<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, 1997
[ ] 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:
September 30, 1997 Common Stock, no par value 4,222,922
(Date) (Class) (Number of Shares)
Series C Preferred Stock 250,000
(Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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OCTUS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets at September 30, 1997 and
December 31, 1996........................................ 3
Condensed Statements of Operations for the three
months ended September 30, 1997 and 1996................. 4
Condensed Statements of Operations for the nine
months ended September 30, 1997 and 1996................. 5
Condensed Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996................. 6
Notes to Condensed Financial Statements.................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................... 7
PART II. OTHER INFORMATION................................................ 13
SIGNATURES................................................................. 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTUS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 0 $ 13,000
Accounts receivable 0
Other current assets
------------- ------------
TOTAL CURRENT ASSETS 0 13,000
Property and equipment 2,000 5,000
Other noncurrent assets 0
------------- ------------
TOTAL ASSETS $ 2,000 $ 18,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 33,000 $ 28,000
Accrued liabilities 30,000 24,000
Current portion of capitalized lease obligations 0 2,000
Advances payable 219,000 70,000
Convertible note payable 28,000 25,000
Unearned royalty 5,000 10,000
------------- ------------
TOTAL CURRENT LIABILITIES 315,000 159,000
NONCURRENT LIABILITIES
Convertible note payable $ 0 $ 0
Capitalized lease obligation, net of current portion 0 0
------------- ------------
$ 0 $ 0
------------- ------------
TOTAL LIABILITIES 315,000 159,000
Shareholders' Deficiency
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
issued and outstanding 151,000 151,000
Common Stock Warrants 2,696,000 2,696,000
Accumulated deficit (22,431,000) (22,259,000)
------------- ------------
TOTAL SHAREHOLDERS' DEFICIENCY (313,000) (141,000)
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDER DEFICIENCY $ 2,000 $ 18,000
============= ============
</TABLE>
See notes accompanying financial statements
3
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OCTUS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Net sales $ 0 $ 0
Royalties 20,000 0
Interest 0 0
---------------- ----------------
20,000 0
---------------- ----------------
Costs and expenses:
Cost of sales 13,000 0
Selling, general and administrative 64,000 33,000
Research and development 0
Interest 1,000 1,000
---------------- ----------------
78,000 34,000
---------------- ----------------
Net loss before income taxes (58,000) (34,000)
Net loss $ (58,000) $ (34,000)
================ ================
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,
-----------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Net sales $ 0 $ 5,000
Royalties 40,000 50,000
Interest 0 0
---------------- ----------------
40,000 55,000
---------------- ----------------
Costs and expenses:
Cost of sales 34,000 5,000
Selling, general and administrative 173,000 155,000
Research and development 0
Interest 4,000 2,000
---------------- ----------------
211,000 163,000
---------------- ----------------
Net loss before income taxes (171,000) (108,000)
---------------- ----------------
Net loss $ (171,000) $ (108,000)
================ ================
Net loss per common share $ (0.04) $ (0.02)
================ ================
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,
-----------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flow from operating activities:
Net (loss) gain $ (171,000) $ (108,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization $ 3,000 $ 7,000
Loss (gain) on disposal of property and equipment $ 0 $ 0
Increase (decrease) in accounts receivable $ 0 $ 12,000
Decrease in inventories $ 0 $ 0
Decrease in other current assets $ 0 $ 0
(Increase) decrease in other noncurrent assets $ 0 $ (1,000)
(Decrease) in accounts payable $ 5,000 $ (58,000)
Increase (decrease) in accrued liabilities $ 6,000 $ 2,000
Increase (decrease) in deferred revenue $ (5,000) $ 0
---------------- ----------------
Net cash used by operating activities $ (162,000) $ (146,000)
---------------- ----------------
Cash flow from investing activities:
Expenditures for property and equipment $ 2,000 $ 2,000
Loans to officers $ (4,000)
Proceeds from sale of fixed assets $ 0 $ 0
---------------- ----------------
Net cash provided by investing activities $ 2,000 $ (2,000)
---------------- ----------------
Cash flow from financing activities:
Payments of capital leases and long-term debt $ (2,000) $ (2,000)
Proceeds from borrowings $ 152,000 $ 151,000
---------------- ----------------
Net cash provided by financing activities $ 150,000 $ (149,000)
---------------- ----------------
Net decrease in cash and cash equivalents $ (10,000) $ (1,000)
Cash and cash equivalents at beginning of period $ 13,000 $ 3,000
---------------- ----------------
Cash and cash equivalents at end of period $ 0 $ 4,000
---------------- ----------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,000 $ 3,000
================ ================
</TABLE>
See notes accompanying financial statements
6
<PAGE> 7
OCTUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
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, 1997 and
December 31, 1996, and the results of operations for the three months ended
September 30, 1997 and 1996, and the results of operations for the nine months
ended September 30, 1997 and 1996, and its cash flows for the nine months ended
September 30, 1997 and 1996. 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, 1996.
NOTE 2. 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. In March 1997, Cintech elected not to renew its license to
distribute OCTuS PTA. However, Cintech has stated in uts public releases that it
intends to use the OCTuS technology with Cintech proprietary products.
NOTE 3. 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 $60,000 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.
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, 1997. 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, 1996 will provide additional
information.
7
<PAGE> 8
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth certain revenue and expense classifications as
percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Net sales --
Royalties 100.0% --
---------------- ----------------
100.0% --
---------------- ----------------
Costs and expenses:
Cost of sales 65.0% --
Selling, general and administrative 320.0% --
Interest 5.0% --
---------------- ----------------
390.0% --
Loss before income taxes (290.0%) --
---------------- ----------------
Net loss (290.0%) --
================ ================
Cost of sales as a percent of net sales -- --
================ ================
</TABLE>
Net Sales. There were no net sales for the three months ended September 30,
1997, which represented no change, from the same period in 1996. This lack of
sales 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.
Royalties. There was $20,000 royalty income recorded for the three months
ended September 30, 1997, which represented a change of $20,000 or 100%, from
the same period in 1996. Such amount for the current period ended September 30,
1997 represents royalty income received from 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.
Cost of Sales. The Company recorded $13,000 for cost of sales for the three
months ended September 30, 1997, an increase of $13,000 from the $0 recorded
from the same period in 1996. The increase reflects the completion of the
transition of the Company from a sales and marketing company to a licensing
organization, as the cost of sales was associated with the upgrading of the
OCTuS technology to conform to requirements set by the Company's licensee Ascom.
This reflects an increase in royalty income 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. The Company recorded $64,000 for
selling, general and administrative expenses for the three months ended
September 30, 1997, an increase of $31,000, or 93.9%, from the same period in
1996. This increase from the prior period is due primarily to the Company's
increased focus in licensing its technologies and continued interest in
researching potential acquisitions of new technologies. The selling, general and
administrative expenses still reflect the continued downsizing of the Company
and the shift from a sales organization to a licensing and acquisition
organization.
Net Loss. Net loss for the three months ended September 30, 1997 was
$58,000, as compared to a $34,000 loss for the same period in 1996.
8
<PAGE> 9
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
The following table sets forth certain revenue and expense classifications as
percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Net sales 9.1%
Royalties 100.0% 90.9%
---------------- ----------------
100.0% 100.0%
---------------- ----------------
Costs and expenses:
Cost of sales 85.0% 9.0%
Selling, general and administrative 432.5% 281.8%
Interest 10.0% 3.6%
---------------- ----------------
527.5% 294.4%
Loss before income taxes (427.5%) (196.3%)
---------------- ----------------
Net loss (427.5%) (196.3%)
================ ================
Cost of sales as a percent of net sales -- 100.0%
================ ================
</TABLE>
Net Sales. There were no net sales for the nine months ended September 30,
1997, which represented no change, from the same period in 1996. This lack of
sales 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.
Royalties. There was $40,000 royalty income recorded for the nine months
ended September 30, 1997, which represented a decrease of $10,000 or 20%, from
the same period in 1996. Such amount for the current period ended September 30,
1997 represents royalty income received from 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. The decrease was due to the decision by Cintech
not to renew its license for the Company's technology.
Cost of Sales. The Company recorded $34,000 for cost of sales for the nine
months ended September 30, 1997, an increase of $29,000 from the same period in
1996. The increase reflects the completion of the transition of the Company from
a sales and marketing company to a licensing organization, as the cost of sales
was associated with the upgrading of the OCTuS technology to conform to
requirements set by the Company's licensee Ascom.
Selling, General and Administrative. The Company recorded $173,000 for
selling, general and administrative expenses for the nine months ended September
30, 1997, an increase of $18,000, or 11.6%, from the same period in 1996. This
increase from the prior period is due primarily to the Company's increased focus
in licensing its technologies and expenses associated with the Company's
continued interest in acquiring new technologies. The selling, general and
administrative expenses still reflect the continued downsizing of the Company
and the shift from a sales organization to a licensing and acquisition
organization.
Net Loss. Net loss for the nine months ended September 30, 1997 was
$171,000, as compared to a $108,000 loss for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES. For the nine months ended September 30,
1997, the Company posted a net loss of $171,000. The Company's operating and
investing activities used cash of $160,000. Cash on hand on September 30, 1997
was $0. In March 1997, Cinetech elected not to renew its license to distribute
OCTuS PTA. However, Cinetech has stated in its public releases that it intends
to use the OCTuS technology with other proprietary products. The Cintech
agreement notwithstanding, management believes that without an influx of
significant new revenues from the licensing of the Company's products, the
Company's cash on hand and revenues from operations will not be sufficient to
sustain its operations through the rest of 1997. Although the Company has
actively been pursuing such licensing arrangements and new investment, there can
be no assurance that any licensing agreements and/or new investment will be
entered into by the Company, or that the terms of any such agreements will be on
terms favorable to the Company. In June 1996, the Company sold to Advanced
Technologies International, Ltd. ("ATI") 250,000 shares of Series C Preferred
stock (which votes with the Common Stock with each share of Series C Preferred
Stock having ten votes) for $150,000 and issued warrants to purchase up to an
additional 3,000,000 shares of the Company's Common Stock at an initial exercise
price of $0.43
9
<PAGE> 10
per share. The Company currently has been meeting its additional liquidity needs
through loans from Basic Research Corporation, an affiliate of ATI. The loan
balance has been increasing at approximately $15,000 per month. The Company pays
10.0% simple interest on such loans and the loan is due within five (5) days of
the Company's receiving sufficient funds from the exercise of warrants by ATI.
Should the Company be unable to obtain additional revenues and/or raise
additional capital, it could be forced to curtail operations or cease business
activities altogether.
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
HISTORY OF OPERATING LOSSES
For the calendar year ended December 31 1996, the Company incurred a loss
of $191,056. For the calendar year ended December 31, 1995, the Company recorded
a gain of $586,000, however, 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. The Company did not produce any revenues during the
three months ended March 31, 1997.
The absence of a significant level of sales of the Company's products,
either as stand-alone 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 September 30, 1997 was $0, 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. While operations to date are being
funded by loans from Basic Research Corporation, an affiliate of ATI, one of the
Company's principal shareholders, 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 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 July 1, 1997) as well as relocation of its
headquarters to another facility 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.
In June 1996, the Company sold to ATI 250,000 shares of Series C Preferred Stock
(which votes with the Company's Common Stock with each share of Series C
Preferred Stock having ten votes) for $150,000 and issued warrants to purchase
up to an additional 3,000,000 shares of the Company's Common Stock at an
additional exercise price of $0.43 per share.
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. Without a substantial increase in revenues,
the Company will be required to make additional reductions in expenses, which
will affect the Company's ability to continue its operations.
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.
10
<PAGE> 11
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
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 that product 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.
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.
11
<PAGE> 12
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
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 March 31, 1997, 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 Mr. Belden has 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.
12
<PAGE> 13
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit List and Exhibits, beginning on page 15.
(b) No reports on Form 8-K were filed with the SEC during the period covered by
this report.
13
<PAGE> 14
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: October 1, 1997
/s/ JOHN C. BELDEN
-----------------------------------
John C. Belden
President & CEO/
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED 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 *
10.9 Lease dated April 7, 1995 by and between Mistek Investment
Group and OCTuS, Inc. for 8352 Clairemont Mesa Blvd., San
Diego, CA 92111 *
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 *
10.17 401(k) Plan Document *
10.18 Form of Unit Certificate *
10.19 Directors 1993 Stock Option Plan +
Form of Stock Option Agreement, Non-Qualified Options, 1993
Directors Stock Option Plan **
10.20 Warrant, Caledonian European Securities Ltd., dated July 15,
1993 **
10.21 Warrant, Neil Haverty, dated July 15, 1993 **
10.22 Warrant, Maroon Bells Capital Partners, Inc., dated July 15,
1993 **
10.23 Promissory Note of Nolan K. Bushnell, dated as of February 8,
1993, payable to OCTuS, Inc. **
10.24 Stock Pledge Agreement by Nolan K. Bushnell in favor of OCTuS,
Inc., dated February 8, 1993, as amended October 7, 1993 **
10.25 Purchase and Sale Agreement dated September 14, 1993 by
and between OCTuS, Inc. and National Computer Systems, Inc. **
10.26 Letter Agreement dated January 26, 1995 by and between OCTuS,
Inc. and National Computer Systems, Inc. #
10.27 Purchase and License Agreement dated March 7, 1995 by and
between Cintech Tele-Management Systems, Inc. and OCTuS, Inc.,
as amended May 16, 1995 +++
10.28 Product Development and License Agreement dated September 5,
1995 by and between Ascom Telecommunications Limited and
OCTuS, Inc. !
10.29 Promissory Note dated December 1, 1995 from OCTuS, Inc. to
Maroon Bells Capital Partners, Inc. &
10.30 Stock and Warrant Purchase Agreement dated June 24, 1996 by
and between OCTuS, Inc. and Advanced Technologies
International, Ltd. ++
10.31 Warrant to Purchase Common Stock from OCTuS, Inc. to Advanced
Technologies International, Ltd. dated June 24, 1996 ++
10.32 Agreement dated as of August 8, 1996 relating
to settlement of claims among OCTuS parties and RAS/TAG parties. ++
11 Statements re: computation of (loss) earnings per share and
shares used in per share calculation +++
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED PAGE
------ -------------------- ------------
<S> <C> <C>
16.1 Letter dated March 13, 1996 from Price Waterhouse to the
Securities and Exchange Commission ~
27.1 Financial Data Schedule
</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.
~ Incorporated by reference from the Company's Form 8-K filed with the
Securities and Exchange Commission on March 12, 1996.
& Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 as filed with the SEC on March 31,
1997.
++ Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1996 filed with the SEC on August 12,
1996.
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,000
<CURRENT-LIABILITIES> 315,000
<BONDS> 0
0
151,000
<COMMON> 21,967,000
<OTHER-SE> (22,431,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,000
<SALES> 0
<TOTAL-REVENUES> 40,000
<CGS> 34,000
<TOTAL-COSTS> 173,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> (171,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,000)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
