stock -- -- 200,614 803 273,424 (274,227)
Issuance of shares at $1.50 -- -- 200,000 800 299,200 --
Net loss for 1998 (1,783,346)
----------- ----------- ----------- ----------- ------------ ------------
Balance at December 31, 1998 465,533 $ 18,622 5,739,048 $ 22,957 $ 17,916,565 $(15,908,421)
Conversion of series A preferred stock (465,533) (18,622) 1,862,132 7,449 11,173 --
Stock dividend paid on
series A preferred stock -- -- 183,211 732 514,548 (515,280)
Options and warrants issued for services -- -- -- -- 76,909 --
Issuance of shares at $1.50 -- -- 100,000 400 149,600 --
Exercise of stock options -- -- 27,030 108 37,058 --
Issuance of units at $8.25, less
costs of offering -- -- 332,500 1,330 449,055 --
Net loss for 1999 -- -- -- -- -- (1,909,350)
----------- ----------- ----------- ----------- ------------ ------------
Balance at December 31, 1999 -- $ -- 8,244,121 $ 32,976 $ 19,154,908 $(18,333,051)
=========== =========== =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 45
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,909,350) $ (1,783,346)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 116,914 115,242
Amortization of options issued for services 7,279 53,409
Options and warrants issued for services 76,909 --
Decrease (increase) in accounts receivable 40,295 (22,717)
Decrease (increase) in inventory (371,722) 59,784
Decrease (increase) in other current assets 79,449 (79,903)
Increase (decrease) in accounts payable
and payroll related liabilities 329,146 (57,633)
Increase (decrease) in other current
liabilities and royalties payable 46,358 (220,636)
------------ ------------
Net cash used in operating activities (1,584,722) (1,935,800)
------------ ------------
Cash flows from investing activities - purchase of
property and equipment (320,025) (164,701)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of units, net of offering costs 450,385 3,052,504
Proceeds from (repayment of) loans 250,000 (500,000)
Proceeds from issuance of common stock 187,166 300,000
------------ ------------
Net cash provided by financing activities 887,551 2,852,504
------------ ------------
Net increase (decrease) in cash and cash equivalents: (1,017,196) 752,003
Cash and cash equivalents:
Beginning of year 1,375,575 623,572
------------ ------------
End of year $ 358,379 $ 1,375,575
============ ============
Supplemental information:
Stock options and warrants issued in exchange for services $ 76,909 $ 60,688
Exchange of common stock for units $ -- $ 237,500
Stock dividends on Series A Preferred Stock $ 515,280 $ 274,227
Interest paid $ 716 $ 975
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 46
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND ACTIVITIES
The Company has developed and is manufacturing and marketing a series
of laser-based medical devices with applications in the blood sample
and glucose collection and in vitro fertilization markets. The Company
also develops, produces and markets a line of advanced scientific
instruments that increase the usefulness and importance of the
conventional laboratory microscope. The Company markets its scientific
instruments in both domestic and international markets. In 1999,
approximately 50 percent of the Company's product sales were domestic,
with Asia, Germany, Brazil and South Africa being the Company's
principal international markets.
The Company's customers consist primarily of research institutes,
universities, the diabetic patient and diabetic nurse educator as well
as the physician community, medical clinics, and distributors.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Cell Robotics International, Inc. and its wholly owned
subsidiary (the Company). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
(b) 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.
(c) 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.
(d) Inventory
Inventory is recorded at the lower of cost, determined by the
first-in, first-out method, or market. Inventory at December
31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Finished goods $ 78,358 $ 3,003
Parts and components 741,841 394,215
Sub-assemblies 77,772 129,031
--------------- ---------------
$ 897,971 $ 526,249
=============== ===============
</TABLE>
(e) 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.
F-7
<PAGE> 47
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(f) Earnings Per Share
Basic loss per share is computed on the basis of the weighted
average number of common shares outstanding during the year.
Diluted loss per share, which is computed on the basis of the
weighted average number of common shares and all potentially
dilutive common shares outstanding during the year, is the
same as basic loss per share for 1999 and 1998, as all
potentially dilutive securities were anti-dilutive.
Options to purchase 1,618,123 and 1,631,820 shares of common
stock were outstanding at December 31, 1999 and 1998,
respectively. Additionally, warrants to purchase 1,878,826 and
1,762,576 shares of common stock were outstanding at December
31, 1999 and 1998 respectively. These were not included in the
computation of diluted earnings per share as the exercise of
these options and warrants would have been anti-dilutive
because of the net losses incurred in 1999 and 1998.
(g) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, royalties payable and accrued
liabilities in the consolidated financial statements
approximate fair value because of the short-term maturity of
these instruments. The fair value of the note payable at
December 31, 1999 cannot be determined without excessive costs
due to its related party nature.
(h) Income Taxes
The Company follows the asset and liability method for
accounting for income taxes whereby deferred income taxes are
recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
(i) Revenue
The Company recognizes revenue on sales of its products when
the products are shipped from the plant and ownership is
transferred to the customer. Appropriate allowances are made
for returns.
(j) Research and Development
Research and development costs related to both present and
future products are expensed as incurred. Research and
development costs consist primarily of salaries, materials and
supplies.
(k) Warranties
The Company warrants their products against defects in
materials and workmanship for one year. The warranty reserve
is reviewed periodically and adjusted based upon the Company's
historical warranty costs and its estimate of future costs.
(l) Stock Option Plan
The Company accounts for its stock option plan in accordance
with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. SFAS No.
123, "Accounting for Stock Based Compensation," permits
entities to recognize as an expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also
F-8
<PAGE> 48
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 10,687 $ 9,279
Computers 350,059 344,059
Equipment 830,458 517,843
Leasehold improvements 48,961 48,961
--------------- ---------------
1,240,167 920,142
Accumulated depreciation (754,611) (647,248)
--------------- ---------------
Net property and equipment $ 485,556 $ 272,894
=============== ===============
</TABLE>
(4) OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Patents 48,246 48,246
Non-compete agreements 8,116 8,116
--------------- ---------------
56,362 56,362
Accumulated amortization (27,423) (17,872)
--------------- ---------------
Net other assets $ 28,939 $ 38,490
=============== ===============
</TABLE>
(5) STOCK OPTIONS, WARRANTS AND EMPLOYEE STOCK PURCHASE PLAN
(a) Stock Options
The Company has adopted a Stock Incentive Plan (the Plan)
pursuant to which the Company's Board of Directors may grant
to eligible participants options in the form of Incentive
Stock Options (ISO's) under Section 422 of the Internal
Revenue Code of 1986, as amended, or options which do not
qualify as ISO's (Non-Qualified Stock Options or NQSO's). An
aggregate of 1,500,000 shares of the Company's common stock is
authorized 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.
F-9
<PAGE> 49
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of activity in the Company's options
for employees, directors, outside consultants, and technical
advisors:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
------------------------------ ------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE NUMBER PRICE NUMBER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year $ 1.81 1,631,820 $ 2.03 1,000,905
Issued $ 1.81 20,000 $ 2.11 745,000
Exercised $ 1.38 (27,030) -- --
Forfeited $ 1.38 (6,667) $ 2.50 (75,000)
Expired -- -- $ 1.78 (39,085)
Repriced -- -- $ 2.16 (500,850)
Repriced -- -- $ 1.38 500,850
Outstanding at end of year $ 1.82 1,618,123 $ 1.81 1,631,820
Exercisable at end of year $ 1.73 1,119,565 $ 1.72 994,595
</TABLE>
The following summarizes certain information regarding
outstanding stock options at December 31, 1999:
<TABLE>
<CAPTION>
TOTAL EXERCISABLE
------------------------------ ------------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE NUMBER PRICE LIFE (YEARS) PRICE NUMBER
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 0.843 35,000 $ 0.843 3.7 $ 0.843 35,000
1.375 472,153 1.375 2.3 1.375 379,095
1.750 419,970 1.750 2.1 1.750 419,970
1.813 20,000 1.813 4.3 1.813 --
1.875 25,000 1.875 2.0 1.875 25,000
2.000 40,000 2.000 3.7 2.000 40,000
2.063 450,000 2.063 3.0 2.063 150,000
2.500 75,000 2.500 3.7 2.500 --
2.810 60,000 2.810 .92 2.810 60,000
3.563 21,000 3.563 1.8 3.563 10,500
------------ ------------ ------------ ------------ ------------
Total 1,618,123 $ 1.82 2.5 $ 1.730 1,119,565
============ ============ ============ ============ ============
</TABLE>
During 1998, the Company granted 450,000 options outside of
the Plan, for the purchase of the Company's common stock to an
officer of the Company. Of the options, 150,000 options vested
in 1998 upon closing of the offering described in Note 9, and
the remaining 300,000 options vest on November 30, 2002,
provided, however, (i) 150,000 options will vest and become
exercisable thirty days after any quarter in which the Company
reports pre-tax income of at least $50,000; and (ii) 150,000
options will vest and become exercisable upon the Company
reporting its first fiscal year with net income of at least
$500,000. The options are exercisable for a period of 36
months from each respective vesting date, but in no event
later than December 31, 2002.
At December 31, 1999, there were 481,877 additional shares
available for grant under the Plan. The weighted-average fair
value of employee and director stock options granted in 1999
and
F-10
<PAGE> 50
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
granted and modified during 1998 was $1.08 and $.76,
respectively, calculated on the date of grant or amendment
using the Black Scholes option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 5.250% 4.767%
Expected life of option 4 years 4 years
Expected volatility 75.2% 75.2%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its
Plan and, accordingly, no compensation cost has been
recognized for its employee and director 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 employee and director stock options under SFAS No.
123, the Company's net loss would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Reported net loss applicable to common
shareholders $(2,424,630) $ (2,057,573)
Pro forma net loss applicable to common
shareholders (2,828,058) (2,461,001)
Pro forma net loss per share applicable to
common shareholders - basic and diluted $ (.37) $ (.47)
=========== ============
</TABLE>
(b) Warrants
The Company has a Placement Agent's Warrant outstanding that
was granted to an underwriter. The Placement Agent's Warrant
is exercisable through September 30, 2000 to acquire up to
11.5 private units at a price of $25,000 per unit. Each unit
consists of 20,000 shares of the Company's common stock. The
Placement Agent's Warrant also includes 115,000 Class A Common
Stock Purchase Warrants exercisable through December 31, 2000
to purchase 115,000 shares of common stock for a price of
$1.75 per share (see note 12 - "Subsequent Events").
The Company also has a Representative's Warrant outstanding
that was granted to the same underwriter. The Representative's
Warrant is exercisable through February 2, 2002 to purchase
160,000 shares of common stock at a price of $2.35 per share.
The Representative's Warrant also includes 80,000 Common Stock
Purchase Warrants exercisable through February 2, 2003 to
purchase 80,000 shares of common stock for a price of $2.40
per share.
The Company also has a common stock purchase warrant
outstanding that was granted to a previous distributor of the
Company. The warrant is exercisable through June 12, 2000 to
purchase 100,000 shares of common stock for a price of $2.25
per share. (See note 12 - "Subsequent Events")
In conjunction with the offering completed in February 1998,
and the exchange of common shares for Units in February 1998,
the Company has an additional 1,077,576 warrants outstanding
exercisable through February 2, 2003 to purchase 1,077,576
shares of common stock for a price of $2.40 per share.
In connection with the private placement completed in July
1999, (see note 9 - "Equity Transactions"), the Company has an
additional 101,250 warrants outstanding exercisable through
February 2, 2003 to purchase 101,250 shares of common stock
for a price of $2.40 per share.
F-11
<PAGE> 51
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In consideration for services received, the Company issued
15,000 warrants to a provider of corporate legal services. The
warrants are exercisable through February 2, 2003 to purchase
15,000 shares of common stock for a price of $2.40 per share.
(See note 9 - "Equity Transactions").
(c) Employee Stock Purchase Plan
The board of directors and stockholders have approved an
Employee Stock Purchase Plan (ESPP). As of December 31, 1999
and 1998, no shares of common stock have been issued under the
ESPP and there have been no subscriptions of employees to
participate in the ESPP.
(6) ROYALTY AGREEMENTS
The Company is party to several royalty agreements under which it must
make payments to the original holders of patents on components used in
its products. Such royalties, equal to 1 to 2 percent of the net sales
of the products containing patented components, are generally due upon
sale of the products.
Additionally, one royalty agreement requires a royalty payment equal to
7 percent of revenue generated from sales of the Company's products and
pertains to the Company's worldwide, non-exclusive license agreement
that continues until March 31, 2016. Beginning with the year 1999, the
minimum royalty payable each year is $35,000 payable as follows:
$17,500 sixty days after the end of each semiannual period ending June
30 and December 31.
(7) INCOME TAXES
No provision for federal or state income tax expense has been recorded
due to the Company's losses. The Company has net operating loss
carryforwards and temporary differences that give rise to the following
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,375,500 $ 4,825,000
Inventory capitalization 150,000 97,000
Vacation and sick leave payable 30,000 30,000
Depreciation 7,500 --
Accrued expenses 0 18,000
48,000 48,000
------------ ------------
------------
5,610,000 5,018,000
Less valuation allowance (5,573,000) (4,986,000)
------------ ------------
------------
Net deferred tax asset $ 37,000 $ 32,000
============ ============
============
Deferred tax liabilities:
Amortization $ 31,000 $ 32,000
Depreciation 6,000 --
------------ ------------
------------
Net deferred income taxes $ -- $ --
============ ============
============
</TABLE>
F-12
<PAGE> 52
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $15,800,000
expires beginning in 2006 through 2018. Ownership changes resulting
from the Company's reorganization in 1995 will limit the use of this
net operating loss under applicable Internal Revenue Service
regulations.
(8) COMMITMENTS AND CONTINGENCIES
The Company is obligated under a non-cancelable operating lease for
building facilities, which is subject to 3 percent annual increases and
expires on November 30, 2002. Rent expense for 1999 and 1998 was
$112,939 and $105,987, respectively. Minimum annual lease commitments
for all building facilities at December 31, 1999 are: $102,162 for
2000; $105,195 for 2001 and $98,977 for 2002.
Paradigm Group, LLC ("Paradigm"), an investment and financial
consulting company, has alleged that the Company agreed to issue
185,000 shares of the Company's common stock to Paradigm for $2.40 per
share as part of a proposed private placement offering. The allegation
is based upon an alleged oral agreement between the Company and
Paradigm. The Company denies that any binding agreement was reached,
that any and all discussions between the two parties were preliminary
discussions about a proposed private placement offering, which was at
all times subject to the authorization and approval by the Company's
Board of Directors, which did not occur and a material condition
precedent to the consummation of any agreement between the parties.
Currently, no action has been filed for this claim to the Company's
knowledge.
Big Sky Laser Technologies, Inc. ("BSLT"), an OEM manufacturer and
developer of laser-based medical devices, has alleged that the Company
is in breach of contract under an exclusive OEM supplier agreement
dated May 20, 1998 entered into by the parties (the "Agreement"). Under
the terms of the Agreement, BSLT was granted exclusive manufacturing
rights to the Professional Lasette product while the Company maintained
the exclusive distribution rights to the same, subject to certain
minimum order requirements. BSLT has given the Company notice of
termination and notice of breach of the Agreement, alleging in
pertinent part that the Company (1) failed to take delivery of 1,012
units of the Professional Lasette product; (2) failed to provide laser
rods and other components necessary in the manufacture of 1,000 units
ordered by the Company; and (3) failed to make the required payment for
certain products already delivered to the Company. The Company
disagrees with these allegations. BSLT and the Company are currently in
discussions seeking to restructure their relationship and/or reach an
amicable resolution involving the Agreement.
(9) EQUITY TRANSACTIONS
In February 1998, the Company sold 460,000 Units (including the
Underwriter's "Over-Allotment Option, which consisted of 60,000 Units),
each Unit consisting of one share of Series A Convertible Preferred
Stock (the "Preferred Stock"), convertible into four common shares, and
two common stock purchase warrants each exercisable to acquire one
share of common stock at an exercise price of $2.40 per share (the
"Warrants"), in a registered offering to the public. Each Unit was sold
at a price to the public of $8.25 resulting in gross proceeds of
$3,795,000. The Unit Price of $8.25 per Unit was based on the public
trading price of the four shares of common stock issuable upon
conversion of the Preferred Stock, which, on the effective date of the
Registration Statement, was $1.938 per share, or $7.75, with each
Warrant being valued at $0.25 per Warrant, resulting in the Unit price
of $8.25. The value of each Warrant was determined by the underwriter
and was based on the difference between the public trading price of
four shares of common stock on the Friday preceding the effective date
of the Registration Statement, which was $7.75, resulting in a Warrant
value of $0.25 each. After consideration of the Underwriter's
commission and discount and other offering costs, net proceeds to the
Company were approximately $3.0 million. The Company utilized $500,000
to repay a short-term loan concurrent with the offering.
F-13
<PAGE> 53
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Preferred Stock was convertible at any time at the option of the
holder. The Preferred Stock was convertible automatically upon the
earlier of February 2001 or the date upon which the sum of the closing
bid prices of the Preferred Stock and the Warrants included in the
Units had been at least $12.375 for ten consecutive trading dates. The
Preferred Stock had a liquidation preference of $8.25 per share and was
entitled to a semiannual dividend of four-tenths of one share of common
stock for each share of Preferred Stock. In January 1999, the Preferred
Stock automatically converted to common stock based on the provisions
detailed above.
Each Warrant entitles the holder thereof to purchase at any time prior
to February 2003, one share of common stock at a price of $2.40 per
share. The Warrants may be redeemed by the Company for a redemption
price of $0.25 per Warrant under certain conditions.
In February 1998, the Company allowed a principal shareholder who
acquired 200,000 shares of common stock in August 1997 for $650,000 to
exchange such shares for 78,788 Units. In connection herewith, a charge
to accumulated deficit of $237,500 was recognized.
In September 1998, the Company sold 200,000 shares of common stock for
$300,000 to Chronimed, Inc. This investment by Chronimed was made as
part of the exclusive distribution agreement entered into by the
companies in August 1998. In March 1999, the Company shipped prototypes
of the Personal Lasette to Chronimed. As part of, what was then, an
exclusive distribution agreement, Chronimed was obligated to make an
additional $150,000 investment in the Company upon acceptance of the
prototypes. Chronimed made that investment in April 1999. In December
1999, the Company and Chronimed mutually agreed to convert their
exclusive distribution agreement to a non-exclusive distribution
agreement with no further equity or other commitments on behalf of
either party.
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of
common stock and 7,500 common stock purchase warrants. Each warrant is
exercisable through February 2, 2003 to purchase one share of common
stock for a price of $2.40 per share. In connection with this private
placement, the Company granted 15,000 warrants to two placement agents.
In connection with other investment banking services the Company
granted an additional 15,000 warrants to one of the placement agents
for those services unrelated to this private placement. These 30,000
warrants are exercisable through February 2, 2003 to purchase one share
of common stock for a price of $2.40 per share.
(10) NOTE PAYABLE
In December 1999 the Company obtained a note payable for $250,000, from
a member of its Board of Directors. The note does not bear interest if
the note is paid in full at the end of six months. However, at the end
of six months, any unpaid balance will begin to accrue interest at 6%.
The balance as of January 15, 2001 is payable in 6 monthly installments
beginning on that date.
(11) CAPITAL RESOURCES
Since inception, the Company has incurred operating losses and other
equity, which have resulted in an accumulated deficit of $18,333,051
and operations that used net cash of $1,584,722 in 1999.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase
sales. Accordingly, the Company is manufacturing and marketing 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
increased sales. In addition, the Company is pursuing development and
marketing partners for several of its new medical products. These
partnerships
F-14
<PAGE> 54
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 begun manufacturing and marketing its
laser-based medical devices and continues to market its scientific
instrument line, it does not anticipate achieving profitable operations
any sooner than the fourth quarter of fiscal 2000. As a result, the
Company's working capital surplus is expected to erode over the next
twelve months. Nevertheless, the Company expects that its present
working capital surplus, increased sales, and the proceeds from private
convertible debt and equity placements (see note 12 - "Subsequent
Events") will be sufficient to cover its expected operational deficits
through 2000.
(12) SUBSEQUENT EVENTS
In January 2000, the Company terminated its public and investor
relations agreement with RCG Capital Markets Group, Inc. effective
January 1, 2000. In lieu of payment for three additional months of
service retainer fees, options for an additional 25,000 shares at an
exercise price equal to the closing price of the Company's common stock
on February 15, 2000 were granted. Due to early termination of this
agreement, 50,000 unvested options were cancelled.
Additionally, in January 2000, the Company issued a total of 40,000
common stock purchase warrants to an investment research firm and its
new public relations firm. The Company is also committed under the
terms of the agreement with the new public relations firm to issue an
additional 30,000 warrants if representation continues beyond six
months. The warrants are exercisable through February 2, 2003 to
purchase one share of common stock for a price of $2.40 per share. Of
the additional 30,000 warrants, 15,000 vest after three months of
services and the remaining 15,000 vest after six months of services.
The fair value of these performance-based options will be measured upon
vesting and be charged to operations at such time.
In February 2000 and subsequently amended in March 2000, the Company
executed a secured convertible promissory note from a private investor.
The principal amount of $1,200,000 will be paid in full with 500,000
shares of the Company's common stock at the time such shares are
registered with the SEC. The private investor paid $250,000 on March 3,
2000; $250,000 on March 9, 2000; $200,000 on March 28, 2000; and the
remaining $500,000 will be paid on or before April 21, 2000. If the
$500,000 payment is not made by April 21, 2000 by the private investor,
a financial institution will make the payment to the Company subject to
an irrevocable payment guarantee on April 28, 2000. The note will bear
interest from July 25, 2000 at the Bank of America prime rate as of
March 3, 2000 plus 500 basis points with no interest accruing until
July 25, 2000. The principal amount and any accrued unpaid interest is
due and payable on any date after February 25, 2001 but before February
25, 2002. This note is secured by accounts receivable and inventory of
the Company. In connection with the beneficial conversion feature of
this note, the Company will record a charge of $1,200,000 upon
registration of the common stock with the SEC and conversion of the
note into common stock.
Additionally, in February 2000, an underwriter in a previous offering
exercised a portion of its Placement Agent's Warrants to purchase a
total of 10.9825 private units at a price of $25,000 per unit. Each
unit consists of 20,000 shares of common stock and 10,000 Class A
Common Stock Purchase Warrants. Proceeds to the Company were
approximately $467,000.
In March 2000, a previous distributor of the Company exercised its
common stock purchase warrant to purchase 100,000 shares of common
stock at a price of $2.25 per share.
F-15
<PAGE> 55
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) OPERATING SEGMENTS
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments
segment produces research instruments for sale to universities,
research institutes, and distributors. The laser-based medical devices
segment produces medical devices for sale to fertility clinics,
diabetic patients and diabetic nurse educators as well as the physician
community, medical clinics, and to distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company
evaluates segment performance based on profit or loss from operations
prior to the consideration of unallocated corporate general and
administrative costs. The Company does not have intersegment sales or
transfers.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each business utilizes different technologies and marketing
strategies.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from customers $ 736,616 558,320 -- 1,294,936
Research and development
grants 122,381 -- -- 122,381
Profit (loss) from operations (3,416) (953,230) (978,099) (1,934,745)
Segment assets 397,050 1,095,976 520,640 2,013,666
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from customers 895,993 353,710 -- 1,249,703
Research and development
grants 179,298 -- -- 179,298
Profit (loss) from operations 226,921 (1,311,430) (783,291) (1,867,800)
Segment assets 465,564 307,258 1,810,230 2,583,052
</TABLE>
Segment assets for scientific research instruments and laser-based
medical devices represent accounts receivable, inventory and
specifically identifiable manufacturing equipment. The remaining assets
are not allocated among the segments, as there is no practical method
to allocate those assets between the segments.
F-16
<PAGE> 56
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has no foreign operations. However, total export sales for
the year ended December 31, 1999 were primarily to Asia, Germany,
Brazil and South Africa and totaled $643,957. For the year ended
December 31, 1998 export sales totaled $490,892 and were primarily to
Germany, Asia and Australia. Export sales are attributed to the country
where the product is shipped. Sales revenue 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>
1999 1998
---------- ----------
<S> <C> <C>
Customer A, a related party 324,217 234,800
Customer B, a related party 167,160 --
Customer C -- 195,518
</TABLE>
F-17
<PAGE> 57
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,003,068 $ 358,379
Accounts receivable, net of allowance for
doubtful accounts of $1,841 and $23,841
in 2000 and 1999, respectively 266,144 206,278
Inventory 1,073,362 897,971
Other 72,919 36,543
------------ ------------
Total current assets 3,415,493 1,499,171
Property and equipment, net 479,119 485,556
Other assets, net 25,316 28,939
------------ ------------
Total assets $ 3,919,928 $ 2,013,666
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 265,301 $ 684,403
Note payable 250,000 --
Payroll related liabilities 176,078 116,617
Royalties and commissions payable 66,882 67,519
Other current liabilities 517,648 40,294
------------ ------------
Total current liabilities 1,275,909 908,833
------------ ------------
Note payable -- 250,000
Total liabilities 1,275,909 1,158,833
------------ ------------
Stockholders' equity:
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero shares issued
and outstanding at September 30, 2000
and December 31, 1999 0 0
Common stock, $.004 par value. Authorized
50,000,000 shares, 9,965,644 and 8,244,121 shares
issued and outstanding at September 30, 2000
and December 31, 1999, respectively 39,863 32,976
Additional paid-in capital 25,026,032 19,154,908
Accumulated deficit (22,421,876) (18,333,051)
------------ ------------
Total stockholders' equity 2,644,019 854,833
------------ ------------
$ 3,919,928 $ 2,013,666
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-18
<PAGE> 58
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Product sales $ 272,633 $ 205,744
Research and development grants 10,029 58,732
-------------- --------------
Total revenues 282,662 264,476
-------------- --------------
Product cost of goods sold (724,410) (185,785)
SBIR direct expenses (10,029) (56,938)
-------------- --------------
Total cost of goods sold (734,439) (242,723)
-------------- --------------
Gross profit (loss) (451,777) 21,753
-------------- --------------
Operating expenses:
General and administrative 255,699 202,664
Marketing and sales 386,092 150,944
Research and development 264,677 129,843
-------------- --------------
Total operating expenses 906,468 483,451
-------------- --------------
Loss from operations (1,358,245) (461,698)
-------------- --------------
Other income (expense):
Other income 24,585 6,968
Interest expense (1,223,467) (519)
-------------- --------------
Total other income (expense) (1,198,882) 6,449
-------------- --------------
Net loss $ (2,557,127) $ (455,249)
============== ==============
Weighted average common shares
outstanding, basic and diluted 9,610,079 8,202,785
============== ==============
Net loss per common share, basic and diluted $ (0.27) $ (0.06)
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-19
<PAGE> 59
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Product sales $ 749,055 $ 1,271,293
Research and development grants 17,323 109,964
-------------- --------------
Total revenues 766,378 1,381,257
-------------- --------------
Product cost of goods sold (1,249,940) (941,073)
SBIR direct expenses (17,323) (108,170)
-------------- --------------
Total cost of goods sold (1,267,263) (1,049,243)
-------------- --------------
Gross profit (loss) (500,885) 332,014
-------------- --------------
Operating expenses:
General and administrative 1,027,505 757,235
Marketing and sales 771,522 505,168
Research and development 578,244 397,701
-------------- --------------
Total operating expenses 2,377,271 1,660,104
-------------- --------------
Loss from operations (2,878,156) (1,328,090)
-------------- --------------
Other income (expense):
Other income 43,951 22,024
Interest expense (1,254,620) (659)
-------------- --------------
Total other income (expense) (1,210,669) 21,365
-------------- --------------
Net loss (4,088,825) (1,306,725)
-------------- --------------
Preferred stock dividends -- (515,280)
-------------- --------------
Net loss applicable to common shareholders $ (4,088,825) $ (1,822,005)
============== ==============
Weighted average common shares
outstanding, basic and diluted 9,057,133 7,568,249
============== ==============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.45) $ (0.24)
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-20
<PAGE> 60
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,088,825) $ (1,306,725)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 84,784 61,096
Beneficial conversion charge 1,200,000 --
Loss on sale of asset 35,000 --
Amortization of options issued for services -- 7,279
Options and warrants issued for services 261,802 76,909
Common stock issued for services 551,405 --
Increase in accounts receivable (59,866) (8,841)
Increase in inventory (175,391) (251,310)
Decrease (increase) in other current assets (36,376) 87,344
Increase in current liabilities 117,076 168,196
-------------- --------------
Net cash used in operating activities (2,110,391) (1,166,052)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of asset 232,500 --
Purchase of fixed assets (342,224) (280,273)
-------------- --------------
Net cash used in investing activities (109,724) (280,273)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,735,502 155,500
Proceeds from exercise of stock options 225,066 --
Proceeds from exercise of warrants 691,756 --
Proceeds from sale of units, net of offering costs -- 475,000
Proceeds from issuance of secured convertible
note, net of expenses 1,212,480 --
-------------- --------------
Net cash provided by financing activities 3,864,804 630,500
-------------- --------------
Net increase (decrease) in cash and cash equivalents: 1,644,689 (815,825)
Cash and cash equivalents:
Beginning of period 358,379 1,375,575
-------------- --------------
End of period $ 2,003,068 $ 559,750
============== ==============
SUPPLEMENTAL INFORMATION:
Accrued offering costs -- 25,000
Interest paid -- 659
Issuance of preferred dividend -- 515,280
Conversion of secured convertible note $ 1,200,000 $ --
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-21
<PAGE> 61
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. Presentation of Unaudited Consolidated Financial Statements
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the SEC 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 Company's financial position, results of operations and cash flows. 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.
New accounting pronouncements:
In June 1999, Statement of Financial Accounting Standards ("SFAS") No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Dare of FASB Statement No. 133, was issued. SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
provisions of this statement are now effective for financial statements for
fiscal years beginning after June 15, 2000, although early adoption is allowed.
We plan to adopt the provisions of SFAS No. 133 on January 1, 2001. We do not
expect the adoption of this standard to have a material effect on our results of
operations or financial position.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation: an Interpretation of APB Opinion No. 25. This interpretation
clarifies the application of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and was effective July 1, 2000. Our adoption of this interpretation
did not have a material effect on our results of operations or financial
position.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements. This bulletin summarizes certain of
the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. In June 2000, the SEC issued SAB
No. 101B, which delayed the implementation date of SAB No. 101 until the fourth
fiscal quarter of fiscal years beginning after December 15, 1999, although early
adoption is allowed. We do not expect our adoption of the provisions of this
statement to have a material effect on our results of operations or financial
position.
2. Issuance of Equity Securities and Convertible Note
In January 1999, the Company's Preferred Stock automatically converted into
shares of Common Stock, when the sum of closing bid prices of the Preferred
Stock and two Warrants was at least $12.375 for ten consecutive days. Due to the
automatic conversion, a final dividend on the Preferred Stock of 183,211 shares
of the Company's Common Stock was accrued and subsequently paid on the Preferred
Stock for all Preferred shareholders of record on February 2, 1999.
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of Common
Stock and 7,500 Common Stock purchase warrants. Each warrant is exercisable
through February 2, 2003 to purchase one share of Common Stock at a price of
$2.40 per share. In connection with this private placement, the Company granted
15,000 warrants to two placement agents. The Company granted an additional
15,000 warrants to one of these placement agents for other investment banking
services, which were unrelated to the private placement. These 30,000 warrants
are exercisable through February 2, 2003 to purchase one share of Common Stock
at a price of $2.40 per share.
In January 2000, the Company terminated its public and investor relations
agreement with RCG Capital Markets Group, Inc. effective January 1, 2000. In
lieu of payment for three additional months of service retainer fees, the
F-22
<PAGE> 62
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Company granted options for an additional 25,000 shares of Common Stock at an
exercise price equal to $3.25, the closing price of the Company's Common Stock
on February 15, 2000. Due to early termination of this agreement, 50,000
unvested options were cancelled.
Additionally, in January 2000, the Company issued a total of 40,000 Common Stock
purchase warrants to an investment research firm and its new public relations
firm. The Company was also committed under the terms of the agreement with the
new public relations firm to issue an additional 30,000 warrants if
representation continued beyond six months. The warrants are exercisable through
February 2, 2003 to purchase one share of Common Stock for a price of $2.40 per
share. Of the additional 30,000 warrants, 15,000 vested April 1, 2000, after
three months of service, and the remaining 15,000 vested on July 1, 2000, after
six months of service. The fair value of these performance-based options has
been measured upon vesting and charged to operations at such time.
In February 2000, the Company executed a secured convertible promissory note
from a member of the Company's Board of Directors, which was amended in March
2000. The director advanced $250,000 on March 3, 2000; $250,000 on March 9,
2000; $200,000 on March 28, 2000; and the remaining $500,000 on April 26, 2000
under the note. The principal amount of $1,200,000 was paid in full with and
converted into 500,000 shares of Common Stock on August 30, 2000. An SB-2
registration statement registering the shares issuable upon conversion of the
promissory note was declared effective by the SEC on July 20, 2000. In
connection with the beneficial conversion of this note, the Company recorded a
non-cash charge of $1,200,000 in the quarter ended September 30, 2000.
In February 2000, an underwriter in a previous offering exercised a portion of
its Placement Agent's Warrants to purchase a total of 10.9825 units at a price
of $25,000 per unit. Each unit consists of 20,000 shares of Common Stock and
class A warrants exercisable for 10,000 shares of Common Stock. The underwriter
exercised the underlying class A warrants simultaneously with the exercise of
the Private Placement Warrants. Proceeds to the Company were approximately
$467,000.
In March 2000, a previous distributor of the Company exercised its warrant to
purchase 100,000 shares of Common Stock at a price of $2.25 per share. Proceeds
to the Company were approximately $225,000.
On May 26, 2000 the Company issued 500,000 shares of its Common Stock for
$2,000,000 in a private placement with Paulson Investment Company of Portland,
Oregon. A five percent placement fee was paid to Mark T. Waller of BridgeWorks
Capital, a current member of the Company's Board of Directors after the close of
the transaction.
In February, May and June 2000, the Company issued a total of 130,000 shares of
its Common Stock to Pollet & Richardson as payment for legal services.
3. Notes Payable
In December 1999, the Company obtained a note payable for $250,000 from a member
of its Board of Directors. The note bears interest at six percent. The balance
as of January 15, 2001 is payable in six monthly installments beginning on that
date.
See also Note 2 for discussion of the issuance and conversion of a $1.2 million
secured convertible promissory note.
4. Earnings Per Share
Basic loss per share is computed on the basis of the weighted average number of
shares of Common Stock outstanding during the quarter. Diluted loss per share,
which is computed on the basis of the weighted average number of shares of
Common Stock and all potentially dilutive shares of Common Stock outstanding
during the quarter, is the same as basic loss per share for the periods ended
September 30, 2000 and 1999, as all potentially dilutive securities were
anti-dilutive.
F-23
<PAGE> 63
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Options to purchase 1,660,242 and 1,645,320 shares of Common Stock were
outstanding at September 30, 2000 and 1999, respectively. Warrants to purchase
1,503,826 and 1,911,326 shares of Common Stock were outstanding at September 30,
2000 and 1999, respectively. These were not included in the computation of
diluted loss per share as the exercise of the options would have been
anti-dilutive because of the net losses incurred in the periods ended September
30, 2000 and 1999.
5. Operating Segments
We have two operating segments, scientific research instruments and laser-based
medical devices. The scientific research instruments segment produces research
instruments for sale to universities, research institutes and distributors. The
laser-based medical devices segment produces medical devices for sale to
fertility clinics, medical product distributors and directly to customers. The
products produced for fertility clinics and associated technology was sold by
the Company in May 2000 for $100,000 cash and 12% royalty payments on future net
sales.
We evaluate segment performance based on profit or loss from operations prior to
the consideration of unallocated corporate general and administration costs. At
this time we do not have intersegment sales or transfers.
Our reportable segments are strategic business units that offer different
products and services. They are managed separately because each business
utilizes different technologies and marketing strategies.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 424,773 324,282 -- 749,055
Research and development
grants 17,323 -- -- 17,323
Profit (loss) from operations 1,679 (1,378,702) (1,501,133) (2,878,156)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 677,987 593,306 -- 1,271,293
Research and development
grants 109,964 -- -- 109,964
Profit (loss) from operations 52,850 (640,260) (740,680) (1,328,090)
</TABLE>
F-24
<PAGE> 64
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 207,303 65,330 -- 272,633
Research and development
grants 10,029 -- -- 10,029
Profit (loss) from operations 86,606 (699,015) (745,836) (1,358,245)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 121,742 84,002 -- 205,744
Research and development
grants 58,732 -- -- 58,732
Loss from operations (34,195) (228,732) (198,771) (461,698)
</TABLE>
6. Capital Resources
Since inception, the Company has incurred operating losses and other equity
charges, which have resulted in an accumulated deficit of $22,329,054. During
the nine-month period ended September 30, 2000, the Company's operations used
net cash of $2,110,391.
The Company's ability to improve cash flow and ultimately achieve profitability
will depend on its ability to significantly increase sales. The Company is
primarily focusing its efforts on manufacturing and marketing a series of
laser-based medical devices, which leverage the Company's existing base of
patented technology. The Company believes the markets for these products are
broader than those of the scientific instrumentation market, and, as such, offer
a greater opportunity of significantly increased sales. In addition, the Company
is pursuing development and marketing partners for several of its medical
products. If the Company is able to obtain and develop these partnerships for
the laser-based medical devices, the Company believes they 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 begun manufacturing and marketing its laser-based
medical devices and continues to market its scientific instrument line, it does
not anticipate achieving profitable operations any earlier than fiscal 2001. As
a result, the Company's working capital surplus is expected to erode over the
next 12 months. Nevertheless, the Company expects that its present working
capital surplus and increased sales will be sufficient to cover its expected
operational deficits through 2000. To ensure sufficient working capital exists
for 2001 the Company may be required to seek additional financing through the
sale of equity or debt securities.
7. Legal Matters
Big Sky Laser Technologies, Inc. ("BSLT"), an original equipment manufacturer
and developer of laser-based medical devices, has filed a lawsuit alleging that
the Company is in breach of contract, has committed fraud and misrepresentation
and is in violation of the Racketeer Influenced and Corrupt Organizations Act.
The total damages
F-25
<PAGE> 65
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
claimed by BSLT approximate $8,200,000. The Company disagrees with these
allegations and will vigorously defend the lawsuit. The Company has received
extensions of time to answer or otherwise respond to the complaint in court
while the Company and BSLT, through their respective attorneys, attempt to
negotiate an amicable resolution to the various disputes. The Company
anticipates making various payments to BSLT in connection with any settlement
and has accrued $400,000 as of September 30, 2000 to cover its estimated costs
of settling this lawsuit.
F-26
<PAGE> 66
===============================================================================
Cell Robotics International, Inc.
1,757,051 Shares of Common Stock
297,576 Redeemable Common Stock Purchase Warrants
---------
PROSPECTUS
DECEMBER ___, 2000
---------
===============================================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7-109-102 of the Colorado Business Corporation Act, or the CBCA,
provides that a company may indemnify a person who was, is or is threatened to
be made a named defendant or respondant in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (a "proceeding"), because the
person is or was a director against liability incurred in the proceeding if the
person conducted himself or herself in good faith; and the person reasonably
believed, in the case of conduct in an official capacity with the company, that
his or her conduct was in the company's best interests, and in all other cases,
that his or her conduct was at least not opposed to the company's best
interests; and in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. A company may not
indemnify a director in connection with a proceeding by or in the right of the
company in which the director was adjudged liable to the company or in
connection with any other proceeding charging that the director derived an
improper personal benefit, whether or not involving action in an official
capacity, in which proceeding the director was adjudged liable on the basis that
he or she derived an improper personal benefit. Unless limited by its articles
of incorporation, Section 7-109-103 of the CBCA states that a company shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director against reasonable expenses (including attorneys' fees)
incurred in connection with the proceeding. Unless otherwise provided in a
company's articles of incorporation, Section 7-109-107 of the CBCA states that
an officer is entitled to mandatory indemnification under Section 7-109-103 of
the CBCA. Section 7-109-107 also states that unless provided in its articles of
incorporation, a company may indemnify an officer, employee, fiduciary or agent
of the company to the same extent as a director.
The company's Articles of Incorporation provide that the company may and shall
indemnify each director, officer and any employee or agent of the company, his
heirs, executors and administrators, against any and all expenses or liability
reasonably incurred by him in connection with any action, suit or proceeding to
which he may be a party by reason of his being or having been a director,
officer, employee or agent of the company to the full extent required or
permitted by the CBCA, as amended.
Article XIII of the company's Amended and Restated Bylaws states that the
company may indemnify against liability incurred in any proceeding an individual
who was, is or is threatened to be made a named defendant or respondant in any
proceeding because he is or was a director if he conducted himself in good
faith; he reasonably believed, in the case of conduct in his official capacity
with the company, that his conduct was in the company's best interests, or in
all other cases, that his conduct was at least not opposed to the company's best
interests; and in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. The company may not indemnify a
director in connection with a proceeding by or in the right of the company in
which the director was adjudged liable to the company or in connection with any
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. The company
shall indemnify a person who is or was a director or officer of the company and
who was wholly successful, on the merits or otherwise, in defense of any
proceeding to which he was a party against reasonable expenses incurred by him
in connection with the proceeding.
Under the sections of the CBCA and the company's Bylaws included in this
prospectus, a "director" includes an individual who is or was a director of a
company or an individual who, while a director of a company, is or was serving
at the company's request as a director, an officer, an agent, an associate, an
employee, a fiduciary, a manger, a member, a partner, a promoter or a trustee
of, or to hold any similar position with, another domestic or foreign
corporation or other person or of an employee benefit plan.
The company may purchase and maintain insurance on behalf of an individual who
is or was a director, officer, employee, fiduciary or agent of the company and
who, while a director, officer, employee, fiduciary or agent of the company, is
or was serving at the request of the company as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or domestic company
or of any partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against or incurred by him in any
such capacity or arising out of
II-1
<PAGE> 68
his status as such, whether or not the company would have the power to
indemnify him against such liability under the provisions of Article XIII of
the company's Bylaws. The company currently maintains a $1,000,000 insurance
policy that covers directors and officers' liability.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, or the Securities Act, may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the company, are as follows:
<TABLE>
<S> <C>
Printing Expenses* 5,000
Accounting Fees and Expenses* 15,000
Legal Fees and Expenses* 60,000
Registrar and Transfer Agent Fee* 1,000
Miscellaneous* 1,000
---------
Total* $82,000
</TABLE>
----------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On September 11, 1998, we sold to one investor 200,000 shares of our common
stock, at a price of $1.50 per share, for gross proceeds of $300,000. The
investor qualified as an "accredited investor" within the meaning of Rule 501(a)
of Regulation D under the Securities Act. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act.
In June 1999, we sold an additional 100,000 shares of our common stock, at a
price of $1.50 per share, for gross proceeds of $150,000. The investor was an
"accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act.
In July 1999, we sold to four investors a total of 9.5 units, each unit
consisting of 35,000 shares of our common stock and 7,500 warrants. Each unit
was sold at a price of $50,000, resulting in gross proceeds of $475,000. The
investors were persons who qualified as "accredited investors" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The securities,
which were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act and
Rule 506 of Regulation D.
In July 1999, in connection with our sale to four investors of 9.5 units, we
issued 62,500 warrants to four persons for services rendered in connection with
the offering. The services were valued at $.40625 per warrant. The persons
receiving the warrants were all qualified investors in terms of their investment
sophistication or "accredited investors" within the meaning of Rule 501(a) of
Regulation D under the Securities Act. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act and Rule 506 of Regulation D.
In August 1999, we issued to one person 15,000 warrants in consideration of
services rendered. We valued the services at $.40625 per warrant. The warrants
were issued to one person who qualified as an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The securities,
which were taken for
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investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act and Rule 506 of Regulation D.
In January 2000, we terminated our public and investor relations agreement with
RCG Capital Markets Group, Inc. effective January 1, 2000. In lieu of payment
for three additional months of service retainer fees, options for an additional
25,000 shares at an exercise price equal to the closing price of our common
stock on February 15, 2000 were granted. The options were issued directly to the
investor relations company, which qualified as an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
and Rule 506 of Regulation D.
In January 2000, we issued a total of 40,000 common stock purchase warrants to
an investment research firm and our new public relations firm. The warrants are
exercisable through February 2, 2003 to purchase one share of common stock at a
price of $2.40 per share. The warrants were issued to entities which qualify as
"accredited investors" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and Rule 506 of Regulation D.
In February 2000 and subsequently amended in March 2000, we executed a secured
convertible promissory note in favor of a private investor. The principal amount
of $1,200,000 was converted into 500,000 shares of the company's common stock in
August 2000. The note was issued to one person who qualified as an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the Securities
Act. The securities, which were taken for investment and were subject to
appropriate transfer restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
In May 2000, we entered into an agreement for a $2,000,000 private placement
selling 500,000 shares of our common stock to Paulson Investment Company. The
shares were issued to Paulson, which qualified as an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
and Rule 506 of Regulation D. A 5% placement fee (or $100,000) was paid to
Bridgeworks Capital, Inc., of which Mark Waller, one of our directors, is an
officer and majority owner.
In February, May and June of 2000, we issued 150,000 shares to Pollet &
Richardson pursuant to a shares-for-debt agreement. Pollet & Richardson served
as our legal counsel. The shares were issued directly to the law firm and to
certain of its employees who qualified as "accredited investors" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. The securities,
which were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act and
Rule 506 of Regulation D.
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ITEM 27. EXHIBITS.
EXHIBIT NO. TITLE
3.2(1) Amended and Restated Bylaws
3.3(2) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
4.2(3) Representative Common Stock Purchase Warrant
4.3(4) Warrant Agreement between the company and Corporate Stock
Transfer, Inc.
4.4(3) Option Agreement between the company and Ronald K. Lohrding, Ph.D.
4.5(3) Specimen Common Stock Purchase Warrant Certificate
5.1(9) Legal Opinion of Neuman & Drennen, LLC
10.1(5) Agreement and Plan of Reorganization among the company,
Intelligent Financial Corporation, MiCel, Inc., Bridgeworks
Investors I, L.L.C. and Ronald K. Lohrding
10.2(6) Amended and Restated Employment Agreement between the company and
Ronald K. Lohrding
10.3(4) Employment Agreement between the company and Travis Lee
10.4(5) Financing and Capital Contribution Agreement among the company,
Intelligent Financial Corporation, MiCel, Inc., and Bridgeworks
Investors I, L.L.C.
10.5(5) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding,
Ph.D. to MiCel, Inc.
10.6(5) Stock Pooling and Voting Agreement
10.7(1) Royalty Agreement dated September 11, 1995 between the company,
Cell Robotics, Inc. and Mitsui Engineering & Shipbuilding Co.,
Ltd.
10.8(1) Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
10.9(1) Distribution Agreement dated December 15, 1994 between MiCel,
Inc. and the company
10.10(1) Purchase Agreement between the company and Tecnal Products, Inc.
10.11(1) License Agreement between the company and NTEC
10.12(7) Patent License Agreement between American Telephone and Telegraph
Company and Cell Robotics, Inc.
10.13(7) Amendment to Patent License Agreement between Lucent
Technologies, Inc., successor to American Telephone and Telegraph
Company, and Cell Robotics, Inc.
10.14(8) Development and Distribution Agreement dated September 10, 1999
between Hamilton Thorne Research and the company
10.15(8) Amendment to Development and Distribution Agreement dated May 18,
2000 between Hamilton Thorne Research and the company
10.16(9) Employment Agreement between the company and Paul Johnson
21.1(1) Subsidiaries
23.1(9) Consent of KPMG LLP
23.2(9) Consent of Neuman & Drennen, LLC (included in Exhibit 5.1)
24.1(9) Power of Attorney (included on signature page)
----------
(1) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, which was declared effective by the
SEC on February 14, 1996.
(2) Incorporated by reference from the company's Post-Effective Amendment No.
1 to Registration Statement on Form SB-2, filed with the SEC on July 15,
1996.
(3) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form SB-2 which was declared effective by the
SEC on February 2, 1998, SEC File No. 333-40895.
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<PAGE> 71
(4) Incorporated by reference from the company's Annual Report on Form 10-KSB,
for the fiscal year ended December 31, 1996, as filed with the SEC on April
15, 1997.
(5) Incorporated by reference from the company's Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
(6) Incorporated by reference from the company's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 2000, as filed with the SEC on August 14,
2000.
(7) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form S-3, SEC File No. 333-55951, as filed
with the SEC on November 18, 1998.
(8) Incorporated by reference from the company's Registration Statement on
Form SB-2, SEC File No. 333-40920, as filed with the SEC on July 6, 2000.
(9) Filed herewith.
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<PAGE> 72
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act 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 SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the company of expenses incurred or paid by a director,
officer or controlling person of the company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
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<PAGE> 73
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Albuquerque, State of New Mexico, on the 27th of
December 2000.
CELL ROBOTICS INTERNATIONAL, INC.
By: /s/ Ronald K. Lohrding, Ph.D.
-----------------------------
Ronald K. Lohrding, Ph.D., Chief Executive
Officer, President and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature to this registration statement appears below hereby
appoints Ronald K. Lohrding, Ph.D. as his attorney-in-fact and agent to sign on
his or her behalf, individually and in the capacities stated below, and to sign
and file (1) any or all amendments and post-effective amendments to this
registration statement and (2) any registration statement relating to the same
offering pursuant to Rule 462(b) under the Securities Act, which amendment or
amendments or registration statement may make any changes and additions that the
attorney-in-fact deems necessary or appropriate. In accordance with the
requirements of the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
/s/ Ronald K. Lohrding, Ph.D. December 27, 2000
-------------------------------------------------------
Ronald K. Lohrding, Ph.D., Chairman of the Board,
President and Chief Executive Officer
/s/ Paul Johnson December 27, 2000
-------------------------------------------------------
Paul Johnson, Chief Financial Officer, Chief Accounting
Officer and Secretary
/s/ Mark T. Waller December 27, 2000
-------------------------------------------------------
Mark T. Waller, Director
/s/ Raymond Radosevich, Ph.D. December 27, 2000
-------------------------------------------------------
Raymond Radosevich, Ph.D., Director
/s/ Steven A. Crees December 27, 2000
-------------------------------------------------------
Steven A. Crees, Director
/s/ Dipl. Ing. Oton Tisch December 27, 2000
-------------------------------------------------------
Dipl. Ing. Oton Tisch, Director
/s/ H. Debra Bryant, Ph.D. December 27, 2000
-------------------------------------------------------
H. Debra Bryant, Ph.D.
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<PAGE> 74
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.2(1) Amended and Restated Bylaws
3.3(2) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
4.2(3) Representative Common Stock Purchase Warrant
4.3(4) Warrant Agreement between the company and Corporate Stock
Transfer, Inc.
4.4(3) Option Agreement between the company and Ronald K. Lohrding, Ph.D.
4.5(3) Specimen Common Stock Purchase Warrant Certificate
5.1(9) Legal Opinion of Neuman & Drennen, LLC
10.1(5) Agreement and Plan of Reorganization among the company,
Intelligent Financial Corporation, MiCel, Inc., Bridgeworks
Investors I, L.L.C. and Ronald K. Lohrding
10.2(6) Amended and Restated Employment Agreement between the company and
Ronald K. Lohrding
10.3(4) Employment Agreement between the company and Travis Lee
10.4(5) Financing and Capital Contribution Agreement among the company,
Intelligent Financial Corporation, MiCel, Inc., and Bridgeworks
Investors I, L.L.C.
10.5(5) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding,
Ph.D. to MiCel, Inc.
10.6(5) Stock Pooling and Voting Agreement
10.7(1) Royalty Agreement dated September 11, 1995 between the company,
Cell Robotics, Inc. and Mitsui Engineering & Shipbuilding Co.,
Ltd.
10.8(1) Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
10.9(1) Distribution Agreement dated December 15, 1994 between MiCel,
Inc. and the company
10.10(1) Purchase Agreement between the company and Tecnal Products, Inc.
10.11(1) License Agreement between the company and NTEC
10.12(7) Patent License Agreement between American Telephone and Telegraph
Company and Cell Robotics, Inc.
10.13(7) Amendment to Patent License Agreement between Lucent
Technologies, Inc., successor to American Telephone and Telegraph
Company, and Cell Robotics, Inc.
10.14(8) Development and Distribution Agreement dated September 10, 1999
between Hamilton Thorne Research and the company
10.15(8) Amendment to Development and Distribution Agreement dated May 18,
2000 between Hamilton Thorne Research and the company
10.16(9) Employment Agreement between the company and Paul Johnson
21.1(1) Subsidiaries
23.1(9) Consent of KPMG LLP
23.2(9) Consent of Neuman & Drennen, LLC (included in Exhibit 5.1)
24.1(9) Power of Attorney (included on signature page)
</TABLE>
----------
(1) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, which was declared effective by the
SEC on February 14, 1996.
(2) Incorporated by reference from the company's Post-Effective Amendment No.
1 to Registration Statement on Form SB-2, filed with the SEC on July 15,
1996.
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<PAGE> 75
(3) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form SB-2 which was declared effective by the
SEC on February 2, 1998, SEC File No. 333-40895.
(4) Incorporated by reference from the company's Annual Report on Form 10-KSB,
for the fiscal year ended December 31, 1996, as filed with the SEC on
April 15, 1997.
(5) Incorporated by reference from the company's Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
(6) Incorporated by reference from the company's Quarterly Report on Form
10-Q, for the quarter ended June 30, 2000, as filed with the SEC on August
14, 2000.
(7) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form S-3, SEC File No. 333-55951, as filed
with the SEC on November 18, 1998.
(8) Incorporated by reference from the company's Registration Statement on
Form SB-2, SEC File No. 333-40920, as filed with the SEC on July 6, 2000.
(9) Filed herewith.
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