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As filed with the Securities and Exchange Commission on July 6, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CELL ROBOTICS INTERNATIONAL, INC.
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(Name of small business issuer in its Charter)
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Colorado 5049-05 84-1153295
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(State or other jurisdiction (Primary Standard Industrial IRS Employer
of incorporation or organization) Classification Code Number) Identification Number
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2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Dr. Ronald K. Lohrding, President and CEO
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
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(Name, address, including zip code, and telephone number of
agent for service of process)
Copies to:
Nimish P. Patel, Esq.
Pollet & Richardson
a law corporation
10900 Wilshire Boulevard
Suite 500
Los Angeles, California 90024
(310) 208-1182
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of this Registration Statement.
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. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Title of each class maximum
of securities to be Amount to be aggregate offering Amount of
registered registered price(1) registration fee
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Common Stock 1,400,000 $5,586,000 (2) $1,474.70
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Calculated in accordance with Rule 457(c) under the Securities Act on the
basis of the average of the bid and ask prices of the common stock on June 27,
2000, as quoted on the OTC Electronic Bulletin Board.
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
share 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.
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.
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PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
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1,400,000 Shares of Common Stock
This prospectus covers the sale of 1,400,000 shares of our common stock owned by
the Selling Securityholders identified in this Prospectus under the Section
entitled "Selling Securityholders".
The Selling Securityholders may offer and sell these shares from time to time
pursuant to this prospectus on terms, including price per share, to be
determined at the time of sale. We will not receive any of the proceeds from
the sale of the shares.
Our common stock is quoted on the OTC Electronic Bulletin board under the
Trading Symbol "CRII". On June 27, 2000, the closing bid and ask price per
share of the common stock was $3.8125 and $4.00 respectively.
An investment in our securities involves a high degree of risk. You should
purchase our securities only if you can afford a complete loss of your
investment. See "Risk Factors" beginning at page 10.
Neither the SEC nor any state securities commission has approved or disapproved
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 July 6, 2000
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CELL ROBOTICS INTERNATIONAL, INC.
Table of Contents
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Item Heading on Form SB-2 Location in
No. Registration Statement Prospectus
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1. Front of Registration Statement and Outside Front of Registration Statement and Outside
Front Cover Page of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information and Risk Factors Summary Information and Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price
6. Dilution Dilution
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters and Directors, Executive Officers, Promoters and
Control Persons Control Persons
11. Security Ownership of Certain Beneficial Security Ownership of Certain Beneficial Owners
Owners and Management and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Interest of Named Experts and Counsel
14. Disclosure of Commission Position on Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Indemnification for Securities Act Liabilities
15. Organization within Last Five Years Organization within Last Five Years
16. Description of Business Description of Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation
18. Description of Property Description of Property
19. Certain Relationships and Related Certain Relationships and Related Transactions
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Transactions
20. Market for Common Equity and Related Market for Common Equity and Related
Stockholder Matters Stockholder Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Changes In and Disagreements With Accountants
Accountants on Accounting and Financial on Accounting and Financial Disclosure
Disclosure
24. Indemnification of Directors and Officers Indemnification of Directors and Officers
25. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
26. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
27. Exhibits Exhibits
28. Undertakings Undertakings
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PROSPECTUS SUMMARY
This summary highlights important information about our business and about the
offerings. Because it is a summary, it does not contain all the information you
should consider before investing in our securities. Please read the entire
prospectus.
Some of the information in this prospectus contains forward-looking statements,
including statements relating to the anticipated operating results, growth,
financial resources, development of new products and markets, obtaining and
maintaining regulatory approval, commercial acceptance of new products,
expectations regarding competition from other companies and our ability to
manufacture and distribute our products. The forward-looking statements are
based on assumptions, including assumptions of future events. It is likely that
some of the assumptions will prove to be incorrect for reasons which include
those set forth under "Risk Factors." The actual results and our financial
position will vary from those projected or implied in the forward-looking
statements, and the variances may be material.
As used in this Prospectus, the words "we", "us", "our" and "the Company"
refers to Cell Robotics International, Inc. and its subsidiary.
Cell Robotics International, Inc.
We were organized on September 28, 1988 as 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, a number of
sophisticated laser-based medical devices. We continue to develop additional
sophisticated medical laser products.
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 laser-based
research workstations named the Cell Robotics Workstation, and the Personal and
Professional Lasette(R), which use a laser to sample blood for diabetics to
measure their glucose levels. In May, 2000, we sold the In Vitro Fertilization
Workstation product line to Hamilton Thorne Research for cash and future royalty
payments of 12%.
In 1999, we focused our efforts primarily on the large diabetic market and
developing the Lasette(R), a compact, portable laser skin perforator. This
product provides diabetics with capillary blood sampling with little pain and
residual soreness. The Lasette(R) is the only FDA-cleared alternative to the
steel lancet or needle that allows diabetics to be able to sample their blood
for glucose testing so that they can determine their subsequent insulin
injections. The Lasette(R) is also cleared for all blood screening test
applications for clinical and home settings.
We believe that the following trends in blood sampling will provide us with
unique opportunities:
. An increasing demand for less painful alternatives for capillary blood
sampling;
. An increasing desire to eliminate cross-contamination from accidental
needle or lancet sticks in hospitals and clinics;
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. A growing number of diagnosed diabetics seeking better blood glucose
control; and
. A widening understanding of the need to provide testing methods for needle-
phobic individuals.
To capitalize on these opportunities, we have introduced the Lasette(R) 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.
Other products and technology that we are being considered for development
include the following:
. A laser finger perforator that will also test the glucose in the same
instrument.
. A new broad-based technology based upon a new United States Patent with
broad claims regarding "laser initiated PCR" for single cell diagnostics;
and
. 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
We maintain our principal offices at 2715 Broadbent Parkway, N.E., Suite A-
E, Albuquerque, New Mexico 87107. Our telephone number at that address is (505)
343-1131, our facsimile number is (505) 344-8112, and our website address is
http://www.cellrobotics.com.
The Offering
Common stock offered by the Selling Securityholders 1,400,000 shares
OTC Electronic Bulletin Board Symbol "CRII"
Included in the aggregate number of shares we are registering on behalf of the
Selling Securityholders, are 100,000 shares issuable to RCG Capital upon the
exercise of their stock options, and 70,000 shares issuable to Alan Stone &
Company LLC, its director and Coffin Communications, collectively, upon exercise
of stock purchase warrants. We will receive $358,783 as gross proceeds from
exercise of these stock options and warrants, although there is no assurance of
any exercise. We will not receive any proceeds from the sale of the shares.
In addition, we are also registering 500,000 shares issuable to Oton Tisch as
repayment of the principal amount of a $1,200,000 secured convertible promissory
note executed in February 2000 and subsequently amended in March 2000. We will
pay Mr. Tisch the principal amount with 500,000 shares of our common stock when
we register the shares with the Commission. In connection with the beneficial
conversion of this note, we will record a charge of $1,200,000 upon registration
of this Prospectus and the conversion of the note into common stock.
Summary of Financial Information
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Year Ended December 31, Three Months Ended March 31,
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Statement of Operations 1998 1999 1999 2000
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Total Revenues $ 1,429,001 $ 1,417,317 $ 516,156 $ 220,554
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Operating Expenses $ 2,269,263 $ 2,165,551 $ 591,724 $ 762,625
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Net Loss Applicable to $(2,057,573) $ (2,424,630) $ (936,817) $ (719,293)
Common Stockholders
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Basic and Diluted Loss Per $ (0.39) $ (0.31) $ (0.14) $ (0.08)
Share
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Shares used in computing 5,278,347 7,734,762 6,681,998 8,513,547
basic and diluted loss per share
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RISK FACTORS
An investment in our common stock 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 common stock. If you decide to buy our common stock, you should be able to
afford a complete loss of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES, AND OUR FUTURE PROFITABILITY IS
UNCERTAIN.
To date, we have been unable to profitably market our products, and we
cannot assure you that we will ever achieve significant revenues or profitable
operations in the future. To date, we have generated limited revenues from
product sales. Although we have experienced managers, we do not have significant
experience in manufacturing, marketing or selling our products. Our future
development efforts may not result in commercially viable products. We may fail
to introduce new products or to obtain additional required regulatory
clearances. Our products may never gain market acceptance, and we may never
generate significant revenues or achieve profitability.
FUTURE REVENUE GROWTH WILL DEPEND ON OUR ABILITY TO MANUFACTURE, MARKET AND SELL
OUR MEDICAL LASER PRODUCTS.
Our future revenue growth depends on whether we can successfully market our
medical laser products. The risks associated with the introduction of innovative
technologies, like our medical laser products, include, but are not limited to,
the following:
. the possibility that some or all of the proposed products may fail to
receive necessary regulatory clearances;
. the current and future products may have features which render them
uneconomical, either to manufacture or to market;
. the demand for the products may be too low, or the prices at which the
products are accepted by purchasers may be too low, and may prevent us from
operating profitably; or
. third parties may manufacture and market a superior product.
Although we have obtained several FDA and European Community clearances, we
cannot say that our medical laser products will receive the required
governmental regulatory approvals or become commercially viable or achieve
market acceptance.
WE MAY NEED MORE MONEY, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR
AT ALL.
We may need more money to get regulatory approvals for our medical laser
products, to manufacture and test our products, to launch our products in the
marketplace, and to sell our products. We also may need money to file,
prosecute, defend and enforce patent claims and other intellectual property
rights and to purchase capital equipment. We cannot assure you that the required
additional funds will be available on acceptable terms, if at all.
Because we have no significant revenues, we expect that we will need to
find other sources of money to continue operations. Borrowing money may involve
pledging some or all of our assets. If we cannot raise additional capital, we
may be required to delay, scale back or eliminate one or more of our development
programs. Alternatively, we may enter into arrangements that would require us to
relinquish certain rights that we would not otherwise want to relinquish. We may
seek additional capital by issuing stock or promissory notes, or both. Raising
additional funds by issuing common stock or other types of
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equity securities would further dilute our existing stockholders and purchasers
of this securities offering.
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 stay ahead of the
competition with better and less expensive products and in part, to protect and
defend our intellectual property rights and the competitive advantages that
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. We cannot assure you,
however, that these measures will be effective. If these measures are not
effective, it could prevent us from profitably marketing our products. This
would adversely affect our business, results of operations and financial
condition.
Currently, we have been issued two patents and we 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.
Additionally, we rely on trade secret protection for our proprietary
technology. We cannot assure you that others will not independently develop
substantially equivalent proprietary information and techniques. Other parties
may gain access to our trade secrets. Our trade secrets may be disclosed. We
cannot say that we can effectively protect our rights to our trade secrets.
Despite the precautions we have taken, unauthorized parties may attempt to
engineer, reverse engineer, copy or obtain and use our products and other
proprietary information. 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, to limit the scope of our patents, or
to limit our ability to obtain additional or broader patent rights. A successful
challenge to our existing or future patents may 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 litigate to enforce our patents, to protect trade
secrets or know-how, and to 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. Costs associated with these
arrangements may be substantial and could 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
certain of our products. This could materially adversely affect us.
THE COMPETITION IN THE LASER BIOMEDICAL PRODUCTS INDUSTRY IS INTENSE, AND WE MAY
BE UNABLE TO GAIN A COMPETITIVE POSITION IN THE MARKETPLACE.
There is intense competition, extensive research and development efforts
and rapid technological progress in our industry. New product developments and
enhancements of existing products are expected to continue and may render our
products obsolete.
Many companies, both public and private, are engaged in developing products
that will be used for the same purposes as our products. Many of those companies
have substantially greater resources, research and development staffs and
facilities than we do, and many of those companies have significantly greater
experience in developing products and marketing them. These companies may
succeed in developing products that are more effective or less costly than our
products. If greater competition resulted in price reductions for products, we
may not be able to sell our products at a price that will allow us to realize a
return on our investment. Other companies are developing glucose-testing
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products based on partially invasive or non-invasive technologies. 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 are approved for sale and become commercially available
in the United States in the future, they could have a material adverse effect on
sales of the Lasette(R) and on our business and financial condition.
OUR LICENSE WITH LUCENT TECHNOLOGIES IS COSTLY, AND THERE CAN BE NO ASSURANCE
THAT THE LASERTWEEZERS(R) PRODUCT WILL OBTAIN A LARGE MARKET.
The LaserTweezers(R) application of our Cell Robotics Workstation is based
upon an exclusive patent license from AT&T, which was transferred by AT&T to
Lucent Technologies, Inc. We were in default under this license agreement, and,
in 1999, renegotiated its terms. We paid Lucent the sum of $100,000 in lieu of
all sums due and owing for prior years. Additionally, we agreed to increase the
royalty from five percent (5%) to seven percent (7%) 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 cannot say that we will be able to
increase sales of the Cell Robotics Workstation to a level that renders the
product economically attractive.
Furthermore, at least two European companies have developed and are
marketing products that we believe violate Lucent's patent. 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 ARE IN AN INDUSTRY IN WHICH THERE ARE RAPID TECHNOLOGICAL CHANGES AND
PRODUCTS CAN QUICKLY BECOME OBSOLETE.
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. Our competition
includes pharmaceutical and medical diagnostic equipment companies, academic
institutions, and others. New developments, which are expected to continue at a
rapid pace, may render some or all of our products non-competitive, obsolete
and/or unmarketable.
WE ARE IN AN INDUSTRY THAT IS HEAVILY REGULATED, AND WE MAY BE UNABLE TO COMPLY
WITH GOVERNMENT REGULATIONS OR WE MAY NEED TO OBTAIN OTHER PRODUCT CLEARANCES OR
APPROVALS.
U.S. government agencies regulate the testing, manufacture, labeling,
distribution, marketing and advertising of many of our products and our ongoing
research and development activities.
The FDA and comparable agencies in some foreign countries require lengthy
and detailed clinical testing and other compliance procedures before they permit
the introduction of new medical laser products in the marketplace. The cost of
complying with these regulations is significant. Our failure to meet or comply
with existing or future regulations could prevent us from marketing our
products. This would have a material adverse effect on our business, financial
condition and results of operations.
Some of our products have received FDA clearance and have obtained the
European Community's CE Mark. We have also met the ISO 9002 requirements for
good manufacturing practices. However, the time required for completing testing
and obtaining additional approvals is uncertain, and FDA clearance may never be
obtained for new products or applications. The FDA may reject our future
submitted application. Furthermore, we may encounter delays or rejections based
upon changes in FDA policy during the period of product development. We may
encounter similar delays in other countries. Even if the FDA grants our future
products clearance, it may limit the indicated uses for which our products may
be marketed.
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Based upon new data or design review, we may modify our products to
incorporate enhancements to their functionality and performance. The FDA may
request additional information relating to any product improvements. Any
improvements may require further regulatory review, thereby delaying testing,
approval and commercialization of our products. We cannot say that any such
improvements will ultimately receive FDA clearance.
The Export Control Act controls the foreign sale of at least one of our
lasers, which can only be exported under a license held by our Russian supplier.
If the supplier fails to maintain the license, our ability to export that
product would be suspended until we can enter into an arrangement with a new
licensed supplier.
Besides the FDA, the Occupational Safety and Health Act ("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.
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 we use in the Lasette(R) is made from crystals that
are produced and processed in Russia. We realize a significant cost savings by
having our crystals manufactured by a Russian supplier. Prices quoted by other
crystal suppliers are from 130% to 140% higher than the prices charged by our
Russian supplier.
To date, we have experienced no interruptions in the supply of 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 his 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 occurred, 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 "We are subject to risk associated with doing business internationally"
and "We depend on various manufacturers for our product components. If any of
theses manufacturers fail to provide the components, it could adversely affect
our business."
WE CANNOT ASSURE YOU THAT OUR PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE OR WILL
COMPETE FAVORABLY WITH ALTERNATIVE PRODUCTS.
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(R) 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.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DOING BUSINESS INTERNATIONALLY.
We sell our products internationally and purchase some of the components to
make them from an international supplier. The risks associated with these
activities include, but are not limited to, the following:
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. risks associated with fluctuating exchange rates;
. regulation of fund transfers by foreign governments and the United States;
. foreign export and import duties and tariffs; and
. political instability.
We cannot assure you that any of the foregoing will not have a material adverse
effect upon the business of the Company.
WE COULD LOSE THE RIGHT TO EXCLUSIVELY DISTRIBUTE THE CURRENT MODEL OF THE
PROFESSIONAL LASETTE(R).
Our failure to meet certain minimum order requirements or to comply with
other agreed upon terms could result in the loss of our exclusive right to
distribute the Professional Lasette(R).
We are relying on Big Sky Laser Technologies, Inc. ("BSLT") to manufacture
the first generation of the Professional Lasette(R). To this end, effective June
1, 1998, BSLT became our OEM supplier. Under the terms of this OEM agreement,
BSLT has the exclusive manufacturing rights while we have exclusive distribution
rights, subject to certain minimum order requirements. Specifically, we must
order a minimum of 1,500 units during the first twelve months, and a minimum of
3,000 units in each subsequent twelve-month period to maintain our exclusive
distribution rights. Either party may terminate the agreement on 90 days written
notice in the event of a material breach that is not cured within 30 days of
receipt of notice. Otherwise, if not earlier terminated, the agreement
terminates five years after execution.
Currently, BSLT is alleging that we have breached the OEM supplier
agreement and they have given us notice of termination and notice of breach.
BSLT claims, among other allegations, that:
1. we failed to take delivery of 1,012 units of the Professional
Lasette(R) product;
2. we failed to provide laser rods and other components necessary in the
manufacture of 1,000 units ordered by us; and
3. we failed to make the required payment for certain products already
delivered to us.
Although we dispute the allegations, we are currently in discussions with
BSLT to restructure our relationship and/or reach an amicable resolution
involving the agreement. We cannot say that an agreeable restructuring will
occur or an amicable resolution will be reached. In the event that we litigate,
we may incur substantial costs and will be required to allocate management time
as well as money to defend our position. If we do not prevail, we may lose our
exclusive distribution rights to the Professional Lasette(R). The loss of the
distribution rights to the Professional Lasette(R) may have a material adverse
effect on our business and financial position even though we currently enjoy the
manufacturing and distribution rights for the Personal Lasette(R).
WE DEPEND ON VARIOUS MANUFACTURERS FOR OUR PRODUCT COMPONENTS. IF ANY OF THESE
MANUFACTURERS FAILS 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; they are not obligated to supply these components to us on an on-
going basis. Consequently, we cannot say that these third parties will commit
resources to us as we need them. Any supply interruption of a sole-sourced
component could have a material adverse effect on our ability to manufacture
products until a new source of supply was found. We cannot say that we would be
successful in finding additional sources of supply on a timely basis, if
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ever. This failure could have a material adverse effect on our business,
financial condition, and results of operations.
WE ARE DEPENDENT ON DEVELOPING NEW PRODUCTS, BUT WE ARE NOT CERTAIN THAT THOSE
PRODUCTS WILL BE CLEARED FOR MARKETING OR ACCEPTED IN THE MARKET.
In order to be successful, we will need to continue to develop new products
or enhance our existing products. 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:
. be successfully developed,
. prove to be safe and effective in clinical trials,
. meet applicable regulatory standards,
. be capable of being manufactured in commercial quantities at a reasonable
cost,
. be marketed successfully, or
. achieve market acceptance.
Any unsuccessful development programs, our failure to obtain regulatory
approvals, and commercial failure of our products could materially adversely
affect our business, financial condition and results of operations.
WE DO NOT HAVE A BROAD RANGE OF PRODUCTS TO SELL.
Having sold our in vitro fertilization technology to Hamilton Thorne
Research, Inc., our exclusive focus will be on laser-based scientific research
instruments and the Lasette(R) product line. Our primary product is the
Lasette(R), a laser skin perforator that replaces the steel lancets used
primarily by diabetics. There is an inherent risk in not having a broad base of
products in development. We cannot assure you that we will be successful with
this narrow line of products.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
The design, development, manufacture and use of our medical products can
involve product liability claims and associated adverse publicity. Producers of
medical products 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. We cannot say 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 claim or product recall creates
significant adverse publicity, then our business, financial condition and
results of operations could be materially adversely affected.
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 distributing
network. Alternatively, we can enter into arrangements with third parties to
market,
8
<PAGE>
distribute and sell our products. We cannot assure you that we will be able to
successfully develop a more extensive marketing, distribution and sales force.
We cannot assure you that we will enter into acceptable marketing, distribution
and sales agreements with third parties. 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.
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. Further, our revenues
will depend on the efforts of third parties. We may be unable to successfully
bring our products to market. We cannot say that we will be able to recruit
marketing personnel with the required skills, or that we will be able to enter
into the strategic relationships needed to effectively market our products.
WE MAY NOT BE ABLE TO RETAIN OR HIRE KEY PERSONNEL.
To operate successfully and manage our potential future growth, we must
retain key scientific, technical, managerial and financial personnel. We also
must attract and retain additional highly qualified scientific, technical,
managerial and financial personnel. 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 executed employment agreements with Ronald K. Lohrding, Ph.D., our
President and Chief Executive Officer, and Mr. H. Travis Lee, our Vice President
of Marketing and Sales. 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 Ronald K.
Lohrding, Ph.D.
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 to provide meaningful customer support for
a highly technical product. For this reason, our long-term growth strategy is to
develop our product lines, strengthen our market position via 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. 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 upon our business, financial condition and results of operations.
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 government's and third parties' continuing efforts to contain or reduce
the costs of health care may 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 effect on our business. In both the
United States and elsewhere, uses of elective medical procedures depends on the
availability of reimbursement to the consumer from third-party payers, such as
government and private insurance plans. Third-party payers are increasingly
challenging the prices charged for medical products and services.
Although some health insurance companies are covering the costs of the
Lasette(R) if a physician provides documentation indicating a medical necessity,
it is unlikely that the cost of the Lasette(R) will
9
<PAGE>
qualify as a reimbursable expense under all health insurance programs. We cannot
say that our laser medical products will be considered cost effective.
Reimbursement to the consumer may not be available for our products. Even if it
is available, it may not be sufficient to allow us to sell our products on a
competitive basis.
WE COULD BE ADVERSELY AFFECTED BY A DECREASE OF GOVERNMENT SUPPORT OF SCIENTIFIC
RESEARCH AND DEVELOPMENT.
The principal markets for our scientific instrumentation products are
colleges, universities and other institutions engaged in scientific research.
Most, if not all, of these potential customers rely upon federal and state
funding in order to support their research activities. The ability of these
institutions to purchase 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.
WE HAVE NOT PAID DIVIDENDS TO OUR SHAREHOLDERS IN THE PAST, AND WE DO NOT
ANTICIPATE PAYING DIVIDENDS TO OUR SHAREHOLDERS 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 common stock in the near
future.
STOCK THAT CANNOT CURRENTLY BE TRADED MAY BECOME ELIGIBLE FOR TRADING IN THE
FUTURE.
As of March 31, 2000, 8,818,763 shares of our common stock were issued and
outstanding. Of this amount, 2,188,763 are "restricted securities" and are not
currently traded. However, these restricted securities will be available for
trading in the future, so long as all the requirements of Rule 144, promulgated
under the Securities Act of 1933, are met.
The sale of these shares may have an effect on the market prices prevailing
from time-to-time. If the number of shares offered for sale is greater than the
number of shares sought to be purchased, then the price of our stock would
decline. The market price of our securities could be adversely affected by
future sales of these securities.
WE MAY CONTINUE TO SELL STOCK OR OTHER SECURITIES TO RAISE MONEY. IF WE DO SO,
THESE SALES COULD SUBSTANTIALLY DILUTE THE INVESTMENT OF OUR SECURITY HOLDERS.
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
stockholder approval. Further, we may authorize the issuance of our preferred
stock with rights preferential to the rights of investors in this offering
without shareholder approval. Our issuing additional securities without
shareholder approval could substantially dilute the investments made by our
existing stockholders and 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.
Our common stock is traded on the Bulletin Board under the trading symbols
CRII. While there currently exists a limited and sporadic public trading market
for our securities, the price paid for our shares and the amount of shares
traded are volatile. We cannot assure you that these markets will improve in the
future. You may not be able to liquidate your investment without considerable
delay, if at all.
10
<PAGE>
Our securities may be regulated by the Securities Enforcement and Penny Stock
Reform Act of 1990, and the trading market in our securities is limited.
Our common stock is not listed or quoted on any exchange or on NASDAQ, and
no other exemptions currently apply. Therefore, the SEC "penny stock" rules
govern the trading in our common stock. These rules require, among other things,
that any broker engaging in a transaction in our securities provide its
customers with the following:
. a risk disclosure document,
. disclosure of market quotations, if any,
. disclosure of the compensation of the broker and its salespersons in the
transaction, and
. monthly account statements showing the market values of our securities
held in the customer's accounts.
The broker must provide the bid and offer quotations and compensation
information before effecting the transaction. This information must be contained
on the customer's confirmation. Generally, brokers subject to the "penny stock"
rules when effecting transactions in our securities may be less willing to do
so. This may make it more difficult for investors to dispose of our common
stock. In addition, the broker prepares the information provided to the broker's
customer. Because we do not prepare the information, we cannot assure you that
such information is accurate, complete or current.
WE STILL MAY BE SUBJECT TO PROBLEMS WITH YEAR 2000 COMPLIANCE.
Prior to December 31, 1999, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. However,
most computer systems are functioning normally and the compliance and
remediation work accomplished during the years leading up to 2000 was effective
to prevent any problems. To date, we have not experienced any such computer
difficulty; however, there may still be residual consequences of the change in
centuries. Any such difficulties, including but not limited to those listed
below, may, depending upon their pervasiveness and severity, have a material
adverse effect on our business, financial condition and results of operations:
. a failure to fully identify all year 2000 dependencies in the Company's
systems;
. a failure to fully identify all year 2000 dependencies in the systems of
third parties with whom we do business;
. a failure of any third party with whom we do business to adequately
address their year 2000 issues;
. the failure of any contingency plans developed by us to protect our
business and operations from year 2000-related interruptions; and
. delays in the implementation of new systems resulting from year 2000
problems.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock offered
by the Selling Securityholders. We will receive proceeds from the exercise of
certain stock options issued to RCG
11
<PAGE>
Capital and stock purchase warrants issued to Alan Stone & Co. LLC, its
director, and Coffin Communications Group.
We are registering 100,000 shares of our common stock for RCG Capital under
this Prospectus for providing investor relations services to us. We will issue
shares to RCG Capital at the following amounts and prices upon the exercise of
the options: 35,000 shares at $0.8438; 40,000 shares at $2.00 and 25,000 shares
at $3.25. If all the options are exercised by RCG Capital, we will receive
gross proceed in the amount of $190,783.
We are registering 60,000 shares of our common stock that represent the
underlying securities for the stock purchase warrant issued to Coffin
Communications Group for providing investor relations services to us. We will
issues the shares to Coffin Communications at a share price of $2.40 and if the
warrant is exercised in full by Coffin Communications, we will receive gross
proceeds in the amount of $144,000.
We are registering 6,667 and 3,333 shares of our common stock that
represent the underlying securities for the stock purchase warrants issued to
Alan Stone & Co., LLC and Richard Goldman, its director, for providing investor
relations services to us. We will issues the shares at a share price of $2.40
and if the warrants are exercised in full by Alan Stone & Co. and Mr. Goldman,
we will receive gross proceeds in the amount of $24,000.
We cannot compel RCG Capital, Coffin Communications Group, Alan Stone &
Co., and Richard Goldman to exercise their stock options or warrants, however,
if we receive proceeds from the exercise, then 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 options or warrants will be used to
retire debt.
DETERMINATION OF OFFERING PRICE
Selling Securityholders may sell shares covered by this Prospectus at
prevailing market prices or at negotiable prices entered into between the
Selling Securityholder and a purchaser.
DILUTION
At March 31, 2000, we had a net tangible book value of $1,173,218 or
approximately $.13 per share. This determination was made based upon 8,818,763
shares issued and outstanding. Net tangible book value per share is determined
by dividing the number of outstanding shares of common stock into our net
tangible book value. Net tangible book value is equal to total assets less
total liabilities and intangible assets.
The above calculation does not reflect the occurrence of the exercise of
warrants and stock options issued to various individual and entities, including
the options and warrants issued to RCG Capital, Alan Stone & Co, its director
and Coffin Communications of which the shares are being registered under this
Prospectus. The exercise of all or any one of the outstanding securities will
further dilute existing shareholders. Specifically, if any outstanding
warrants or stock options are exercised, of which there can be no assurance, the
number of common shares outstanding will increase and our net tangible book
value will increase.
12
<PAGE>
The exercise of any of our outstanding warrants or stock options at a time when
the exercise price is greater than our net tangible book value per share will
result in an immediate increase in the net tangible book value of our existing
shareholders. At the same time, new investors, will experience immediate
dilution in the value of their investment.
SELLING SECURITYHOLDERS
The following table sets forth the names of the Selling Securityholders who
may sell their shares 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
for Andrew F. Pollet and Oton Tisch who currently serve as members of our board
of directors and Pollet & Richardson who serves as our legal counsel.
The following table sets forth certain information as of July 5, 2000, to
the best of our knowledge, regarding the ownership of our common stock by the
Selling Securityholders and as adjusted to give effect to the sale of all the
common stock offered by the Selling Securityholder pursuant to this Prospectus.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Selling Shares Shares Shares Percentage
Securityholder held before the being held after the Owned after
Offering(1) Offered Offering the Offering
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paulson Investment 1,248,155 500,000 748,155 8.48%
Company (2)
---------------------------------------------------------------------------------------
Oton Tisch (3) 500,000 0 0
---------------------------------------------------------------------------------------
RCG Capital Markets 100,000 100,000 0 0
Group, Inc. (4)
---------------------------------------------------------------------------------------
GEM Edwards, Inc. (5) 100,000 100,000 0 0
---------------------------------------------------------------------------------------
Coffin Communications, 60,000 60,000 0 0
Inc. (6)
---------------------------------------------------------------------------------------
Alan Stone & Co., LLC 6,667 6,667 0 0
(7)
---------------------------------------------------------------------------------------
Richard Goldman (8) 3,333 3,333 0 0
---------------------------------------------------------------------------------------
Pollet & Richardson (9) 68,250 68,250 0 0
---------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew F. Pollet (9) 43,750 43,750 0 0
---------------------------------------------------------------------------------------
Erick E. Richardson (9)
11,250 11,250 0 0
---------------------------------------------------------------------------------------
Nimish P. Patel (9) 3,333 3,333 0 0
---------------------------------------------------------------------------------------
Addison Adams (9) 750 750 0 0
---------------------------------------------------------------------------------------
Mona Buchanan (9) 1,667 1,667 0 0
---------------------------------------------------------------------------------------
TOTAL 1,400,000
---------------------------------------------------------------------------------------
</TABLE>
(1) Includes stock options and warrants exercisable into common shares within
60 days from the filing of this Prospectus.
(2) Represents securities issued to Paulson Investment Company and certain of
its officers. 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 to Paulson Investment Company various fees as well as issued to them our
securities including shares of common stock and warrants.
(3) We executed a secured convertible promissory note in the amount of
$1,200,000 with Mr. Tisch, who currently serves on our board of directors. The
principal amount of the secured convertible promissory note is payable with
500,000 shares of our common stock, which is being registered under this
Prospectus. Excludes 5,000 stock options issued to Mr. Tisch for serving as our
board director.
(4) Represents 100,000 shares issuable under the stock options issued to RCG
Capital for providing public relation services. The stock options are
exercisable as follows: 35,000 shares at $0.8438; 40,000 shares at $2.00 and
25,000 shares at $3.25.
(5) Gem Edwards, Inc. who is a previous distributor of our products, exercised
its common stock purchase warrant to purchase 100,000 shares of our common
stock at a price of $2.25.
(6) Represents warrants issued to Coffin Communications Group for providing
public relation services. The warrants expire on February 3, 2003 and have an
exercise price of $2.40 per share
(7) Represents shares issuable upon the exercise of 6,667 common stock purchase
warrants at an exercise price of $2.40.
(8) Richard Goldman is a director of Alan Stone & Co. The shares are issuable
upon the exercise of 3,333 common stock purchase warrants at an exercise price
of $2.40.
(9) Shares were issued under a shares for debt agreement entered into between
us and our law firm Pollet & Richardson and certain of its employees for
providing legal services. Excludes 5,000 stock options issued to Mr. Pollet for
serving as our board director.
14
<PAGE>
We will pay all expenses to register the shares. 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 may sell up to 1,400,000 shares of common stock
either directly or through a broker-dealer or other agent at prevailing market
prices or negotiated prices, in one or more of the following kinds of
transactions:
. Transactions in the over-the-counter market;
. Transactions negotiated between Selling Securityholders and purchasers.
Broker-dealers or agents may purchase shares directly from a Selling
Securityholder or sell shares to someone else on behalf of a Selling
Securityholder. 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, as amended.
Some states require that registration, exemption from registration or
notification requirements be met before Selling Shareholders may sell their
common stock and warrants. Some states may also require Selling Securityholders
to sell their common stock only through broker-dealers.
LEGAL PROCEEDINGS
We are not engaged in any legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The name, age, position of our Directors, executive officers and key
employees are as follows:
Name (1) Age Position(s)
Dr. Ronald K. Lohrding 59 President, Chief Executive Officer and Chairman
of the Board of Directors
Jean M. Scharf 38 Chief Financial Officer and Controller
H. Travis Lee 40 Vice President Sales and Marketing
Richard Zigweid 51 Vice President Manufacturing
Michael Wolf 57 Vice President Engineering
Connie Hoy 46 Regulatory Affairs and Quality Manager
Dr. Larry Keenan 52 Product Manager, CR Workstation
Dr. Jerome Conia 39 Chief Scientist and Product Manager, IVF
Workstation
15
<PAGE>
David Costello 40 Product Manager, Lasette
Andrew F. Pollet 49 Secretary and Director
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
(1) There are no family relationships between any directors and executive
officers.
None of the foregoing Directors or Executive Officers has, during the past five
-------------------------------------------------------------------------------
years:
-----
(a) Had any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that
time;
(b) Been convicted in a criminal proceeding or subject to a pending
criminal proceeding;
(c) Been subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities, futures, commodities or banking activities;
and
(d) Been found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended,
or vacated.
Dr. Ronald K. Lohrding, Dr. Lohrding has served as our Chief Executive
----------------------
Officer, President and Chairman of the Board since February 23, 1995. He co-
founded the wholly owned subsidiary, Cell Robotics, Inc., in 1988 and has served
as the Chairman, President and CEO since incorporation. He has over 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 (LANL) as a manager and as a scientist from 1968 to 1988. He served
as LANL's Assistant Director for Industrial and International Initiatives,
Deputy Associate Director for Environment and Biosystems, as well as Program
Director for Energy, Environment and Technology, among other senior management
positions. Concurrently, he has been a general partner in seven successful real
estate partnerships, two of which are still currently active. Dr. Lohrding does
not currently serve as a director of any other reporting company.
Mark Waller. Mr. Waller has served as our Director 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. Mr. Waller does not currently serve as a
director of any other reporting company.
16
<PAGE>
Dr. Raymond Radosevich. Dr. Radosevich was elected to our Board in 1992.
----------------------
From 1985 to 1989, he was Dean of the Anderson School of Management at the
University of New Mexico. Dr. Radosevich recently retired from active teaching.
Prior to his retirement, he was a Professor of Management, specializing 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, a B.S. in Mechanical Engineering and an M.S. in Industrial
Engineering from the University of Minnesota. Dr. Radosevich does not currently
serve as a director of any other reporting company.
Dr. Debra Bryant. Dr. Bryant was elected to our Board in July 1997. She is
----------------
President, CEO and majority stockholder of Humagen Fertility Diagnostics, Inc.,
which is 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 Diagnostics, Inc. Dr. Bryant
received her Ph.D. in Medical Microbiology from Bowman Gray School of Medicine,
Wake Forest University and completed a NIH postdoctoral fellowship in molecular
biology at the University of Virginia.
Andrew F. Pollet. Andrew F. Pollet was elected to our Board in May 2000.
----------------
Mr. Pollet is the principal partner of the law firm Pollet & Richardson, a law
corporation, which has been retained to serve as our outside legal counsel. Mr.
Pollet's primary concentration is securities law and general corporate law. Mr.
Pollet serves as a director of several corporations including STAAR Surgical
Company, Jordan Pharmaceuticals, Inc., Page Digital Incorporated, and San
Joaquin Chemicals. Mr. Pollet also sits on the Board of Directors for Sherwood
Country Club in Westlake Village, California. Mr. Pollet received his Juris
Doctor degree from the University of San Diego School of Law in 1977 and was
admitted to the California bar in that same year. Mr. Pollet received his
Bachelor of Science and MBA degrees from the University of Southern California
in 1973 and 1974, respectively.
Steven A. Crees Mr. Crees has previously served as an advisor to our
---------------
Board and was elected as a Director in May 2000. He recently resigned as Senior
Vice President and general manager of the Medical Diagnostic Products Division
of Chronimed, Inc., where he was employed from since 1994. While at Chronimed,
Mr. Crees was responsible for planning and implementation of distribution
strategies for proprietary and licensed medical products into the hospital, long
term care, physician, alternative care and retail markets for this $32 million
dollar business unit with a emphasis on the diabetic market. While still at
Chronimed he served as Vice President for Marketing and Sales and managed the
diabetes centers. Previous to that 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. Mr. Crees does not
currently serve as a director of any other reporting company.
Dipl. Ing. Oton Tisch. Mr. Tisch was appointed to our Board as interim
----------------------
Director in February 2000 and was elected as our Director in May 2000. Mr.
Tisch is an international businessman who is the president, CEO and sole owner
of Obras Electromecanicas TKV, Caracas, Venezuela and its subsidiary in Zurich,
Switzerland, both of which were incorporated 1980. Mr. Tisch's business
specializes in equipment procurement, building and financing high voltage turn-
key substations up to 400 kV, including the electronic and/or digital automatic
control.
Jean M. Scharf. Ms. Scharf was appointed as our Chief Financial Officer
--------------
and Controller in August 1997. From April 1995 to August 1997, she served as the
Controller for TPL, Inc., a $7 million defense and private sector contractor.
From April 1984 to September 1994, she was employed by Applied Technology
Associates and with SAIC. She has also owned her own financial software
consulting business since 1994. She has a B.A. degree in business with an
accounting specialty from the University of New Mexico and is currently working
on an M.B.A. degree.
17
<PAGE>
H. Travis Lee. Mr. Lee was appointed as our Vice-President of Sales and
-------------
Marketing in January, 1997. During 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 from San Jose State University in Graphic
Design.
Richard Zigweid. Mr. 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 and as engineering manager and manufacturing engineer at Baxter
Healthcare from December 1988 to February 1994. He received his B.S. degree
from the University of Wyoming in Mechanical Engineering.
Michael Wolf. Mr. Wolf was appointed as our Vice-President of Engineering
------------
in June 1991, and has been principally responsible for designing the Company's
flagship products. He served as Senior Engineer at Amtech Systems corp. and
spent 24 years at LANL in various technical positions beginning in 1967. He has
authored over 30 technical papers, holds 10 united States patents and has been
the lead designer on four projects, including the Lasette project, that were
awarded the R&D 100 Award, signifying one of the 100 most significant
technological advances of the year.
Connie Hoy. Ms. Hoy was appointed as our Regulatory Affairs and Quality
----------
Assurance Manager in January, 1997. She served as Compliance Officer for Tissue
Technologies, Inc., a skin resurfacing laser manufacturer and wholly-owned
subsidiary of Palomar Medical Technologies, Inc. during 1995 and 1996, where she
achieved FDA Medical Device Quality System compliance, European market
permission, and ISO 9000 registration for Tissue Technologies' skin resurfacing
laser systems. From 1986 to 1995, Ms. Hoy was responsible for regulatory
affairs at the "O" Company, a dental implant company. Ms. Hoy received her B.A.
degree from the University of New Mexico.
Dr. Larry Keenan. Dr. 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.
Dr. Jerome Conia. Dr. Conia joined us in May 1992 as a Scientist and has
----------------
been the In Vitro Fertilization Workstation Product Manager since May 1996. He
has authored several scientific papers on optical trapping and scissoring and is
the principal investigator on several SBIR grants. He received his M.S. in
Embryology, Cellular Biology, and Physiology from the University of Paris, and
his Ph.D. in Specialty Life Science from the University of Orsay, Paris, France.
He also was a post-doctoral fellow in the Genetics Group at the LANL from March
1989 until May 1992.
David Costello. Mr. Costello was appointed as our Product Manager of the
--------------
Lasette(R) in August 1996. From February 1994 to September 1995, he was founder
and Executive Vice-President of Tecnal Products, Inc. From May 1992 to February
1994, he was Technology Development Program Manager at Lovelace Scientific
Resources. His qualifications include five patents in medical optics,
experience in regulatory development of new clinical products, and a M.S. degree
in Biomedical Engineering from Texas A&M University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
18
<PAGE>
The following table sets forth as of the date of this Prospectus, and as
adjusted for the exercise of options, warrants, or convertible securities that
may be exercised within 60 days from the date of this Prospectus, the stock
ownership of each person known by us to be the beneficial owner of five (5%)
percent or more of our common stock, all Directors individually and all
Directors and Officers of the Company as a group. Each person has sole voting
and investment power with respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
Title of Name and Address Amount and Nature
Class of Beneficial Owner of Beneficial Ownership Percent of Class/(1)/
----- ------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Common Ronald K. Lohrding/(2)/ 625,000 4.85%
Stock c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
" Mark Waller/(3)/ 220,000 1.71%
1820 North Shore Road
Lake Oswego, OR 97304
" Dr. Raymond Radosevich/(4)/ 26,000 0.20%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
" Dr. Debra Bryant/(5)/ 31,250 0.24%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
" Andrew F. Pollet, Esq./ (6)/ 117,000 .91%
c/o Pollet & Richardson
10900 Wilshire Blvd., Ste 500
Los Angeles, CA 90024
" Dipl. Ing. Oton Tisch/(7)/ 505,000 3.92%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
" Steven A. Crees/(8)/ 5,000 .04%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
" Paulson Investment Company/(9)/ 1,248,155 9.68%
811 S.W, Naito Parkway, Suite 200
Portland, OR 97204
" All Officers and Directors 1,529,250 11.87%
as a Group (7 persons)
</TABLE>
19
<PAGE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them within 60 days of the date of this report
are treated as outstanding when determining the percent of the class owned by
such individual and when determining the percent owned by the group.
(2) Includes Incentive Stock Options exercisable to purchase 150,000
shares of Common Stock at an exercise price of $1.75 per share, and Incentive
Stock Options exercisable to purchase 25,000 shares of Common Stock at an
exercise price of $1.875 per share, issued under the Company's 1992 Stock
Incentive Plan. Also includes Non-Qualified Stock Options exercisable to
purchase 150,000 shares of Common Stock at an exercise price of $2.0625 per
share, issued to Dr. Lohrding in anticipation of the Company's registered
public offering of securities, which was declared effective by the Commission
in February, 1998. Does not include Lohrding Options exercisable to purchase
300,000 shares of the Company's Common Stock issued to Dr. Lohrding in
anticipation of the Public Offering that are subject to future vesting.
(3) Represents Non-Qualified Stock Options exercisable to purchase, in the
aggregate, 200,000 shares of Common Stock at $1.75 per share, and Non-
Qualified Stock Options exercisable to purchase 20,000 shares of Common Stock
at an exercise price of $2.81 per share.
(4) Represents Non-Qualified Stock Options exercisable to purchase 6,000
shares of Common Stock at an exercise price of $1.75 per share, and Non-
Qualified Stock Options exercisable to purchase 20,000 shares of Common Stock
at an exercise price of $2.81 per share.
(5) Includes Non-Qualified Stock Options exercisable to purchase 11,250
shares of Common Stock at an exercise price of $3.563 per share. Does not
include Non-Qualified Stock Options exercisable to purchase 3,750 shares of
Common Stock which are subject to future vesting.
(6) Includes (i) 5,000 stock options that were issued to Mr. Pollet for
serving as our director; (ii) 68,250 shares that are issued to Pollet &
Richardson, for which Mr. Pollet is a principal shareholder and partner; and
(iii) 43,750 shares that are issued to Mr. Pollet directly for providing
legal service. This prospectus is registering 112,000 shares on behalf of Mr.
Pollet.
(7) Represents the issuance of 500,000 shares for the repayment of the
principal amount of a $1,200,000 secured convertible promissory note and
5,000 stock options that were issued to Mr. Tisch for serving as our director
This prospectus is registering 500,000 shares on behalf of Mr. Tisch .
(8) Represents 5,000 stock options that were issued to Mr. Crees for
serving as our director.
() Represents shares and common stock purchase warrants issued to Paulson
Investment Company and certain of its officers. Includes 500,000 shares that are
being registered under this prospectus..
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,
20
<PAGE>
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. The issued and outstanding shares of common stock
are validly issued, fully paid and non-assessable.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Corporate Stock
Transfer, Inc., located in Denver, Colorado.
Reports to Shareholders
We intend to furnish annual reports to shareholders, which will include
certified financial statements reported on by our certified public accountants.
In addition, we will issue unaudited quarterly or other interim reports to
shareholders as we deem appropriate.
INTEREST OF NAMED EXPERTS AND COUNSEL
The legality of the common stock offered hereby will be passed on for us by
Pollet & Richardson, a law corporation, 10900 Wilshire Blvd., Los Angeles,
California 90024. The law firm Pollet & Richardson, and certain of its employees
collectively are the beneficial owners of 130,000 shares of our common stock and
are part of the Selling Securityholder group under this Prospectus. In addition,
Mr. Pollet is the beneficial owner of 5,000 stock options issued to him for
serving as a board director.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998 and
for the years then ended, have been included herein in reliance upon the report
of KPMG LLP, independent certified public accountants. Included herein upon the
authority of said firm as experts in accounting and auditing.
INDEMNIFICATION
Our By-Laws provide for the indemnification of our officers and directors
to the maximum extent allowable under Colorado law. To the extent that the
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or controlling persons pursuant to those
provisions, we have been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and, as a
result, is unenforceable.
DESCRIPTION OF BUSINESS
We were organized in 1988 under the laws of the State of New Mexico to
develop and commercialize optical trapping technology. In February 1995,
Intelligent Financial Corporation, the shares of which were publicly traded,
acquired 100% of our issued and outstanding shares of Common Stock in a reverse
merger. Intelligent Financial Corporation subsequently changed its name to "Cell
Robotics International, Inc."
Products
Laser-based Medical Devices
<PAGE>
Lasette(R)
General Product Description. Our Lasette product line is a portable crystal
laser that utilizes laser light to create a small hole in the finger for
capillary blood sampling. The Lasette has received 510(k) clearance from the FDA
for drawing capillary blood samples. Diabetics use the Lasette to test their
glucose levels in both home and clinical settings. In addition, the FDA has
cleared the Lasette for capillary blood sampling for all clinical screening
tests. The Professional Lasette has received the CE mark for the distribution in
the European Community. The Personal Lasette has met all CE requirements and
awaits submittal for the CE mark designation. 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.
The Laser Industry's Photonics Spectra journal, with its "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 significant overall technical
worldwide developments in 1999.
Personal Lasette(R). The Personal Lasette is a compact, lightweight,
portable skin perforator. At 9 ounces, the Lasette is slightly larger than a
handheld cellular telephone; it fits into a suit-coat pocket or a purse. The
Personal Lasette requires a disposable lens shield (patent pending), 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 a day. The disposable lens shield retails for $15 and the Personal
Lasette retails for $995. We introduced the Personal Lasette on a limited basis
in December 1999. We encountered some problems with the laser cavity and the
laser rod coatings of the early units. However, we resolved most of the design
and quality control problems by using a new vendor for laser rod coating and
making other minor adjustments. We are now ramping up manufacturing and have
launched an advertising campaign for the Personal Lasette.
In June 2000, the Personal Lasette was presented the Silver "Medical Design
Excellence Award" by 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.
Personal Lasette- Markets. In the United States, an estimated 15 million
people have some form or variation of diabetes. However, only 10 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 a day to determine when and how much
insulin to inject. There are an estimated 100 million people with diabetes
worldwide.
We will market the Lasette primarily to children with diabetes, newly
diagnosed diabetics, high frequency testing diabetics with sore fingers, and
needle-phobic patients. The needle-phobic and needle-adverse market is an
attractive market for the Lasette. 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 prevent 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 Personal Lasette draws blood
in a way that eliminates the effects of needle phobia, minimizes pain,
eliminates the long-term finger soreness.
<PAGE>
Personal Lasette- Marketing and Distribution. On July 30, 1998, we signed
an exclusive worldwide agreement with Chronimed, Inc., for the marketing and
distribution of the Lasette product line. On December 8, 1999, we modified the
marketing and distribution agreement so that our relationship with Chronimed
became a non-exclusive arrangement. On or about the same time that the new
arrangement with Chronimed took effect, we independently launched the new
Personal Lasette into the marketplace. Currently, we are selling the Lasette
directly to home-use customers, eliminating distributor costs. As the Lasette
production capacity increases, we intend to enter into additional non-exclusive
distribution agreements with well-established distributors of diabetic products.
This will allow us to take advantage of existing distribution channels and name
recognition. Several of the drug store, supermarket and superstore chains have
expressed interest in distributing the Personal Lasette, but we have not entered
into any formal discussions or reached any definitive agreements. We will
accomplish international marketing and distribution through a collection of
international distributors of diabetic supplies or through manufacturers'
representatives. We have begun discussions with certain international
distributors, however no definitive agreements have been reached.
Personal Lasette- Manufacturing. We are currently manufacturing the
Personal Lasette at our Albuquerque, New Mexico facility. We have met the CE
requirements established by the European Community and are awaiting submittal
for the CE mark designation. 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. A lack of large-scale
production or market acceptance could have a material adverse effect on our
operations and future profitability.
Professional Lasette(R). The Professional Lasette is a compact,
lightweight, portable skin perforator. The Professional Lasette is approximately
the size of a videocassette and consists of a battery-driven primary perforator
unit with a charger. The Professional Lasette requires a single disposable lens
shield that inserts into the device for each use. The patented Professional
Lasette disposable is replaced after each use in a clinical setting which
prevents the patient's blood from contaminating the Professional Lasette unit
and therefore minimizes the risk for cross-contamination. The disposable shield
also uses a specialized plastic film to prevent any vapors from condensing on
the laser lens. Each disposable shield retails for $0.15 and the Professional
Lasette retails for $2,000.
Professional Lasette- Markets-Clinical. The Professional Lasette(R)
collects capillary blood from fingertips, which according to industry data is a
procedure performed approximately one billion times a year in homes, hospitals,
clinics and doctors' offices. 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. Data indicates
that in the United States alone, there are 7,500 hospitals and 46,000 other
clinical sites performing routine daily capillary blood sampling. 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
Professional Lasette can substantially reduce the pain and trauma involved with
this procedure and the risk of inadvertent cross-contamination for both the
clinician and the patient.
Professional Lasette- Marketing and Distribution. Since re-assuming the
marketing and sales responsibility from Chronimed, we are in the process of
developing plans to penetrate clinical markets.
Professional Lasette- Manufacturing. In August 1996, we established a
strategic development and production alliance with Big Sky Laser Technologies
("BSLT"). BSLT is a recognized laser OEM manufacturer and developer of laser-
based medical devices that complies with FDA, ISO 9001 and other regulatory
requirements. In May 1998, we entered into an OEM supplier agreement with BSLT
whereby we granted BSLT exclusive manufacturing rights for the current model of
the Professional Lasette product, subject to certain minimum order requirements.
Under the agreement, either party may terminate upon 90 days written notice in
the event of a material breach that is not cured within 30 days of receipt of
<PAGE>
such notice. In February 2000, a dispute arose between us and BSLT regarding the
obligations of the parties under the agreement. Currently, we have entered into
discussions regarding the restructuring of the OEM relationship and/or arriving
at an amicable resolution under the agreement.
Competition. The Professional and Personal Lassette(R) represent 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 blood drawing. It also eliminates the cost and risk of lancet
waste disposal. While each stainless steel lancet cost may be minimal, we
believe that by eliminating the indirect costs associated with it, we can market
the Professional Lasette at a retail price of $2,000 per unit and the Personal
Lasette(R) at a retail price of $995.
Currently the only other commercialized approach to laser-based capillary
blood sampling is a laser skin perforator developed by Transmedica (formerly
Venisect). According to industry sources, the Transmedica laser is substantially
larger and costs more than the Lassette(R). In October 1997, Transmedica
commenced a patent infringement action against the Company in which it claimed
the Lasette infringed the United States patent underlying Transmedica's skin
perforator. A Federal Court dismissed the suit without prejudice, based upon
procedural grounds. Transmedica appealed the Federal Court ruling, but
subsequently withdrew its appeal.
Corporate research and development efforts throughout the world 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 developing glucose testing products using skin
patches and lasers. Two technologies that have received the most press are the
GlucoWatch(R) by Cygnus, Inc. and the Continuous Glucose Monitoring System
(CGMS) by MiniMed. However, we do not have any independent first-hand knowledge
of these technologies and all of the following information has been obtained
from the two companies' websites or from published reports or news accounts
without independent verification:
1. Cygnus, Inc.'s GlucoWatch(R) is under future consideration by the FDA
for detecting trends and tracking patterns in glucose levels in adult diabetics,
but not for use to determine insulin injections. Cygnus, Inc.'s website states
that "following a three-hour warm-up period, the device is capable of providing
up to three glucose readings per hour for 12 hours after a single point
calibration with the results from a traditional finger-stick and meter. The
GlucoWatch(R) monitor uses reverse ionophoresis to collect glucose samples
through intact skin. The glucose molecules are collected in gel collection discs
that are part of a single-use AutoSensor. The gel collection discs contain the
enzyme glucose oxidase. As glucose enters the discs, it reacts with the glucose
oxidase in the gel to form hydrogen peroxide. A biosensor in contact with each
gel collection disc detects the hydrogen peroxide, generating an electronic
signal. The monitor uses the calibration value previously entered by the patient
to convert the signal into a glucose measurement. The monitor displays the
glucose measurement, which is stored in memory."
2. MiniMed's CGMS has been cleared by the FDA to be used by physicians
for tracking patterns and trends in patients' glucose levels. 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. MiniMed's website states that "the
sensor is a tiny electrode about as thick as a sliver of aluminum foil and less
than one millimeter wide. The sensor is located inside a small needle and, once
inserted into the skin, the sensor remains in the subcutaneous tissue while the
needle is removed and discarded. The sensor is attached to a small plastic disk
about the size of a dime and is taped to the skin to hold the sensor in place. A
thin wire connects the sensor to a pager-sized glucose monitor, which records
and stores glucose values in memory. The sensor, inserted just under the skin,
is designed to be used for up to 3 days. MiniMed recommends at least four finger
stick values be entered into the monitor each day to ensure accurate calibration
of the sensor output at the time of monitor download. After 3 days the patient
will return to their health care professional and the information will be
downloaded into a personal computer."
<PAGE>
The GlucoWatch by Cygnus, Inc. and the CGMS by MiniMed study the trends or
track the patterns of diabetics who do not have their diabetes under control.
For those particular patients, either the GlucoWatch or the CGMS is a good
supplement to the Personal Lasette product line. Currently, neither product is a
substitute or a replacement for testing the bloom from a traditional finger-
stick and meter. To the best of our knowledge, no other similar product has
received FDA clearance for commercial marketing in the United States.
Regulatory Status. We obtained the following regulatory clearances for the
Lasette(R):
Date Clearance
---- ---------
August 7, 1997 FDA Clearance for testing glucose and hematocrit in healthy
adult patients in a clinical setting.
October 28, 1997 FDA Clearance for testing glucose and hematocrit in diabetic
adult patients in a clinical setting
May 15, 1998 CE Mark testing complete for Professional Lasette
June 29, 1998 FDA Clearance for testing glucose and hematocrit in all
juveniles patients in a clinical setting
September 12, 1998 ISO 9001 / EN 46001 / Medical Device Directive Certification
September 24, 1998 FDA Clearance for use of all glucose meters with the Lasette
October 30, 1998 Variance for Personal Lasette design
December 7, 1998 FDA Clearance for home-use of the Lasette for glucose
monitoring
December 16, 1998 FDA agrees with Personal Lasette safety and efficacy
January 15, 1999 FDA Clearance for all screening blood tests in a clinical
setting
Lasette(R) Intellectual Property. The Lasette product was originally
--------------------------------
developed using the multifaceted crystal resonator ("MCR") patent acquired from
Tecnal Products, a subsidiary of Lovelace Scientific Resources, Inc., in January
1996. The patent (the "MCR Patent # 5,432,811") expires in 2014. We have also
acquired from Tecnal Products, a foreign patent application and a strategic
license. These acquisitions comprised a package of technological assets covering
two laser products: a low-cost, high-power solid-state laser that eliminates
many of the delicate optical components required by conventional solid-state
lasers, and a laser perforator. The MCR Patent was originally developed under 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. US patent
5,554,153 (issued September 10, 1996) and US patent 5,908,416 (issued June 1,
1999) 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 US patent 5,993,439 for the disposable
finger shield used with the Professional Lasette. US patent application (US
application 212,545) covers the disposable finger shield mechanism used in the
Personal Lasette. Other mechanisms for reducing the size and cost and improving
reproducibility and painlessness of laser lancing devices are regarded as trade
<PAGE>
secrets, or are the subject of planned patent applications. Finally, we have
registered with the U.S. Patent and Trademark Office, the mark "Lasette(R)".
The following represents information relating to the patents applied for
that relate to the Lasette(R)
Lasette Patents
<TABLE>
<CAPTION>
===========================================================================================================
Title App. # File date Status Pat. # Issue date Exp. date
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Laser w/ Polyhedral Ends, 08/204,560 3/1/94 Issued 5,432,811 7/11/95 3/1/2014
"MCR" multifaceted crystal
resonator
-----------------------------------------------------------------------------------------------------------
Skin Perforator( Multimode 08/297,295 8/29/94 Issued 5,554,153 9/10/96 8/29/2014
beam with limited claims)
-----------------------------------------------------------------------------------------------------------
Laser Dermal Perforator 08/675,080 7/3/96 Issued 5,908,416 6/1/99 8/29/2014
(Extended multimode claims)
-----------------------------------------------------------------------------------------------------------
Lens Shield for Laser Skin
Perforation for Professional
Lasette 08/841,005 4/22/97 Issued 5,993,439 11/30/99 4/22/2017
-----------------------------------------------------------------------------------------------------------
Multi-Media Solid State Laser 08/879,909 6/20/97 *Re-assigned
-----------------------------------------------------------------------------------------------------------
Renewable Lens Shield for 09/212,545 12/16/98 Pending
Personal Lasette
-----------------------------------------------------------------------------------------------------------
</TABLE>
*reassigned back to the Russian inventor.
A former employee of the Russian Academy of Science now residing in San
Diego holds the United States patent relating to the use of a laser for blood
sample collection (the "Tankovich Patent", US 5165418, issued 24 Nov. 92,
priority date 02 Mar. 92). 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 have acquired a formal legal opinion,
finding the Tankovich Patent 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
USSR, as early as October 1990. The Tankovich Patent is the subject of formal
re-examination in the United States Patent and Trademark Office as the result of
a petition made by Transmedica in August 1996. No results of the re-examination
case have been published to date.
In Vitro Fertilization Workstation
Manufacturing, Marketing and Distribution. We have sold the IVF 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.
Description. The IVF Workstation is a computer-controlled multi-functional
workstation that combines, for the first time, a technological solution to both
the functional and informational requirements of clinicians working in the IVF
environment. The IVF Workstation has three basic applications:
(i) to measure, assess and store in computer memory the various
properties of a human egg to assess its suitability for
fertilization;
(ii) to mechanically inject sperm into an egg with a third party micro-
manipulator; and
(iii) to score the outer shell of a fertilized egg with a laser to
facilitate "hatching" and promote embryo development and a
successful pregnancy.
<PAGE>
Utilizing a microscope, computer-controlled motorized stage, video camera,
sophisticated laser-based technology and data storage and retrieval systems, the
IVF Workstation permits standardized evaluation, measurement and diagnosis of
eggs and embryos, sperm injection and laser-assisted embryo hatching in one
integrated system. With its computer hardware and software, the IVF Workstation
also permits the detailed cataloguing and documentation of each IVF procedure
and the organization and retrieval of data and other information.
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 IVF patients.
Markets. The market for the IVF Workstation consists of the more than 1,300
clinics worldwide that treat infertility, approximately 300 of which are located
in the United States. Worldwide, these clinics conduct approximately 100,000 IVF
treatment cycles a year. At an average cost of $5,000 per treatment cycle, it is
estimated that over $500 million is spent annually for IVF procedures. We
believe that the IVF Workstation may substantially increase success rates and
reduce the time and cost required to successfully complete a fertility treatment
cycle, thereby increasing profits and revenue to the clinician.
Competition. We not aware of any other product that combines all of the
features and performance specifications of the IVF Workstation. Fertilase, a
company in Switzerland, has introduced a product that provides laser-assisted
hatching, which does offer most of the features found in the IVF Workstation.
Regulatory Status. The IVG product has received the CE Mark, which allows
it to be sold within the European Community and other countries that accept the
CE Mark. In the United States, the sale of the IVF Workstation requires FDA
clearance. The only functional component of the IVF Workstation that requires
FDA clearance is the laser module used for laser-assisted hatching. Clinical
trials of the IVF Workstation have been transferred to Hamilton Thorne Research
where, if the FDA approves the transfer, they will proceed under an FDA-approved
Investigational Device Exemption (IDE) that we obtained. We cannot say whether
FDA clearance for sales of the IVF Workstation in the United States will be
obtained.
Scientific Research Instruments
Applications of the Scientific Research Instruments. The Cell Robotics
Research 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 Research Workstation
for cancer research and immunology, neurobiology, assisted reproductive
techniques and genome research.
Description. In 1996, we introduced the computer-controlled Cell Robotics
Research Workstations for optical trapping, micromanipulation and microsurgery.
These workstations are based on our core LaserTweezers(R), LaserScissors(TM),
CellSelector(TM) and SmartStage(R) technologies. 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 Research Workstation integrates
our research instruments into a complete computer-controlled optical trapping
and ablation workstation.
Markets. Principal markets for the Cell Robotics Research Workstation
research instruments are colleges, universities, research laboratories,
biotechnology and pharmaceutical companies, and
<PAGE>
commercial laboratories conducting biological research. We intend to identify
key scientists and their specific research applications for which the Company's
instruments are particularly well suited.
In the United States, the research market consists of approximately 108,000
research biologists working in 2,400 institutions. We target users of inverted
microscopes, for which there were approximately 10,000 existing users in 1996.
Approximately 1,000 new purchases were made annually in the United States and
Canada. Worldwide, the installed base of inverted microscopes was approximately
33,000 in 1996, with 3,000 additional new sales annually.
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 our products in Japan. The agreement expires in September 2005. Mitsui has
assigned their distribution rights to the Cell Robotics Research Workstation in
Japan to Meiwa Shoji Company Ltd. We have also expanded domestic and
international distribution channels to include distributors in 17 countries.
Manufacturing. To minimize capital outlay, we outsource parts 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
products. We plan to continue this approach with new and current products.
Competition. P.A.L.M., and S&L Microtest, both German companies, and Sigma
Koki, a Japanese company, make multi-trap and custom trapping instruments to
compete with the Cell Robotics Research Workstation. Arcturus, a United States
company, offers a laser micro-dissection system.
Regulatory Status. We received the CE Mark for the Cell Robotics Research
Workstation in September 1997. This product line does not currently require
other regulatory clearances, including clearance from the FDA.
Competition in General
There is rapidly evolving technological development and intense competition
in our industry. Both large organizations as well as several specialized laser-
based medical device companies engage in similar activities. In addition,
colleges, universities, governmental agencies and other public and private
research institutions will continue to conduct research and to protect
technologies that they have developed, some of which will be directly
competitive. Most of our competitors have substantially greater resources,
including financial and human resources.
The principal factor affecting our competitive position is the suitability
of our instruments for, and performance in, a particular application. Due to the
highly specialized nature of the markets, such traditional competitive factors
as price, delivery, upgradability and support are less significant. 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
Our business strategy is to capitalize on our core technologies to develop
unique products targeted at large markets in which we can compete effectively.
Key components of our business strategy include:
<PAGE>
Develop Unique Technology. Through know-how and core technology, we strive
to stay ahead of our competition by offering the best products within a given
price range. We are able to back this aggressive development strategy with
patents, licenses and collaboration where appropriate.
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. To accomplish this, we are advertising in diabetes related
publications, direct mailings, tradeshows, print, radio, television and Internet
media. We use trademarked product names that can be clearly recognized by
customers, such as Lasette(R) and LaserTweezers(R).
Distribution Channels. Currently, we are marketing and selling the Lasette
directly to the end user. Several drug stores, supermarket and superstore chains
have inquired about distributing the Personal Lasette, but we have not entered
into any formal discussions. As we increase production capacity to supply
product demand, we will look for non-exclusive distribution agreements with
well-established distributors of medical products to take advantage of their
existing distribution channels and name recognition. We sell the Cell Robotics
Research Workstation directly in the United States and internationally through
distributors and manufacturers' representatives.
Expand Capacity to Assemble Products. We are increasing manufacturing
capacity to produce the Personal Lasette while continuing to manufacture the
Cell Robotics Workstation at our Albuquerque, New Mexico facility. In addition,
Big Sky Laser Technologies, Inc. is our Original Equipment Manufacturer for the
manufacture and the development of the Professional Lasette. Currently, the OEM
agreement is the subject of a dispute between us and BSLT. We have entered into
discussions regarding the restructuring of the OEM relationship and/or arriving
at an amicable resolution under the existing agreement.
We hope to become a leader in the development and sale of technologically
advanced laser-based medical devices. We believe that there is a rapidly
increasing market demand for products that offer more effective, safer and less
painful solutions than conventional procedures.
Intellectual Property
The following table summarizes our trademarks and patents for our products
other than the Lasette(R).
TRADEMARKS
<TABLE>
<CAPTION>
=========================================================================================================
Title Docket ID App. # File date Status reg. # Reg. date
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
LASER SCISSORS D-2081-20 74/483,382 1/27/94 Pending -
---------------------------------------------------------------------------------------------------------
SMART STAGE D-2080-20 74/483,347 1/27/94 Registered 1,909,528 8/1/95
---------------------------------------------------------------------------------------------------------
CELLS ELECTOR D-2079-20 74/483,349 1/27/94 Pending - -
---------------------------------------------------------------------------------------------------------
LASER TWEEZERS D-2039-20 74/433,636 9/8/93 Registered 1,916,039 9/5/95
---------------------------------------------------------------------------------------------------------
</TABLE>
PATENTS
<TABLE>
<CAPTION>
=====================================================================================================================
Title Docket ID App # file date Status Pat. # Issue date Exp. date
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Flexure Structure for 3-D GC-149 07/919,361 7/23/92 Issued 5,374,556 12/20/94 7/23/2012
microscope stage
---------------------------------------------------------------------------------------------------------------------
Manipulation Chamber for GC-150 07/919,183 7/23/92 Issued 5,364,744 11/15/94 7/23/2012
LaserTweezers
---------------------------------------------------------------------------------------------------------------------
Providing Uniform Distribution CER006 09/098,902 6/17/98
of Energy to Microscopic Pending
Targets for IVF Workstation
---------------------------------------------------------------------------------------------------------------------
Activating Thermo-Enzyme CER007 09/082,124 5/19/98 Issued 5,972,667 10/26/99 5/19/2018
Reactions w/ EM Energy (Laser
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
initiated PCR reaction)
================================================================================
The Laser PCR patent describes a method and apparatus for activating a
thermo-enzyme reaction, such as polymerase chain reaction (PCR) or other
temperature-sensitive transformation of biological systems. Electromagnetic
energy such as from a laser is applied to a microscopic target to produce a
rapid elevation of temperature of at least a portion of the target. The laser
beam can have a wavelength in the infrared range greater than 750 nm. The source
of electromagnetic energy can be used in association with a microscope and/or
objective lens to irradiate single cells or molecules. Because a laser is used,
the proposed apparatus can be made compact and transportable to meet
requirements for single cell analysis for clinical use.
The proposed laser PCR instrument would embody the amplification of genetic
material in a volume that could be as small as or even smaller than a single
cell. The envisioned device would make use of existing technologies developed
and currently in use at Cell Robotics. These include the means to focus the
laser beam precisely and control the laser energy delivered. This approach to
work with biological systems is protected by U.S. patent Number 5,972,667,
issued October 1999. Although not reduced to practice, a protocol will soon be
examined, and a prototype instrument is under development.
The amplification of genetic material with the unique properties of a laser
beam could find widespread application in the routine diagnosis of diseases
including exotic diseases. The patented technology should offer means to allow
research scientists the prospective molecular identification of pathogens before
the onset of disease.
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 December 31, 1998, $551,486
and $849,166 was spent, respectively, on internal research and development
programs. As of December 31, 1999, three of our scientists and engineers engaged
primarily in research and development activities. We channeled the majority of
the proceeds from equity financing and short-term borrowings from our principal
stockholder, Mitsui, and the sale of securities in 1995, 1996, 1997, 1998 and
1999 to fund our internal research and development activities. We do not have
any research arrangements with outside R&D firms and at this time and we do not
anticipate future development arrangements with third parties. We do not
currently perform any research and development under contract to third parties
except for Small Business Innovative Research grants from the federal
government. These include a Phase II grant from the National Cancer Institute.
The grant award funds two years of development of a proprietary laser instrument
for semi-automated single cell sorting. The total grant award over two years is
approximately $727,000. We received approximately $564,913 to date. This award
should facilitate our goal of developing a single cell analysis workstation,
which could aid in the understanding of cancer cells and viruses. Proceeds from
this award will be used to expand the current capabilities of the Cell Robotics
Research Workstation and LaserTweezers technology.
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, however we may require
additional clearances for broader markets. We cannot say that we will obtain
these.
<PAGE>
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 Research Workstation and all of its modules in
September 1997 and also received the CE Mark for the Professional Lasette and
IVF Workstation.
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 can be commercially marketed in the United States. There are two basic
review procedures for medical devices in the United States. Certain products may
qualify for a Section 510(k) procedure, under which the manufacturer gives the
FDA a Pre-Market Notification ("510(k) Notification") of the manufacturer's
intention to commence marketing of the product at least 90 days before the
product will be introduced for clinical use. The manufacturer must obtain
written clearance from the FDA before it can commence marketing. 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) procedure, the manufacturer must file a Pre-Market Approval Application.
The PMA requires more extensive pre-filing testing than the 510(k) procedure and
involves a significantly longer FDA review process. FDA issued clearances for
the following uses of the Professional Lasette:
. for adult diabetic patients in clinical settings in October 1997;
. for adolescent diabetic patients in clinical settings on June 29, 1998;
. for home use for testing glucose on December 7, 1998; and
. for all blood screening tests used in a clinical setting on January 15,
1999.
We can now market the Professional Lasette(R) and Personal Lasette(R) for
essentially all applications requiring capillary blood draw 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 in the EC and other regulatory
procedures, 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 June 15, 2000, we had 18 full-time employees and 6 temporary
employees. Of the full-time employees, 5 were principally engaged in product
development, 6 in manufacturing, including quality control, 3 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.
Reports to Shareholders
<PAGE>
We furnish annual reports to shareholders, including certified financial
statements reported on by our certified public accountants. In addition, we
issue unaudited quarterly or other interim reports to shareholders as we deem
appropriate.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Commission's Public Reference Rooms at 450 Fifth
Street N.W. Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330
for further information on the Public Reference Rooms. You can also obtain
copies of our Commission filings by going to the Commission's website at
http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(R). Product sales for the period were
generated from sales of our scientific research instruments and our clinical
laser-based medical devices.
. Total revenues from product sales and grant revenue decreased .8% from
$1,429,001 during the 1998 period to $1,417,317 during 1999.
. Research and development grant revenue decreased 31.7% from $179,298 during
1998 to $122,381 during 1999.
. 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 driven by 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%, below fiscal 1998 operating expenses of $2,269,263. This
decrease was principally attributable to a reduction in research and development
expenses.
. Research and development expenses decreased by $297,680, or 35.1%, due
primarily to a reduction in professional design and engineering consulting
fees required by our laser-based medical devices.
. Marketing and sales related expenses incurred during fiscal 1999 were
$625,777, an increase of $16,489, or 2.7%, above fiscal 1998 marketing and
sales expenses of $609,288. Expenses related to the marketing introduction
of our new Personal Lasette(R) product were primarily responsible for this
increase.
. 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 was driven by our effort to maintain ISO 9001
certification, increased product liability premiums, increased SEC
reporting activity and enhanced investor relations' activities.
During the fiscal period ended December 31, 1999, other income and expenses
decreased from an
<PAGE>
$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%. 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.
Other than the foregoing, we know of no trends or other demands,
commitments, events or uncertainties that will result in, or are reasonably
likely to result in, a material impact on our results of operations.
Liquidity and Capital Resources
Since its 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 two small SBIR
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.
. In 1995, we completed a private offering of equity in which we raised
approximately $2.875 million. As part of that private offering, we issued a
series of warrants, whose exercise during the third quarter of 1996
resulted in an additional capital infusion of approximately $2 million.
. In connection with that private offering, we issued to Paulson Investment
Company, Inc., who served as placement agent, warrants exercisable for a
period of five years to purchase 11.5 units at a price of $25,000 per unit,
each unit consisting of 20,000 shares of Common Stock and 10,000 Class A
Warrants.
. In August 1997, we completed a private sale of 200,000 shares of 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 as offered in the secondary
offering completed in February 1998.
. In December 1997, we obtained a short-term loan from Paulson in the
principal amount of $500,000 that was repaid, without interest, out of the
proceeds of the Secondary Offering.
. In February 1998, we sold 460,000 Units, each Unit consisting of one share
of Series A Convertible Preferred Stock, convertible into four Common
Shares, and two Common Stock Purchase Warrants, in a registered offering to
the public. Each Unit was sold at a price to the public of $8.25. The Units
were traded over-the-counter and quoted on the Bulletin Board under the
symbol "CRIIU" for a period of 30 days through March 4, 1998. At the end of
the Unit Trading Period, the Units automatically separated and, as a
result, the Preferred Stock and Warrants traded separately over-the-
counter, and were quoted on the Bulletin Board under the symbols "CRIIP"
and "CRIIW," respectively.
. In July 1999, we 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. We granted 15,000 warrants to two placement agents. In
connection with legal services we granted an additional 15,000 warrants to
one of the investors for services
<PAGE>
rendered unrelated to this private placement. These 30,000 warrants are
exercisable through February 2, 2003 to purchase shares of common stock for
a price of $2.40 per share. Gross proceeds received from this private
placement totaled $475,000.
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 and marketing
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 financing discussed above and a note payable to a member of our Board of
Directors.
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 raised from the secondary offering
completed in February 1998 and the July 1999 private placement for continued
operating activities. 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%.
. 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.
. 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 in the amount of $371,722 or 70.6%, due to
manufacturing ramp up of our laser-based medical devices.
. 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.
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.
We expect that our cash used in operating activities during fiscal 2000
will be less than the cash used in 1999. We cannot accurately predict the timing
of our future capital requirements. If capital requirements vary materially from
those currently planned, we may require the sale of equity or debt securities.
However, we cannot say that additional funding will be obtained. Any additional
equity financing may dilute our existing stockholders. Borrowing money may
involve pledging some or all of our assets and may contain restrictive covenants
with respect to raising future capital and other financial and operational
matters. At this time, we do not have available other sources of capital to
satisfy all of our cash requirements. We depend on future product sales to
furnish additional revenues. If we cannot obtain additional financing as needed,
we may be required to reduce the scope of its operations, which could have a
material adverse effect upon our business, financial condition and results of
operation. We anticipate that our current working capital, proceeds from
financing activities and increased product sales are sufficient to meet our
operational deficits through fiscal 2000.
<PAGE>
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 Tax Reform Act of 1986, the amounts of and the benefits from net
operating loss carryforwards are subject to certain limitations in the amount of
net operating losses that we may apply to offset future taxable income. The
ownership changes in 1995 in connection with the IFC acquisition will limit the
use of this net operating loss carryforward under applicable Internal Revenue
Service Regulations.
RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES - QUARTER ENDED MARCH
31, 2000 COMPARED TO THE QUARTER ENDED MARCH 31, 1999
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 Warrants. Proceeds from the exercise totaled
approximately $467,000.
In February 2000 and subsequently amended in March 2000, we executed a
secured convertible promissory note from a private investor who also serves as
our board director. The principal amount of $1,200,000 will be paid in full with
500,000 shares of our common stock at the time such shares are registered with
the SEC. 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 will
be due and payable on February 25, 2001 but the creditor can elect to defer
payment until any date thereafter through February 25, 2002. This note is
secured by our accounts receivable and inventory. In connection with the
beneficial conversion of this note, we 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.
In March 2000, a former distributor exercised its common stock purchase
warrant to purchase 100,000 shares of our common stock at a price of $2.25 per
share for which we received gross proceeds in the amount of $225,000. We are
registering the 100,000 shares under this Prospectus.
Our current ratio at December 31, 1999, was 1.6 to 1, compared to a current
ratio of 1.5 to 1 on March 31, 2000. This decrease in liquidity is primarily due
to cash used in operations net of cash received from exercised employee stock
options and common stock purchase warrants.
The increase in our current assets of $878,618, or 58.6%, was driven by an
inflow of cash from proceeds received from the exercised stock options and
warrants. As a result, cash and cash equivalents increased $828,861, or 231.3%.
Net property and equipment decreased $21,530, or 4.4%, due primarily to
depreciation and amortization of capital product tooling and molding, while
other assets decreased from $28,939 to $27,731, a decrease of $1,208 or 4.2%.
During the three-month period ended March 31, 2000, our total liabilities
increased from $1,158,833 to $1,668,597, or 44.0%. This increase was primarily
due to the receipt of a loan from a private investor.
Our working capital increased from $590,338 at December 31, 1999 to
$834,192, at March 31, 2000, an increase of $243,854 or 41.3%, due primarily to
cash received from exercised employee stock options and common stock purchase
warrants.
Cash used in operations for the three-month periods ended March 31, 2000
and March 31, 1999 was $691,151 and $494,908, respectively. A reduction in
accounts payable partially offset by an improvement in accounts receivable
collection increased the cash used in operations during this period,
<PAGE>
as compared to the prior period.
We expect that cash used in operating activities will increase throughout
the remainder of 2000 as we launch a more aggressive sales and marketing
campaign and as we implement full-scale production. We cannot accurately predict
our timing of the future capital requirements. Our capital requirements depend
upon numerous factors, including, most notably, the market acceptance of our new
laser-based medical devices. If capital requirements vary materially from those
currently planned, we may require additional financing, including, but not
limited to, the sale of equity or debt securities.
Other than the foregoing, management knows of no other trend, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the liquidity and capital
resources of the Company.
Our total revenue decreased $295,602, or 57.3% to $220,554 from $516,156
for the three-month periods ended March 31, 2000 and 1999, respectively.
Revenues from the sale of products during the three months ended March 31, 2000,
were $214,594, as compared to $497,009 during the comparable period in 1999.
Sales decreased 56.8% while gross margin realized on product sales during this
period declined from 32.0% in 1999, to 20.3% during 2000. Our focus on
troubleshooting and re-engineering efforts associated with our newly introduced
medical devices led to lower than expected product sales. Gross margin was
negatively affected by the following items:
. a reduction in retail selling prices due to competitive pricing
pressures;
. an introductory low margin associated with the laser-based
medical devices introduced into our product mix; and
. increased warranty expenses associated with newly released
products.
We also recognized $5,960 of revenue from SBIR grants during the three
months ended March 31, 2000. The National Institutes of Health, an agency of the
U.S. Department of Health and Human Services, issue these SBIR grants. The
highly competitive grants provide financial assistance for approved tasks of
high-risk research that can lead to future products for small businesses.
Normally, awards do not exceed $750,000 for a period ordinarily not to exceed
two years. Our current Phase II grant expired on March 31, 2000. Additional
Phase II grant applications will be submitted to continue research efforts
initiated under previously awarded Phase I grants.
Our loss from operations incurred during the three months ended March 31,
2000, was $719,025, as compared to an operating loss of $432,615 incurred during
the same period in 1999. Total operating expenses increased $170,901, or 28.9%,
from $591,724 to $762,625. The increase results from the following:
. Research and development expenses increased $4,235 or 3.5%;
. General and administrative expenses increased $168,790, or 50.5%,
reflecting an increase in legal, accounting, investor relations
and insurance fees as well as the fair value of performance-based
options issued in lieu of cash;
. Marketing and sales expenses decreased 1.6%, or $2,124.
During the three months ended March 31, 2000 other income and expenses
decreased from a $10,346 net contribution to income during the period in 1999,
to a $268 net reduction to income during the period in 2000.
<PAGE>
Based upon the above, net loss applicable to the common shareholders was
$719,293 for the three months ended March 31, 2000. During the comparable period
in 1999, and after including the payment of preferred stock dividends of
$514,548, the net loss applicable to common shareholders was $936,817. On a per
share basis, this amounts to a $0.08 loss per weighted average outstanding share
during the three month period ended March 31, 2000, compared to a $0.14 loss per
weighted average outstanding share during the same period of 1999.
DESCRIPTION OF PROPERTY
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 the assembly, production, testing, storage
and inventory functions. Our monthly rent payments are $8,493, subject to a 3%
annual increase. We renegotiated the 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.
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
Board of Director of the Company. 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 six percent (6%).
In February 2000 and subsequently amended in March 2000, we executed a
secured convertible promissory note from Dipl. Ing. Oton Tisch, a Director. We
will pay the principal amount of $1,200,000 with 500,000 shares of our common
stock at the time we register these shares with the SEC. Mr. Tisch paid $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. 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 will be due and payable on February 25, 2001 but Mr.
Tisch can elect to defer payment until any date thereafter through February 25,
2002. We secured this note with our accounts receivable and inventory. In
connection with the beneficial conversion of this note, we 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.
Any transactions between the Company and its officers, directors, principal
stockholders, or other affiliates have been, and will be, on terms no less
favorable to us than could be obtained from unaffiliated third parties on an
arms-length basis and will be approved by a majority of the our independent,
disinterested directors.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
Our common stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board on a limited and sporadic basis under the symbol
"CRII." The reported high and low bid and asked prices for the Common Stock are
shown below for the period through July 3, 2000. The source for the data was
obtained from the NASDAQ Trading & Market Services Department. The prices
presented are bid and asked prices, which represent prices between broker-
dealers and do not include retail mark-ups and mark-downs or any commission to
the broker-dealer. The prices do not necessarily reflect actual transactions.
<PAGE>
Bid Ask
---------------- ----------------
Low High Low High
------- ------- ------- -------
1998
First Quarter $ 1.938 $ 2.797 $ 1.938 $ 3.00
Second Quarter 1.375 2.469 1.391 2.75
Third Quarter 0.844 1.625 0.844 1.75
Fourth Quarter 0.688 3.00 0.766 3.844
1999
First Quarter $ 1.813 $ 2.813 $ 1.938 $ 3.00
Second Quarter 1.500 2.188 1.656 2.531
Third Quarter 1.531 2.125 1.625 2.438
Fourth Quarter 1.563 2.125 1.750 2.313
2000
First Quarter $ 1.531 $ 7.750 $ 1.875 $ 8.75
Second Quarter $ 3.128 $ 5.813 $ 3.281 $ 5.813
Through July 3, 2000 $3.8438 $ 4.000 $ 4.000 $4.0313
The bid and ask prices of the common stock on June 27, 2000 were, $3.8125
and $4.00 respectively, as quoted on the Bulletin Board. As of June 27, 2000
there were approximately 5,200 stockholders of record of the common stock.
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
restrictions exist upon our ability to pay dividends.
EXECUTIVE COMPENSATION
The following tables and discussion set forth information with respect to
all incentive stock option plan and non-plan compensation awarded to, earned by
or paid to the Chief Executive Officer and our only additional highly
compensated executive officer whose salary and bonuses exceed $100,000, all
services rendered in all capacities to us and our the subsidiary for each of the
last three completed fiscal years.
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------------------- ------ -------
Other
Name Annual Restricted
and Compen- Stock LTIP All Other
Principal Salary Bonus sation Award(s) Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald K. 1999 $123,115 $0 $6,343 -0- -0- -0- -0-
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lohrding, 1998 $123,115 $0 $6,343 -0- -0- -0- -0-
President,CEO 1997 $123,115 $0 $6,079 -0- -0- -0- -0-
H. Travis Lee, 1999 $110,000 $0 $3,898 -0- -0- -0- -0-
Vice President 1998 $110,000 $0 $4,204 -0- -0- -0- -0-
Marketing and 1997 $110,000 $0 $4,293 -0- -0- -0- -0-
Sales
</TABLE>
Employment Agreements
We have entered into a written Employment Agreement, having a term of five
(5) years, with Dr. Lohrding. We have employed Dr. Lohrding to serve as the
Chairman, President and CEO, on a full-time basis, for a minimum base salary of
$100,000 per year. During fiscal year 1999, we paid Dr. Lohrding a base salary
of $123,115. We also have a written employment agreement with Mr. H. Travis Lee,
Vice President of Marketing and Sales. Under Mr. Lee's agreement, he receives a
base salary of $110,000 per year; provided, however, that either party may
terminate the employment relationship upon thirty days' prior written notice.
Stock Incentive Plan
During fiscal 1992, we adopted a Stock Incentive Plan. Pursuant to the
Plan, stock options granted to eligible participants may take the form of
Incentive Stock Options under Section 422 of the Internal Revenue Code.
Alternatively, we may grant options that do not qualify as ISO's. They are
called Non-Qualified Stock Options or "NQSO's".
. Section 422 of the Code requires that the aggregate fair market value of
our Common Stock with respect to ISO's granted to an employee exercisable
for the first time in any calendar year not exceed $100,000. The foregoing
limitation does not apply to NQSO's.
. The ISO's exercise price may not be less than 100% of the fair market value
of the shares of our Common Stock on the date of grant. The exercise price
of an NQSO may be set by the administrator.
An option is not transferable, except by will or the laws of descent and
distribution. If the employment of an optionee terminates for any reason, the
optionee may exercise his or her options within a 90-day period following such
termination to the extent he or she was entitled to exercise such options at the
date of termination. Either the Board of Directors can administer the Plan, or
the Board of Directors may designate a committee comprised of directors meeting
certain requirements to administer the Plan. The Administrator will decide when
and to whom to make grants, the number of shares to be covered by the grants,
the vesting schedule, the type of award and the terms and provisions relating to
the exercise of the awards. An aggregate of 1,500,000 shares of the Company's
Common Stock is available for issuance under the Plan.
At March 31, 2000, the Company had granted a total of 919,623 Incentive
Stock Options under the Plan consisting of 554,653 ISO's exercisable at prices
ranging from $1.375 per share to $1.875 per share. There were 364,970 NQSO's,
which are exercisable at prices ranging from $1.75 per share to $3.563 per
share. All options have been issued with exercise prices at or above market
value on the date of issuance.
The following tables set forth certain information concerning the granting
and exercise of incentive stock options during the last completed fiscal year by
each of the named executive officers and the fiscal year-end value of
unexercised options on an aggregated basis:
<PAGE>
TABLE 2
Option/SAR Grants for Last
--------------------------
Fiscal Year-Individual Grants
-----------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise Price
Name Granted (#) Fiscal Year ($/sh) Expiration Date
------------------------------------------------------------------------------
Ronald K. -0- -0- -0- -0-
Lohrding
-0- -0- -0- -0-
H. Travis Lee
------------------------------------------------------------------------------
TABLE 3
Aggregated Option/SAR Exercises in Last Fiscal Year
---------------------------------------------------
and FY-End Option/SAR Values
----------------------------
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)/(2)/
Shares Acquired Value Realized/(1)/ Unexercisable/ Unexercisable/
Name on Exercise (#) ($) Exercisable Exercisable
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ronald K. -0- -0- 0/325,000
Lohrding $618,750
-0- -0- 0/74,174 $0/
H. Travis Lee $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 the Common Stock on the date the options are exercised.
(2) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cell Robotics International, Inc.
We have audited the accompanying consolidated balance sheets of Cell Robotics
International, Inc. and subsidiary as of December 31, 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-1
<PAGE>
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-2
<PAGE>
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-3
<PAGE>
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.
<PAGE>
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.
CELL ROBOTICS INTERNATIONAL, INC.
F-5
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
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 it's 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:
1999 1998
-------- --------
Finished goods $ 78,358 $ 3,003
Parts and components 741,841 394,215
Sub-assemblies 77,772 129,031
-------- --------
$897,971 $526,249
======== ========
F-6
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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) 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.
F-7
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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 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:
1999 1998
----------- ----------
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
========== =========
F-8
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Other Assets
Other assets consist of the following at December 31:
1999 1998
--------- ---------
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
======== ========
(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.
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>
F-9
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 1,119,56
========= ========== === ========= ==========
</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 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:
F-10
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
1999 1998
-------- --------
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%
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:
1999 1998
------ -------
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)
=========== ===========
(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
F-11
<PAGE>
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 of stock for a price of $2.40 per share.
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.
F-12
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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
Allowance for doubtful accounts 7,500 -
Depreciation 0 18,000
Accrued expenses 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>
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 1999 will limit the use of this net operating loss under applicable
Internal Revenue Service regulations.
F-13
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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-14
<PAGE>
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.
F-15
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
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, 2003to 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 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.
F-16
<PAGE>
(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.
(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.
F-17
<PAGE>
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.
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-18
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of As of
3-31-00 12-31-99
------------ ------------
(UNAUDITED)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,187,240 $ 358,379
Accounts receivable, net of allowance for
doubtful accounts of $23,841 in 2000 and
1999 240,487 206,278
Inventory 913,215 897,971
Other 36,847 36,543
------------ ------------
Total current assets 2,377,789 1,499,171
Property and equipment, net 464,026 485,556
Other assets, net 27,731 28,939
------------ ------------
Total assets $ 2,869,546 $ 2,013,666
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of notes payable $ 825,000 $ 0
Accounts payable 457,841 684,403
Payroll related liabilities 164,774 116,617
Royalties payable 60,002 67,519
Other current liabilities 35,980 40,294
------------ ------------
Total current liabilities 1,543,597 908,833
------------ ------------
Notes payable 125,000 250,000
------------ ------------
Total liabilities 1,668,597 1,158,833
============ ============
Stockholders' equity:
Common stock, $.004 par value. Authorized
12,500,000 shares, 8,818,763 and 8,244,121 shares
issued and outstanding at March 31, 2000
and December 31, 1999, respectively 35,275 32,976
Additional paid-in capital 20,218,018 19,154,908
Accumulated deficit (19,052,344) (18,333,051)
------------ ------------
Total stockholders' equity 1,200,949 854,833
------------ ------------
$2,869,546 $ 2,013,666
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-19
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
UNAUDITED
Three Months Ended
March 31, 2000 March 31, 1999
--------------- ---------------
<S> <C> <C>
Product sales $ 214,594 $ 497,009
Research and development grants 5,960 19,147
---------- ----------
Total revenues 220,554 516,156
---------- ----------
Product cost of goods sold (170,994) (337,900)
SBIR direct expenses (5,960) (19,147)
---------- ----------
Total cost of goods sold (176,954) (357,047)
---------- ----------
Gross profit 43,600 159,109
---------- ----------
Operating expenses:
General and administrative 503,080 334,290
Marketing & Sales 134,278 136,402
Research and development 125,267 121,032
---------- ----------
Total operating expenses 762,625 591,724
---------- ----------
Loss from operations (719,025) (432,615)
---------- ----------
Other income (deductions):
Interest income 3,287 10,395
Interest expense (3,555) (49)
---------- ----------
Total other income (deductions) (268) 10,346
---------- ----------
Net loss (719,293) (422,269)
---------- ----------
Preferred stock dividends - (514,548)
---------- ----------
Net loss applicable to common shareholders $ (719,293) $ (936,817)
========== ==========
Weighted average common shares
outstanding, basic and diluted 8,513,547 6,681,998
========== ==========
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.08) $ (0.14)
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-20
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
UNAUDITED
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
-------------------------------------
Net loss $ (719,293) $(422,269)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 27,587 28,163
Amortization of options issued for services 0 7,279
Common stock issued for services 156,039 0
Options and warrants issued for services 84,509 70,815
Increase in accounts receivable (34,209) (111,036)
Increase in inventory (15,244) (47,789)
Increase in other current assets (304) (31,575)
Increase (decrease) in current liabilities (190,236) 11,504
---------- ----------
Net cash used in operating activities ( 691,151) (494,908)
---------- ----------
Cash flows from investing activities:
-------------------------------------
Purchase of fixed assets (4,849) (148,034)
---------- ----------
Net cash used by investing activities (4,849) (148,034)
---------- ----------
Cash flows from financing activities:
-------------------------------------
Proceeds from exercise of options 133,105 0
Proceeds from exercise of warrants 691,756 0
Proceeds from notes payable 700,000 0
---------- ----------
Net cash provided by financing activities 1,524,861 0
---------- ----------
Net increase (decrease) in cash and cash equivalents: 828,861 (642,942)
-----------------------------------------------------
Cash and cash equivalents:
Beginning of period 358,379 1,375,575
---------- ----------
End of period $1,187,240 $ 732,633
========== ==========
Supplemental information:
-------------------------
Stock dividend on preferred stock $ 0 $ 514,548
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-21
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
March 31, 2000
1. Presentation of Unaudited Consolidated Financial Statements
-----------------------------------------------------------
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the 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.
2. Issuance of Equity Securities and Convertible Note
--------------------------------------------------
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.
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 September 1998, the Company sold 200,000 shares of Common Stock for
$300,000 to Chronimed, Inc. This investment 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(R) 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 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 in the form of 183,211 shares
F-22
<PAGE>
of the Company's Common Stock was accrued and subsequently paid with the
issuance of shares of Common 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 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.
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 vested after three
months of services and the remaining 15,000 vest after six months of services.
The fair value of these performance-based options has been and will be measured
upon vesting and 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 on April 26, 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 will be due and
payable on February 25, 2001 but the creditor can elect to defer payment until
any date thereafter through February 25, 2002. This note is secured by accounts
receivable and inventory of the Company. In connection with the beneficial
conversion 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. The Company is currently in discussions to rescind the exercise
of the warrant which may result in the cancellation of the 100,000 Common Shares
and the refund of the aggregate exercise price. If the transaction is
rescinded, the original warrant will be reinstated with the right to exercise
the warrant during the remaining exercise period or any extensions granted.
On May 1, 2000 the Company reached an agreement for a $2,000,000 private
placement selling
F-23
<PAGE>
500,000 shares of its Common Stock to Paulson Investment Company of Portland,
Oregon. The Company reached agreement on a term sheet, to sell the shares of
restricted Common Stock at $4 per share, which is a less than 20% discount to
the market price. This transaction is contingent upon shareholders authorizing
additional shares at the May 19, 2000 annual shareholders meeting. A 5%
placement fee will be paid to a current member of the Company's Board of
Directors after the close of the transaction.
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 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.
See also Note 2 for discussion of issuance of convertible promissory note.
4. Earnings Per Share
------------------
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the quarter. 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 quarter, is
the same as basic loss per share for the quarters ended March 31, 2000 and 1999,
as all potentially dilutive securities were anti-dilutive.
Options to purchase 1,469,623 and 1,631,820 shares of common stock were
outstanding at March 31, 2000 and 1999, respectively. Warrants to purchase
1,589,351 and 1,662,576 shares of common stock were outstanding at March 31,
2000 and 1999. These were not included in the computation of diluted loss per
share as the assumed exercise of the options would have been anti-dilutive
because of the net losses incurred in the quarters ended March 31, 2000 and
1999.
5. 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 diabetic patients and diabetic nurse educators as well as the
physician community, medical clinics, and to distributors.
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.
Operating Segments
March 31, 2000
--------------
Scientific Laser-Based
Research Medical
F-24
<PAGE>
<TABLE>
<CAPTION>
Instruments Devices Corporate Total
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues from customers $ 71,478 143,116 - 214,594
Research and development
grants 5,960 - - 5,960
Loss from operations (30,214) (192,458) (496,353) (719,025)
Segment assets 397,267 1,184,925 1,287,354 2,869,546
<CAPTION>
March 31, 1999
--------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues from customers $208,624 288,385 - 497,009
Research and development
grants 19,147 - - 19,147
Profit (loss) from operations 61,377 (163,306) (330,686) (432,615)
Segment assets 541,038 658,788 1,043,276 2,243,102
</TABLE>
6. Capital Resources
-----------------
Since inception, the Company has incurred operating losses and other equity
charges, which have resulted in an accumulated deficit of $19,052,344 and
operations that used net cash of $691,151 in the quarter ended March 31, 2000.
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 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 the third
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 will be sufficient to cover its
expected operational deficits through 2000.
7. Legal Matters
-------------
F-25
<PAGE>
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(R)
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 (i) failed to take delivery of 1,012 units of
the Professional Lasette(R) 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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
F-26
<PAGE>
--------------------------------------------------------------------------------
No person is authorized to give any information or to make any representation
other than those contained in this prospectus, and if made such information or
representation must not be relied upon as having been given or authorized. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Securities offered by this prospectus or an
offer to sell or a solicitation of an offer to buy the Securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
The delivery of this prospectus shall not, under any circumstances, create any
implication that there has been no changes in the affairs of the Company since
the date of this prospectus. However, in the event of a material change, this
prospectus will be amended or supplemented accordingly.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
Determination of Offering Price...........................................
Dilution..................................................................
Selling Securityholders...................................................
Plan of Distribution......................................................
Legal Proceedings.........................................................
Directors, Executive Officers and Control Persons.........................
Security Ownership of Certain Beneficial Owners and Management............
Description of Securities to be Registered................................
Interest of Named Experts and Counsel.....................................
Indemnification...........................................................
Description of Business...................................................
Management Discussion and Analysis........................................
Description of Property...................................................
Certain Relationship and Related Transactions.............................
Market for Common Equity and Related Stockholder Matters..................
Executive Compensation....................................................
Financial Statements......................................................
</TABLE>
--------------------------------------------------------------------------------
CELL ROBOTICS INTERNATIONAL, INC.
1,400,000 Shares of Common Stock
--------------------------------------------------------------------------------
PROSPECTUS
--------------------------------------------------------------------------------
July __, 2000
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24: Indemnification Of Directors And Officers
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, director or officers of the
Registrant is insured or indemnified in any manner against any liability which
he may incur in his capacity as such, is as follows:
a. Sections 7-109-101 through 7-109-110 of the Colorado Corporation
Code provide for the indemnification of a corporation's officers and directors
under certain circumstances.
* * *
b. Article XII of Registrant's Articles of Incorporation provide
that the corporation may indemnify each director, officer, and any employee or
agent of the corporation, his heirs, executors and administrators, against
expenses reasonably incurred or any amounts paid by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being or having been a director, officer, employee or agent of the corporation
to the extent permitted by the law as recited above in subparagraph (a).
c. Article XII of Registrant's Articles of Incorporation provides,
in part:
"e. To the maximum extent permitted by law or by public policy,
directors of this Corporation are to have no personal liability
for monetary damages for breach of fiduciary duty as a director."
d. The Company currently pays for and maintains an insurance policy
for $1,000,000 that covers directors and officers' liability.
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>
SEC Filing Fee $ 1,474.00
Printing Expenses* 2,000.00
Accounting Fees and Expenses* 8,000.00
Legal Fees and Expenses* 20,000.00
Blue Sky Fees and Expenses* 5,000.00
Registrar and Transfer Agent Fee* 1,000.00
Miscellaneous* 1,000.00
-----------------------------------------------
Total* $38,474.00
</TABLE>
____________________________________
* Estimated
II-1
<PAGE>
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 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 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
for a price of $2.40 per share. The warrants were issued to entities which
qualifies 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
II-2
<PAGE>
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 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 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
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. A 5% placement fee was paid to
Bridgeworks Capital, Inc.
In February, May and June, we issued 150,000 shares to Pollet &
Richardson pursuant to a debt for service agreement. Pollet & Richardson serves
as our legal counsel. The shares were issued directly to the law firm and or its
two principal shareholders who qualify as "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.
Item 27. Exhibits.
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
Exhibit No. Title
----------- -----
** 3.2 Amended and Restated Bylaws
*** 3.3(a) Amended and Restated Articles of Incorporation
** 3.3(b) Amended and Restated Articles of Incorporation dated May 23, 1995
** 4.1 Specimen Certificate of Common Stock
***** 4.2 Representatives' Common Stock Purchase Warrant
**** 4.3 Warrant Agreement
**** 4.3.1 Warrant Agreement (revised)
***** 4.4 Lohrding Option Agreement
***** 4.5 Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock
II-3
<PAGE>
***** 4.6 Specimen Certificate of Series A Preferred Stock
***** 4.7 Specimen Unit Certificate
***** 4.8 Specimen Common Stock Purchase Warrant Certificate
****
**** 5.0 Legal Opinion from Pollet & Richardson
* 10.1 Agreement and Plan of Reorganization between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel, Inc.,
Bridgeworks Investors I, L.L.C., and Ronald K. Lohrding
* 10.2 Employment Agreement of Ronald K. Lohrding
* 10.3 Employment Agreement of Craig T. Rogers
**** 10.4 Employment Agreement of Travis Lee
* 10.5 Financing and Capital Contribution Agreement between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel, Inc., and
Bridgeworks Investors I, L.L.C.
* 10.6 Irrevocable Appointment of Voting Rights by Dr. Lohrding to MiCel,
Inc.
* 10.7 Stock Pooling and Voting Agreement
** 10.8 Royalty Agreement dated September 11, 1995 between the Registrant,
Cell Robotics, Inc., and Mitsui Engineering & Shipbuilding Co.,
Ltd.
** 10.9 Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the Company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
** 10.10 Distribution Agreement dated April 6, 1995, between Carl Zeiss,
Inc. and the Registrant
** 10.11 Distribution Agreement dated December 15, 1994, between MiCel, Inc.
and the Registrant
** 10.12 Revised License Agreement dated January 5, 1996 between the
Registrant and the Regents of the University of California
** 10.13 Purchase Agreement with Tecnal Products, Inc.
** 10.14 License Agreement with NTEC
*** 10.15 License Agreement dated May 13, 1996, between the Registrant and
GEM Edwards, Inc.
***** 10.16 Termination Agreement and Release between the Registrant and GEM
Edwards, Inc.
***
**** 10.17 Employment Agreement of Dr. Ronald K. Lohrding dated February 2,
1998
****** 10.18 Patent License Agreement between American Telephone and Telegraph
Company and Cell Robotics, Inc.
II-4
<PAGE>
****** 10.19 Amendment to AT&T License Agreement
****** 10.20 Manufacturing Agreement between Big Sky Laser Technologies, Inc.
and Cell Robotics International, Inc. dated May 20, 1998.
****
**** 10.21 Development and Distribution Agreement between Hamilton Thorne
Research and Cell Robotics International dated September 10,
1999.
****
**** 10.22 Amendment to Development and Distribution Agreement between
Hamilton Thorne Research and Cell Robotics International dated
May 18, 2000
** 21.0 Subsidiaries
****
**** 23.0 Consent of KPMG LLP
****
**** 23.1 Consent of Pollet & Richardson
****
**** 24.0 Power of Attorney
____________________________________
* Incorporated by reference from the Registrant's Current Report on Form
8-K dated February 23, 1995, as filed with the Commission on March 10,
1995.
** Incorporated by reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2, which was declared
effective by the Commission on February 14, 1996.
*** Incorporated by reference from the Registrant's Post-Effective Amendment
No. 1 to Registration Statement on Form SB-2, filed with the Commission
on July 15, 1996.
**** Incorporated by reference from the Company's Annual Report on Form 10-
KSB, for the fiscal year ended December 31, 1996, as filed with the
Commission on April 15, 1997.
***** Incorporated by reference from the Company's Pre-Effective Amendment No.
2 to Registration Statement on Form SB-2 which was declared effective by
the Commission on February 2, 1998, SEC File No. 333-40895.
****** 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 Commission on November 18, 1998
***
**** Incorporated by reference from the Company's Annual Report on Form 10-
KSB, for the fiscal year ended December 31, 1997, as filed with the
Commission on May 2, 1998.
****
**** Filed herewith
II-5
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant will, unless in
the opinion of its counsel that 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 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 offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. To provide, upon effectiveness, certificates in such denominations and
registered in such names as are required to permit prompt delivery to each
purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned thereunto duly authorized. In the City of Albuquerque, State of New
Mexico on the 6th of July, 2000.
CELL ROBOTICS INTERNATIONAL, INC.,
a Colorado corporation
By: /s/ Ronald K. Lohrding, Ph.D.
---------------------------------------
Ronald K. Lohrding, Ph.D., President
Pursuant to the requirements of the 1933 Securities Act, this Form
SB-2 Registration Statement has been signed by the following persons in the
capacities with Cell Robotics International, Inc. and on the dates indicated.
Dated: July 6, 2000 /s/ Ronald K. Lohrding
--------------------------------------
Ronald K. Lohrding, Chairman of the Board,
President, and Chief Executive Officer
*(Attorney in fact)
Dated: July 6, 2000 /s/ Jean Scharf
--------------------------------------
Jean Scharf,
Chief Financial Officer, Chief
Accounting Officer and Controller
Dated: July 6, 2000 /s/ Mark Waller*
--------------------------------------
Mark Waller, Director
Dated: July 6, 2000 /s/ Raymond Radosevich*
--------------------------------------
Raymond Radosevich, Director
Dated: July 6, 2000 /s/ Debra Bryant*
--------------------------------------
Debra Bryant, Director
Dated: July 6, 2000 /s/ Andrew F. Pollet
--------------------------------------
Andrew F. Pollet, Director
II-7
<PAGE>
Dated: July 6, 2000 /s/ Steve A. Crees*
-----------------------------------------
Steve A. Crees, Director
Dated: July 6, 2000 /s/ Oton Tisch*
-----------------------------------------
Oton Tisch, Director
II-8
