<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______________ to _______________
Commission File Number 0-21092
OCTUS, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0013439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 EXECUTIVE DRIVE, PLAZA TWO, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
619-824-1185
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
November 12, 1996 Common Stock, no par value 4,222,922
- - ----------------- -------------------------- ---------
(Date) (Class) (Number of Shares)
Series C Preferred Stock 250,00
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE> 2
OCTUS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
INDEX
PAGE
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets at September 30, 1996 and
December 31, 1995
Condensed Statements of Operations for the
three months ended September 30, 1996 and 1995
Condensed Statements of Operations for the
nine months ended September 30, 1996 and 1995
Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995
Notes to Condensed Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
PART II. OTHER INFORMATION
SIGNATURES
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED)
------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,000 $ 3,000
Accounts receivable 0 12,000
Other current assets 2,000 1,000
------------ ------------
TOTAL CURRENT ASSETS 6,000 16,000
Property and equipment 4,000 13,000
Other noncurrent assets 0
------------ ------------
TOTAL ASSETS $ 10,000 $ 29,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,000 $ 84,000
Accrued liabilities 14,000 12,000
Current portion of capitalized lease obligations 0 4,000
Current portion of long term debt 4,000
Due to officer 0 4,000
------------ ------------
TOTAL CURRENT LIABILITIES 44,000 104,000
NONCURRENT LIABILITIES
Convertible note payable 25,000 25,000
Capitalized lease obligation, net of current portion 0 2,000
------------ ------------
------------ ------------
TOTAL LIABILITIES 69,000 131,000
Shareholders' Equity:
Common stock, no par value,
20,000,000 shares authorized,4,222,922 shares issued and outstanding 19,271,000 19,271,000
Series C Preferred Stock, 10,000,000 authorized, 250,000 shares 151,000 --
issued and outstanding
Common Stock Warrants 2,696,000 2,696,000
Accumulated deficit (22,177,000) (22,069,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (59,000) (102,000)
============ ============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,000 $ 29,000
============ ============
</TABLE>
3
See notes accompanying financial statements
<PAGE> 4
OCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- -----------
Revenues:
<S> <C> <C>
Net sales $ 0 $ 25,000
Royalties 0 0
Interest 0 0
Nonrecurring income (see Notes) 0 (36,000)
Extraordinary income (see Notes) 0 99,000
----------- -----------
0 88,000
----------- -----------
Costs and expenses:
Cost of sales 0 15,000
Selling, general and administrative 33,000 89,000
Research and development 0 24,000
Interest 1,000 0
----------- -----------
34,000 128,000
----------- -----------
Net loss before income taxes (34,000) (40,000)
----------- -----------
Net loss ($ 34,000) ($ 40,000)
=========== ===========
Net loss per common share ($ 0.01) ($ 0.01)
=========== ===========
Shares used in per share calculation 4,222,922 4,222,922
=========== ===========
</TABLE>
See notes accompanying financial statements
4
<PAGE> 5
OCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
Revenues:
<S> <C> <C>
Net sales $ 5,000 316,000
Royalties 50,000 714,000
Interest 0 3,000
Non recurring income (see Notes) 0 612,000
Extraordinary income (see Notes) 0 99,000
----------- ---------
55,000 1,744,000
----------- ---------
Costs and expenses:
Cost of sales 5,000 191,000
Selling, general and administrative 155,000 746,000
Research and development 0 178,000
Interest 3,000 0
----------- ---------
163,000 1,115,000
----------- ---------
Net (loss) gain before income taxes (108,000) 629,000
----------- ---------
Net (loss) gain ($ 108,000) 629,000
=========== =========
Net (loss) gain per common share ($ 0.02) $ 0.15
=========== =========
Shares used in per share calculation 4,222,922 4,222,922
=========== =========
</TABLE>
See notes accompanying financial statements
5
<PAGE> 6
OCTUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net (loss) gain ($108,000) $ 629,000
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization $ 7,000 $ 2,000
Loss (gain) on disposal of property and equipment $ 0 $ 138,000
Increase (decrease) in accounts receivable $ 12,000 ($ 34,000)
Decrease in inventories $ 0 $ 133,000
Decrease in other current assets $ 0 $ 47,000
(Increase) decrease in other noncurrent assets ($ 1,000) $ 47,000
(Decrease) in accounts payable ($ 58,000) ($117,000)
Increase (decrease) in accrued liabilities $ 2,000 ($649,000)
Increase (decrease) in deferred revenue $ 0 ($716,000)
--------- ---------
Net cash used by operating activities ($146,000) ($520,000)
--------- ---------
Cash flow from investing activities:
Expenditures for property and equipment $ 2,000 $ 3,000
Loans to officers ($ 4,000) $ 54,000
Proceeds from sale of fixed assets $ 0 $ 60,000
--------- ---------
Net cash provided by investing activities ($ 2,000) $ 117,000
--------- ---------
Cash flow from financing activities: .
Payments of capital leases and long-term debt ($ 2,000) ($ 21,000)
Proceeds from issuance of preferred stock, net $ 151,000 $ 0
--------- ---------
Net cash provided by financing activities $ 149,000 ($ 21,000)
--------- ---------
Net decrease in cash and cash equivalents ($ 1,000) ($ 424,000)
Cash and cash equivalents at beginning of period $ 3,000 $ 429,000
--------- ---------
Cash and cash equivalents at end of period $ 4,000 $ 5,000
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,000 $ 0
========= =========
</TABLE>
See notes accompanying financial statements
6
<PAGE> 7
OCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATIONS
The accompanying financial information has been prepared by OCTuS, Inc.
(the "Company") without audit, in accordance with the instructions to Form
10-QSB and, therefore, does not necessarily include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in accordance with generally accepted accounting
principles.
In management's opinion, the accompanying unaudited financial
statements contain all adjustments (which include only normal, recurring
adjustments) necessary to present fairly its financial position at September 30,
1996 and December 31, 1995, and the results of operations for the three and nine
months ended September 30, 1996 and 1995. Although the Company believes that the
disclosures made in this report are adequate to make the information not
misleading, these financial statements should be read in connection with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended December 31, 1995.
NOTE 2. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED)
-------------- --------
<S> <C> <C>
Accounts receivable:
Trade accounts receivable: $ 0 $ 0
Other 0 12,000
-------- --------
$ 0 12,000
-------- --------
Property and equipment:
Computer and test equipment $ 19,000 $ 26,000
Furniture and fixtures 13,000 19,000
-------- --------
32,000 45,000
Less accumulated depreciation (28,000) (32,000)
-------- --------
$ 4,000 $ 13,000
======== ========
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(UNAUDITED)
------------- -------
<S> <C> <C>
Accrued liabilities:
Compensation and employee benefits $ 5,000 $ 9,000
Other 9,000 3,000
------- -------
$14,000 $12,000
======= =======
</TABLE>
NOTE 3. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On January 15, 1993, the Company completed an offering of 2,000,000
units at the initial public offering price of $6.00 per unit. Each unit
consisted of one share of Common Stock, no par value, and one Common Stock
purchase warrant. The warrants and Common Stock began trading separately on
January 18, 1993. The Company's common stock, units, and warrants were delisted
from the Nasdaq Small-Cap Market as of February 1, 1995 due to the Company's
inability to meet that market's minimum capital and surplus requirements. Since
that time, the Company's securities have been trading on the OTC Bulletin Board
(the "pink sheets").
PRIVATE OFFERINGS
In July 1994, the Company issued 941,975 shares of unregistered common
stock to three investors. Total proceeds to the Company, net of offering costs,
were $1,568,000 (see "Public Warrants", below).
In July, 1996 the Company issued 250,000 of its Series C Preferred
Stock and one five-year warrant to purchase up to 3,000,000 shares of its Common
Stock to one investor for a total investment of $151,000. With respect to the
warrant, such shares may be exercised at a price of $0.43 per share. However,
such exercise price is subject to adjustment from time to time as described in
the warrant agreement. The Company has granted piggyback and demand registration
rights to the investor with respect to the shares of Common Stock underlying
such warrant. The Company has further agreed to nominate two (2) individuals
designated by such investor to the Company's board of directors.
The Series C Preferred Stock, as established by the Company, consists
of a total of 250,000 shares and is senior in preference and priority in all
manners whatsoever with respect to the Company's common stock and any and all
classes of the Company's preferred stock. The holders of the Series C Preferred
Stock are entitled to receive cumulative dividends at the annual rate of $0.036
per share payable in cash when, as and if declared by the Company's board of
directors out of any funds legally available therefor. Such Such dividends shall
accrue on a cumulative basis on each share of Series C Preferred Stock from day,
to day, whether or not declared or paid. Such shares of Series C Preferred Stock
shall not be convertible into Common Stock or any other of the Company's
securities. The holder of each share of Series C Preferred Stock shall be
entitled to 10 votes per share, entitled to vote on all matters which come
before the Company's shareholders for which a vote is taken or any written
consent of the Company's shareholders is solicited, such votes to be counted
together with all other shares of the Company's securities having general voting
power and not separately as a class. The Company has the right to call and
redeem all (but not less than all) of the outstanding shares of Series C
Preferred Stock for an aggregate price equal to $0.63 per share of Series C
Preferred Stock, plus any and all then accured but unpaid dividends, provided
however, that the Company shall have no right to call or redeem any shares of
Series C Preferred Stock prior to June 30, 1999 without the express prior
written consent of the holders of 100% of the then outstanding shares of the
Series C Preferred Stock, which consent may be withheld or denied in the sole
and absolute discretion of the holders of the Series C Preferred Stock for any
reason or no reason whatsoever.
8
<PAGE> 9
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders and upon giving
notice as required by law, are entitled to cumulate their votes in the election
of directors. However, effective upon the Company becoming a "listed
corporation" within the meaning of Section 301.5 of the California Corporations
Code, the Articles provide that cumulative voting will be eliminated.
The holders of Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors in its discretion
from funds legally available, provided that no dividend or distribution may be
declared or paid on any shares unless at the same time an equivalent dividend is
declared or paid on all outstanding shares of Common Stock and Preferred Stock.
Upon liquidation or dissolution of the Company, subject to the prior liquidation
rights of the holders of any Preferred Stock, the holders of Common Stock are
entitled to receive ratably the remaining assets available for distribution to
the shareholders. The Common Stock has no preemptive or other subscription
rights, and there are not conversion rights or redemption or sinking fund
provisions with respect to such shares.
9
<PAGE> 10
PUBLIC WARRANTS
Each Public Warrant entitles the registered holder to purchase one
share of Common Stock from the Company until January 15, 1998. Due to completion
of a private offering of unregistered Common Stock in July 1994, the Company
adjusted the exercise price of the warrants and number of shares. Accordingly,
the exercise price of one share of common stock purchased pursuant to each
Public Warrant decreased from $7.00 per share to $6.49 per share. In addition,
the total number of Public Warrants increased from 2,000,000 shares to
2,157,660.
The holders of the Public Warrants have certain anti-dilution
protection upon the occurrence of certain events, including stock dividends,
stock splits, mergers, and reclassifications. The holders of the Public Warrants
have no right to vote on matters submitted to the shareholders of the Company
and have no right to receive dividends. The holders of the Public Warrants are
not entitled to share in the assets of the Company in the event of liquidation,
dissolution, or the winding up of the Company's affairs.
NON-PUBLIC WARRANTS
During 1993 and 1995, the Company issued non-public stock warrants to
certain directors and consultants of the Company. The per share price of the
warrants issued was determined by the Company's Board of Directors. At June 30,
1996, 33,000 shares at $6.00 per share and 25,000 shares at $0.25 per share (see
Note 14) were outstanding and exercisable. Payment for shares to be issued upon
exercise of a warrant must be made in cash.
NOTE 4. NET GAIN OF LOSS PER COMMON SHARE
Net gain or loss per common share is calculated by dividing the net
loss for the period by the weighted average number of common shares outstanding
during the period increased by dilutive common stock equivalents using the
treasury stock method.
NOTE 5. PROMISSORY NOTE TO OFFICERS
In October, 1993, the Company issued to John C. Belden, President, a
$50,000 one-year unsecured promissory note payable to the Company at the indexed
rate for the Federal Home Loan Bank of San Francisco for the Eleventh Federal
Home Loan Bank District plus 2%. In February 1995, the Company forgave the
entire unpaid principal balance and accrued interest of this note in
consideration of Mr. Belden's agreement to a $75,000 reduction in his annual
salary and a shortening of the term of his employment agreement with the Company
by five months, to December 31, 1995.
NOTE 6. INCOME TAXES
The Company has adopted on a prospective basis effective January 1,
1993, Statement of Financial Accounting Standard No. 109 (FAS109), "Accounting
for Income Taxes." FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of other assets and liabilities. There was no effect on the Company's
financial statements upon the implementation of FAS 109.
10
<PAGE> 11
NOTE 7. AGREEMENT FOR DISTRIBUTION OF RETAIL PRODUCT IN NORTH AMERICA
In March, 1995, the Company entered into a three-year agreement with
Cintech Tele-Management Systems, Inc. ("Cintech") granting Cintech exclusive
rights to distribute the retail version of OCTuS PTA in North America. In
connection with the agreement, Cintech also purchased all of the Company's
retail OCTuS PTA inventory and obtained the rights to manufacture additional
units of the product.
NOTE 8. DELISTING FROM NASDAQ SMALL-CAP MARKET
The Company's common stock, units and warrants were delisted from the
Nasdaq Small-Cap Market as of February 1, 1995 due to the Company's inability to
meet that market's minimum capital and surplus requirements. Since that time,
the Company's securities have been trading on the OTC Bulletin Board.
NOTE 9. REDUCTION IN WORKFORCE
The Company laid off a significant portion of its workforce in 1994 and
1995 in an effort to reduce costs and sustain operations. As of June 30, 1996,
the Company had one employee.
NOTE 10. RELEASE FROM PACIFIC BELL DELIVERY OBLIGATION
In May 1995, Pacific Bell released the Company from all remaining
obligations to deliver OCTuS PTA units to its customers under its product
delivery agreement. This includes $240,000 of advance payments for undelivered
products recorded as a liability on the Company's balance sheet at December 31,
1994.
NOTE 11. EUROPEAN LICENSING AGREEMENT
On September 5, 1995, the Company entered into a product development
and license agreement with Ascom Telecommunications Limited ("Ascom") of the
United Kingdom. The agreement provides Ascom with an exclusive license to
manufacture and sell to distributors, resellers and end users in Europe a
special version of OCTuS PTA which has been modified to operate through the
personal computer's serial port with Ascom's proprietary telephone. Said
exclusivity shall continue for so long as Ascom sells or otherwise pays OCTuS a
specified minimum royalty on a quarterly basis. The agreement provides that
Ascom shall pay the Company a total of $65,000 for the required modifications to
the standard OCTuS PTA product. To date, the Company has received $55,000 of
that amount from Ascom as payment for the required modifications to the standard
OCTuS PTA program. Under the agreement, Ascom has the right to access the source
code of the product in the event the Company becomes insolvent or is otherwise
unable to support the product.
11
<PAGE> 12
NOTE 12. RELOCATION OF OPERATIONS
In September 1996, the Company relocated to a 500 square foot facility
which it leased on a monthly basis from an unrelated third party with a monthly
lease payment of $ 500 per month. The Company's previous facility was a 540
square foot office space which it subleased from an unrelated third party on
month-to-month terms for a monthly lease payment of $500 per month. The Company
occupied that space from July 1995 to September 1996.
From April 1995 to July 1995, the Company leased, on a month to month basis, a
12,400 square foot facilty from an unrelated third party for a monthly lease
payment of $2,500.
From April 1994 to April 1995, the Company's headquarters were located in a
13,240 square foot facility adjacent to a 45,000 square foot facility which
served as the Company's headquarters from 1988 to 1994. The Company's monthly
lease and expense payments (which included common area maintenance, taxes and
insurance costs) on the 13,240 square foot facility were approximately $11,200.
The Company negotiated an agreement with the landlord of that facility to permit
the leasing of the premises to an unrelated third party, beginning in April
1995. In the event such third party's tenancy terminates prior to the
termination of the Company's lease in February 1998, the Company will have the
option to reoccupy or sublet the premises for the remainder of the Company's
lease, in which event the Company would be completely released from any other
obligations under the terms of the lease.
NOTE 13. CONVERTIBLE NOTE PAYABLE
On December 1, 1995, Maroon Bells Capital Partners, Inc., a company managed by
Theodore Swindells, a former director of the Company, advanced $25,000 to the
Company for working capital purposes. The note bears interest at 8% and is due
with accrued interest on November 30, 1997. Additionally, the note may be
converted at any time into shares of the Company's common stock at the rate of
$0.25 per share. The note also contains acceleration and anti-dilution clauses
upon conversion. Maroon Bells was also granted 25,000 private warrants to
purchase the Company's common stock at a price of $0.25 per share. The warrants
are for a five-year period.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations that are not related
to historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward statements. Further,
certain forward looking statements are based upon assumptions of future events
which may not prove to be accurate. These forward looking statements involve
risks and uncertainties including but not limited to those referred to below.
This information should be read in conjunction with the financial
statements and notes thereto included in Item 1 of this report for the quarter
ended September 30, 1996. Additionally, the financial statements and notes
thereto and Management's Discussion and Analysis in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995 will provide additional
information.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
The following table sets forth certain revenue and expense classifications as
percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
Revenues:
<S> <C> <C>
Net sales -- 28.4%
Nonrecurring income -- (40.9)%
Extraordinary income -- 112.5%
------
-- 100.0%
------ ------
Costs and expenses:
Cost of sales -- 17.0%
Selling, general and administrative -- 101.1%
Research and development -- 27.3%
Interest -- --
------ ------
-- 145.4%
Loss before income taxes -- (45.5)%
------ ------
Net loss -- (45.5)%
====== ======
Cost of sales as a percent of net sales -- 60.0%
====== ======
</TABLE>
Net Sales. There were no net sales for the three months ended September
30, 1996, which represented a decrease of $,000 or 100%, from the same period in
1995. This decrease is primarily the result of the completion of the Company's
shift, begun in 1995, from selling its OCTuS PTA product through retail channels
to one of promoting its technology through licensing.
Nonrecurring income. No nonrecurring income for the three month period
ended September 30, 1996. Nonrecurring income for the three month period ended
September 30, 1995 was -36,000. Such amount resulted from the Company's
reclassification, during the period ended September 30, 1995, of $86,000
reported as non-recurring income during the period ended June 30, 1995 to
extraordinary income.
13
<PAGE> 14
Extraordinary income. There was no extraordinary income recorded for
the three months ended September 30, 1996. Extraordinary income for the period
ended September 30, 1995 was $99,000. Such amount represents the sale of certain
of the Company's assets during such period as well as a negotiated reduction of
debt.
Cost of Sales. No amounts were recorded for cost of sales for the three
months ended September 30, 1996, which represents a decrease of $15,000, or
100%, from the same period in 1995. The decrease reflects the completion of the
transition of the Company from a sales and marketing company to a licensing
organization. Cost of sales as a percentage of net sales was zero for the three
months ended September 30, 1996, as compared to 60% in the prior year period.
This reflects an decrease in product sales as compared to the same period in the
previous year, which was due to completion of the Company's transition from its
focus on sales and marketing to one of licensing of its technology.
Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended September 30, 1996 decreased
$56,000, or 62.9%, from $89,000 for the same period in 1995 to $33,000. This
decrease from the prior period is due primarily to reduced capital resources and
operating expenses of the Company caused by continued downsizing and relocation
to significantly smaller quarters.
Research and Development. There were no significant research and
development expenses recorded during the period ended September 30, 1996; as
such, these expenses were recorded as general and administrative expenses. This
amount was unchanged from the same period in 1995.
Net Loss. Net loss for the three months ended September 30, 1996 was
$34,000, as compared to a $40,000 loss for the same period in 1995.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
The following table sets forth certain revenue and expense
classifications as percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------- ------
Revenues:
<S> <C> <C>
Net sales 9.0% 18.1%
Royalties 90.9% 41.0%
Nonrecurring income (see Notes) -- 35.1%
Extraordinary income (see Notes) -- 5.7%
Interest -- .1%
------- ------
100.0% 100.0%
------- ------
Costs and expenses:
Cost of sales 9.0% 11.0
Selling, general and administrative 221.8% 42.8%
Research and development -- 10.2%
Interest 3.6% --
------- ------
234.4% 59.6%
(Loss) gain before income taxes (134.54)% 36.1%
------- ------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
Net (loss) gain (134.54)% 36.1%
======= ======
Cost of sales as a percent of net sales 100% 60.4%
======= ======
</TABLE>
Net Sales. Net sales for the nine months ended September 30, 1996 were
$5,000 representing a decrease of $311,000 or 98.4%, from the same period in
1995. This decrease is primarily the result of the Company's shift in 1995 from
selling its OCTuS PTA product through retail channels to one of promoting its
technology through licensing.
Royalty and Technology Income. Royalty and technology income of $50,000
was recorded during the nine months ended September 30, 1996. This represented a
decrease of $664,000, or 93.0% from the amount recorded in the same period in
1995. Up through the month of August 1995, substantially all of the Company's
royalty and technology income was earned from a single licensee. In September
1992, the Company granted a perpetual non-exclusive and unlimited technology
license, involving certain laser printer technology, to a third party (which at
the time was a preferred shareholder of the Company) with whom it had a
pre-existing technology license agreement in exchange for a one-time royalty
cash payment, net of foreign taxes, of $2.7 million. Royalty income therefrom
was recognized using the straight-line method over the remaining term of the
technology license agreement which expired in August 1995.
A substantial part of the Company's royalty and technology income is
from two licensees: (i) Cintech Tele-Management Systems, Inc. of Cincinnati,
Ohio ("Cintech"), whereby in March 1995 the Company granted Cintech the
exclusive rights to the retail version of the OCTuS PTA product for North
America; and (ii) Ascom Telecommunications Limited of the United Kingdom
("Ascom") which, in September, 1995, executed a license agreement with the
Company whereby the Company granted exclusive rights to Ascom to manufacture and
distribute a special serial-port version of the OCTuS PTA software to the
European market. In connection with that agreement, Ascom agreed to pay the
Company $65,000 in order to develop the modified version of the product. To
date, the Company has received $55,000 of such amount. It should be noted,
however, that although the above-referenced agreements provide for payment of
royalties to the Company by the aforementioned licensees with respect to OCTuS
PTA units manufactured and distributed by them, no such royalties have been
earned by the Company to date and there can be no assurance that substantial
royalties will develop from these sources (or under any other similar licensing
arrangements which have yet to be established), if at all.
Interest Income. No interest income was recorded for the nine months
ended September 30, 1996. This represented a decrease of $3,000, or 100% lower
than for the comparable period in 1995. The decrease is the result of a lower
cash balance during the nine months ended September 30, 1996 due to the Company
using its cash reserves because of a lack of significant sales, which generated
poor operating cash flow.
Nonrecurring income. No nonrecurring income was reported for the nine
month period ended September 30, 1996. Nonrecurring income for the nine month
period ended September 30, 1995 was $612,000. Such non-recurring income for such
period was due to the Company's one-time receipt of revenue in connection with
its transition from a sales and marketing company to a software licensing
organization, including revenue received by the Company in connection with the
buyout of royalties due from Spectrum Signal Processing; the disposition by the
Company of its excess physical inventory; and revenue recorded as a result of
Pacific Bell's May 1995 release of the Company's remaining obligations to
deliver OCTuS PTA units to its customers under its product delivery agreement.
Such release caused $240,000 in advance payments for undelivered products (which
had been recorded as a liability on the Company's balance sheet at December 31,
1994) to be recorded as revenue during the period ended June 30, 1995. As such,
it must be emphasized that the Company's receipt of such revenues was due to a
one-time occurrence and there can be no assurance that revenues in such amounts
will be received by the Company on a regular basis.
15
<PAGE> 16
Extraordinary income. No extraordinary income was reported for the nine
month period ended September 30, 1996. Extraordinary income for the period ended
September 30, 1995 was $99,000. During the period ended September 30, 1995, the
Company reclassified $86,000 of income previously classified as nonrecurring
income to extraordinary income. Such extraordinary income represents the sale of
certain of the Company's assets during such period as well as a negotiated
reduction of debt.
Cost of Sales. Cost of sales for the nine months ended September 30,
1996 of $5,000 represents a decrease of $186,000, or 97.4%, from $191,000 in the
same period in 1995. The decrease reflects the transition of the Company from a
sales and marketing company to a licensing organization. Cost of sales as a
percentage of net sales was 100.0% for the nine months ended September 30, 1996,
as compared to 60.5% in the prior year period. This reflects an decrease in
product sales as compared to the same period in the previous year, which was due
to the Company's transition from its focus on sales and marketing to one of
licensing of its technology.
Selling, General and Administrative. Selling, general and
administrative expenses for the nine months ended September 30, 1996 decreased
$591,000, or 79.2%, from $746,000 for the same period in 1995 to $155,000. The
decrease primarily reflects a shift in expenses related to significant
restructuring and downsizing of the Company which occurred in 1994 and 1995 due
to lack of significant sales which resulted in the Company expending its limited
cash resources in order to fund operating expenses.
Research and Development. There were no significant research and
development expenses for the recorded during the period ended September 30,
1996; as such, these expenses were recorded as general and administrative
expenses. This represented a decrease of $178,000 or 100.0% from the nine month
period ended September 30, 1995. The decrease reflects the Company's reduced
allocation of resources to development of its OCTuS PTA product line due to
reduced capital resources.
Net (Loss) Gain. Net loss for the nine months ended September 30, 1996
was $108,000, as compared to a $629,000 gain for the same period in 1995. It
should be noted that the gain recorded for the prior nine month period ended
September 30, 1995 primarily reflected one-time receipts of revenue by the
Company in connection with its transition from a sales and marketing company to
a licensing organization as well as a reduction in expenses associated with
substantial reductions in force and other operating costs necessitated by lack
of significant product sales and resultant decreases in available cash
resources. The increase of $743,000, or 111%, primarily reflects the Company's
transition from a sales and marketing organization to a technology licensing
business.
LIQUIDITY AND CAPITAL RESOURCES. For the nine months ended September
30, 1996, the Company posted a net loss of $108,000. The Company's operating and
investing activities used cash of $148,000. Management believes that the
establishment of revenue generating licensing agreements, combined with possible
additional financing and existing capital resources, will enable it to carry out
its 1997 operating plan and meet the diminished liquidity requirements of the
Company for the remainder of 1996. However, the Company has no commitments for
additional licensing agreements and does not believe its current licensing
agreements are sufficient to provide for the continued viability and operations
of the Company. Additionally, although the Company did complete a private sale
of stock in July 1996 which provided approximately $151,000 to the Company, the
Company has no additional commitments from any party to provide additional
capital and there is no assurance that such funding will be available when
needed, or if available, that its terms will be favorable or acceptable to the
Company. Should the Company be unable to obtain additional capital when and as
needed, it could be forced to curtail operations, or cease business activities
altogether. As such, there is no assurance that the Company will not require
additional capital resources beyond 1996 in the conduct of its planned business
activities. In the absence of the establishment of significant revenue
generating licensing agreements and general market acceptance of the Company's
technology, there is no assurance that the Company will have the ability to
continue as a going concern.
16
<PAGE> 17
FACTORS WHICH MAY AFFECT FUTURE RESULTS
INTRODUCTION
OCTuS, Inc. (the "Company") was formed as a California corporation in
1983. From incorporation to 1991, the Company's principal business activities
involved the design, development and distribution of controllers for nonimpact
printers and related laser printer products. In 1991, the Company became
primarily engaged in the design, development, marketing and distribution of
hardware and software products for use in the computer telephone integration
(CTI) market. In March 1995, the Company entered into a three-year agreement
with Cintech Tele-Management Systems, Inc. ("Cintech"), whereby Cintech was
granted exclusive rights to distribute the retail version of the Company's OCTuS
PTA product in North America. In connection with that agreement, Cintech also
purchased all of the Company's retail OCTuS PTA inventory and obtained the
rights to manufacture additional units of the product as well as rights to
access the product's source code in exchange for payment of royalties. In
addition, in September 1995, the Company executed a license agreement with Ascom
Telecommunications Limited providing for the exclusive licensing to Ascom of a
modified version of OCTuS PTA for sale in the European market. The Company is
continuing to concentrate its efforts on developing licensing opportunities with
third parties for its core technology. The Company's products are focused on the
unification of the personal computer and telephone in the office environment.
HISTORY OF OPERATING LOSSES
For the calendar year ended December 31 1994, the Company incurred a
net loss of $5.4 million. Although the Company recorded a gain of $586,000 for
the calendar year ended December 31, 1995, such gain primarily reflects one-time
receipts of revenue by the Company in connection with its transition from a
sales and marketing company to a licensing organization as well as a reduction
in expenses associated with substantial reductions in force and other operating
costs necessitated by lack of significant product sales and resultant decreases
in available cash resources. As such, there is no assurance that such revenue
will continue to be received by the Company and that such net gains will
continue to be posted.
At December 31, 1995, the Company had working capital of negative
$88,000, an accumulated deficit of $22,069,000 and a shareholders' deficit of
$102,000. Although the Company has reduced its operating expenses through the
assignment of the North American retail channel to Cintech which has allowed the
Company to focus its efforts on licensing of the product to other third party
manufacturers, which entails significantly lower expenditures and has the
potential for increasing the Company's revenues through establishment of
possible new sources of income, the Company does not believe that the Cintech
agreement, by itself, will be sufficient to provide for the continued viability
and operations of the Company.
In any case, the absence of a significant level of sales of the
Company's products, either as standalone retail units or incorporated into third
party products will cause the Company to continue to generate significant
losses. There is no assurance that the Company's operations will be successful
or will be profitable in the future.
NEED FOR ADDITIONAL CAPITAL
The Company's cash on hand as of November 12, 1996 was $ 1,000 which is
inadequate to meet the Company's budgeted operating requirements. Additional
cash resources are required to sustain the Company's operations unless adequate
revenues from sales and licensing of the Company's OCTuS PTA product line
develop, of which there can be no assurance. It should be noted that the Company
has no commitment from any party to provide additional capital and there is no
assurance that such funding will
17
<PAGE> 18
be available when needed or, if available, that its terms will be favorable or
acceptable to the Company. Should the Company be unable to obtain additional
capital when and as needed, it could be forced to curtail operations or cease
business activities altogether.
RESTRUCTURING OF OPERATIONS
The Company underwent substantial restructuring in 1994 and 1995,
primarily as a result of continued operating losses. This restructuring included
a substantial reduction in the Company's workforce from 46 employees (as of
March 31, 1994) to one employee (as of November 12, 1996) as well as relocation
of its headquarters to new facilities with lower operating costs. In addition,
Ray M. Healy became the Company's President and Chief Executive Officer in
November 1994. However, Mr. Healy resigned as the Company's President and Chief
Executive Officer on May 31, 1995 in order to pursue other opportunities and Mr.
Belden was re-appointed to that position. Mr. Belden is the sole remaining
executive officer of the Company. Mr. Donald O. Aldridge, a director of the
Company since June 1995, was appointed Chairman of the Board of the Company in
October 1995.
Although this restructuring effected a major reduction in the Company's
operating expenses, the Company's cash on hand continues to be insufficient to
meet its present operating expenses.
NEED FOR PRODUCT ACCEPTANCE
The Company's ability to complete the development and testing of future
revisions and/or improvements to OCTuS PTA is uncertain due to lack of
sufficient financial resources. As such, there is no assurance that the
Company's testing and development schedules for such future versions will ever
be met. The Company's inability to complete such development and testing could
have a material adverse effect on the Company's financial condition and results
of operations, and could raise questions as to the Company's ability to continue
as a going concern.
In addition, because the computer industry is characterized by rapid
technological change, there can be no assurance that the Company's products will
not be rendered obsolete as a result of technological developments before or
after their introduction. The Company's limited resources has impaired the
Company's ability to quickly introduce its new products, continually improve
such products and develop other products in order to compete effectively in this
industry. Accordingly, there is no assurance that the Company will be able to
complete the development of such new products or improvements on a timely basis,
if at all.
MARKETING/DEPENDENCE ON OTHERS FOR DISTRIBUTION
In order to generate significant revenues from OCTuS PTA, the Company
must generate sufficient royalty income from Cintech as well as successfully
implement a program to license the product to companies in the personal computer
and telecommunications industry for incorporation into their respective
products.
DEPENDENCE ON THIRD PARTY SOFTWARE
The Company's products are designed for use with Microsoft(R)
Windows(TM). Although the product functions with Windows 95, the Company will
likely have to revise its product for use with newer versions of Windows as well
as for each different combination of computers and telephone systems. In
addition, since the Company's products will operate in conjunction with these
other operating systems and applications, changes to such systems will require
the Company to adapt its products accordingly. The Company's ability to perform
such ongoing development has been impaired by its present financial condition
and there can be no assurance that the Company will be capable of conducting any
such improvements, which could affect the Company's ability to continue as a
going concern.
18
<PAGE> 19
HIGHLY COMPETITIVE INDUSTRY
The computer industry is highly competitive and rapidly changing. There
are other companies that are engaged in marketing and development of products
similar to certain of the Company's products that employ similar technologies
which directly compete or could compete with the remainder of the Company's
products. Many of these competitors have significantly greater financial,
technical, manufacturing, and marketing resources and greater name recognition
than the Company. The Company believes that due to the nonproprietary nature of
its products and the relatively low barriers to entry to its markets that,
unless it establishes a significant installed base before its competitors, the
Company will not have any sustainable long-term advantage over its competitors.
The Company believes that its ability to compete depends on elements both within
and outside its control, including the success and timing of new product
development by the Company and its competitors, product performance and price,
productivity enhancement, distribution and customer support. There is no
assurance that the Company will be able to compete successfully with respect to
these factors or others.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from period to
period depending on factors such as the timing of new product introductions by
the Company and its competitors, product mix, changes in distribution channels,
increased competition, changes in product demand resulting from seasonal
fluctuations in business activity, and changes in operating and material costs.
As a result of these and other factors, the Company could experience significant
fluctuations in results of operations in future periods.
INTELLECTUAL PROPERTY
The Company generally relies on confidentiality agreements with its
employees and consultants to protect its proprietary information. There is no
assurance that existing or future patents, copyrights, trademarks and
confidentiality agreements will afford protection from material infringement.
There is also no assurance that the Company's technologies and products will not
infringe upon patents or copyrights of others. Management of the Company
believes that because of the rapid pace of technological change in its industry,
patent and copyright protection is less significant than the ability of the
Company to develop and market new products.
GENERAL ECONOMIC AND MARKET CONDITIONS
Demand for the Company's products depends largely upon the overall
demand for computer and communications products. Demand for such products
fluctuates from time to time based on numerous factors, including capital
spending levels and general economic conditions. There is no assurance that
there will not be a decline in overall demand for computer and communications
products as a result of general economic conditions or otherwise, and any such
decline could have a material adverse effect on the Company's business.
TRANSACTIONS WITH AFFILIATES
The Company has been a party to certain transactions with related
persons and affiliates. The Company believes that all such transactions were in
its best interests and on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties and each transaction was approved
by disinterested and independent members of the Board of Directors. However,
such agreements were not always reached as the result of arms-length
negotiations.
TRADING MARKET/DELISTING FROM NASDAQ SMALLCAP MARKET/VOLATILITY OF
STOCK PRICE
19
<PAGE> 20
In January 1993, the Company completed an initial public offering of
2,000,000 Units, each unit comprised of one share of Common Stock and one Common
Stock Purchase Warrant. These securities were quoted on the Nasdaq SmallCap
Market until February 1, 1995, at which time they were delisted due to the
Company's inability to meet that market's minimum capital and surplus
requirements. The securities now trade on the OTC Bulletin Board (commonly
referred to as the "pink sheets"), maintained by the National Quotation Bureau,
Inc., which are generally considered to be less efficient markets. While the
Company intends to reapply for listing on the Nasdaq SmallCap Market if
conditions are favorable for it to do so, there can be no assurance that the
Company's securities will be accepted by the Nasdaq SmallCap Market upon
application by the Company for relisting.
The market price of the Common Stock, Units, and Warrants, like that of
the securities of many other high technology companies, has been highly
volatile. Factors such as fluctuation in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, developments in the Company's strategic alliances with other
companies, and general market conditions may have a significant effect on the
market price of the Common Stock, Units, and Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
could have an adverse effect on the price of the publicly-traded Units, Common
Stock and the Warrants and could potentially adversely affect the Company's
ability to raise additional funds. At December 31, 1995, 189,799 stock options
held by Mr. Belden at the time of the January 1993 initial public offering, are
subject to a lockup agreement with RAS Securities Corp., the underwriter of the
initial public offering, whereby such person have agreed not to sell, contract
to sell, or otherwise dispose of such shares of Common Stock, without the
consent of RAS Securities Corp., until the date the Company has $1.0 million or
more in earnings after taxes in any fiscal year as certified by the Company's
independent accountants.
EFFECT OF CERTAIN ANTI-TAKEOVER CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Bylaws could have the effect of making it
more difficult for a third party to acquire, or could discourage a third party
from attempting to acquire, control of the Company. Such provisions may limit or
reduce the price that investors might be willing to pay for shares of the Common
Stock. Certain of such provisions allow the Company to issue preferred stock
with rights senior to those of the Common Stock and impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. The Articles also provide for a classified
board in the event the Company's shares are traded on a national securities
exchange or the Nasdaq National Market. A classified board could make it more
difficult for a third party to acquire control, or could discourage a third
party from attempting to acquire, control of the board.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit List and Exhibits, beginning on page 22.
(b) A report on Form 8-K was filed with the SEC during the period ended
September 30, 1996 with respect to the issuance of 250,000 shares of the
Company's Series C Preferred Stock.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the small business issuer has duly caused this report to be signed on its behalf
by the undersigned thereunto authorized.
OCTUS, INC.
Date: November 12, 1996. ____________________________
John C. Belden
President & CEO/Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ----------- ----
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation +
3.1.1 Certificate of Determination of Preferences of Series C Preferred
Stock of OCTuS, Inc. ++
3.2 Amended Bylaws !
9 Irrevocable Proxy from Tokyo Electric Co., Ltd. (included in Exhibit
10.26.1) *
10.3 Sample Warrant *
10.4 Amended and Restated 1987 Nonstatutory Stock Option Plan +
10.5 Form of Stock Option Agreement, Non-Qualified Options,
1987 Plan *
10.6 Amended and Restated 1988 Nonstatutory Stock Option Plan +
10.7 Form of Stock Option Agreement, Non-Qualified Options, 1988
Plan *
10.8 Amended and Restated 1992 Key Executive Stock Purchase Plan *
10.10 Standard Industrial Net Lease dated July 29, 1994 by and between
Sorrento Corporate Center and OCTuS, Inc., for 9944 Barnes
Canyon Road , Suite A, San Diego CA 92121 ++
10.11 Lease Surrender Agreement dated April 8, 1995 (as amended May
31, 1995), by and between Sorrento Corporate Center and OCTuS,
Inc., for 9944 Barnes Canyon Road, Suite A, San Diego, CA
92121 +++
10.12 Employment Agreement dated June 1, 1992 by and between OCTuS,
Inc. and John C. Belden, as amended May 14, 1993 and February 16,
1995 #
10.16 Form of Indemnification Agreements entered into by and between
OCTuS, Inc. and its officers and directors *
10.17 Agreement by and between Maroon Bells Capital Partners, Inc. and
OCTuS, Inc. dated January 19, 1995 #
10.18 Agreement dated September 8, 1992 by and between Kyocera
Corporation and OCTuS, Inc. *
10.19 Memorandum dated February 4, 1992 by and between OCTuS, Inc.
and Tokyo Electric Co., Ltd. *
10.19.1 Agreement and Release dated as of December 31, 1991 by and
between OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.2 New Shares Agreement dated as of December 31, 1991 by and
between OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.3 License Agreement dated as of December 31, 1991 by and between
OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.3.1 TEC/OASYS License Agreement - 01, dated August 22, 1986 by and
between Office Automation Systems, Inc. and Tokyo Electric Co.,
Ltd. *
10.19.3.2 Agreement dated August 22, 1986 by and between Tokyo Electric
Co., Ltd. and Office Automation Systems, Inc. *
10.20 401(k) Plan Document
10.23 Form of Unit Certificate *
10.24 Directors 1993 Stock Option Plan +
Form of Stock Option Agreement, Non-Qualified Options, 1993
Directors Stock Option Plan **
10.25 Warrant, Caledonian European Securities Ltd., dated July 15, 1993
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ----------- ----
<S> <C> <C>
10.26 Warrant, Neil Haverty, dated July 15, 1993 **
10.27 Warrant, Maroon Bells Capital Partners, Inc., dated July 15, 1993 **
10.28 Promissory Note of Nolan K. Bushnell, dated as of February 8, 1993,
payable to OCTuS, Inc. **
10.28.1 Stock Pledge Agreement by Nolan K. Bushnell in favor of OCTuS, Inc.,
dated February 8, 1993, as amended October 7, 1993 **
10.31 Purchase and Sale Agreement dated September 14, 1993 by and
between OCTuS, Inc. and National Computer Systems, Inc. **
10.31.1 Letter Agreement dated January 26, 1995 by and between OCTuS, Inc.
and National Computer Systems, Inc. #
10.34 Product Development and License Agreement dated November 10, 1993
by and between OCTuS, Inc. and Spectrum Signal Processing, Inc., as
amended November 14, 1994 **
10.35 Purchase and License Agreement dated March 7, 1995 by and between
Cintech Tele-Management Systems, Inc. and OCTuS, Inc., as amended
May 16, 1995 +++
10.36 Product Development and License Agreement dated September 5, 1995
by and between Ascom Telecommunications Limited and OCTuS, Inc. !
10.37 Promissory Note dated December 1, 1995 from OCTuS, Inc. to Maroon
Bells Capital Partners, Inc. &
10.38 Stock and Warrant Purchase Agreement dated June 24, 1996 by and
between OCTuS, Inc. and Advanced Technologies International, Ltd. ++
10.39 Warrant to Purchase Common Stock from OCTuS, Inc. to Advanced
Technologies International, Ltd. dated June 24, 1996 ++
11 Statements re: computation of (loss) earnings per share and shares
used in per share calculation +++
16.1 Letter dated March 13, 1996 from Price Waterhouse to the Securities
and Exchange Commission ~
</TABLE>
* Incorporated by reference from the Company's Form S-1, as amended, bearing
the SEC registration number 33-51862, which was declared effective January
15, 1993.
** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the calendar year ended December 31, 1993.
+ Incorporated by reference from the Company's Post-Effective Amendment No. 1
on Form S-3 to Form S-1, bearing the SEC registration number 33-51862,
which was declared effective January 6, 1995.
# Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the calendar year ended December 31, 1994 filed with the SEC April 17,
1995.
+++ Incorporated by reference from the Company's amended Annual Report on Form
10-KSB/A for the calendar year ended December 31, 1994 filed with the SEC
July 6, 1995.
! Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1995 filed with the SEC November
13, 1995.
23
<PAGE> 24
~ Incorporated by reference from the Company's Form 8-K filed with the
Securities and Exchange Commission on March 12, 1996.
& Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1995 filed with the SEC on April 30,
1996.
++ Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period e ended June 30, 1996 filed with the SEC on ***August
12, 1996.
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 2,000
<CURRENT-ASSETS> 6,000
<PP&E> 4,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,000
<CURRENT-LIABILITIES> 44,000
<BONDS> 0
0
151,000
<COMMON> 19,271,000
<OTHER-SE> (22,177,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,000
<SALES> 55,000
<TOTAL-REVENUES> 55,000
<CGS> 5,000
<TOTAL-COSTS> 163,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (108,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
