<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 March 31, 1999
[ ] 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.)
600 "B" Street 18th Floor San Diego, CA 92101
(Address of principal executive offices)
619-446-2107
(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:
March 31, 1999 Common Stock, no par value 4,223,390
(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]
<PAGE> 2
OCTUS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED March 31, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets at March 31, 1999 and
December 31, 1998 3
Condensed Statements of Operations for the three
months ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows for the three
months ended March 31, 1999 and 1998 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7
PART II. OTHER INFORMATION 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTuS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 269 $ 219
------------ ------------
TOTAL CURRENT ASSETS 269 219
------------ ------------
PROPERTY AND EQUIPMENT, Net 0 0
------------ ------------
$ 269 $ 219
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 35,448 $ 33,451
Accrued liabilities 65,852 64,602
Accrued interest 66,260 56,260
Promissory note 426,511 426,511
------------ ------------
TOTAL CURRENT LIABILITIES 594,071 580,824
------------ ------------
SHAREHOLDERS' DEFICIENCY
Preferred Stock - authorized 2,000,000
shares, issued and outstanding
250,000 shares 151,000 151,000
Common Stock - no par value;
authorized 100,000,000 shares,
issued and outstanding 4,223,390 21,966,577 21,966,577
Accumulated deficit (22,711,379) (22,698,182)
------------ ------------
TOTAL SHAREHOLDERS' DEFICIENCY (593,802) (580,605)
------------ ------------
$ 269 $ 219
============ ============
</TABLE>
See notes accompanying financial statements
3
<PAGE> 4
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Royalties and technology income $ 0 $ 10,000
----------- -----------
TOTAL REVENUES 0 10,000
----------- -----------
COSTS AND EXPENSES
Cost of sales 0 10,000
Selling, general and administrative 3,197 43,000
Interest 10,000 1,000
----------- -----------
TOTAL COSTS AND EXPENSES 13,197 54,000
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (13,197) (44,000)
INCOME TAX (BENEFIT) 0 0
----------- -----------
NET INCOME (LOSS) $ (13,197) $ (44,000)
=========== ===========
PRIMARY EARNING (LOSS)
PER COMMON SHARE $ (.00) $ (.01)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
USED IN PRIMARY CALCULATIONS 4,223,390 4,223,390
=========== ===========
</TABLE>
See notes accompanying financial statements
4
<PAGE> 5
OCTuS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(13,197) $(44,000)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Changes in operating assets and liabilities:
Accounts payable 1,997 (12,000)
Accrued liabilities 1,250 (4,000)
Accrued interest 10,000 0
-------- --------
NET CASH USED BY OPERATING ACTIVITIES 50 (60,000)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from advances 0 62,000
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 50 62,000
-------- --------
NET INCREASE (DECREASE) IN CASH 50 2,000
CASH AT BEGINNING OF PERIOD 219 0
-------- --------
CASH AT END OF PERIOD $ 269 $ 2,000
======== ========
OTHER CASH INFORMATION
Interest paid $ 0 $ 1,000
======== ========
</TABLE>
See notes accompanying financial statements
5
<PAGE> 6
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 March 31, 1999 and
December 31, 1998, and the results of operations for the three months ended
March 31, 1999 and 1998. 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, 1998.
NOTE 2. DESCRIPTION OF THE BUSINESS
OCTuS Inc. (the "Company") was formed as a California corporation in 1983.
The core of the Company's technology from its inception until 1991 was comprised
of software for use in controllers for laser printers and related imaging
devices. The Company incorporated this technology into its own LaserPro(R) laser
printer products and also licensed the technology to third parties. In 1991,
because of low margins and competition, the Company shifted its primary focus
from laser printer controller technology to the development of the OCTuS PTA
product line. Currently the Company is looking to acquire new technology that
can be commercialized within the corporation. At this point the Company has no
products available for sale and considers its technology to be obsolete.
NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Computer and test equipment $ 7,772 $ 7,772
Less accumulated depreciation (7,772) (7,772)
-------- --------
0 0
======== ========
ACCRUED LIABILITIES
Compensation and employee benefits 48,293 48,293
Other 17,559 16,309
-------- --------
65,852 64,602
======== ========
</TABLE>
4. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Company has a working capital and shareholders' deficiency of $593,802
and an accumulated deficit of $22,711,379 as of March 31, 1999. The Company has
liabilities totaling $594,071 and cash of only $269 as of March 31, 1999. At
present the Company has no product or technology to provide for the continued
viability and operations of the Company. Furthermore, 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 management be
unable to obtain additional capital to acquire a technology or product, it could
be forced to cease the Company's business activities altogether and liquidate
the Company's net assets. Additionally, there is no assurance the Company will
not require additional capital resources in order to become operational. There
is no assurance that the Company will have the ability to continue as a going
concern.
6
<PAGE> 7
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 March
31, 1999. 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, 1998 will provide additional information.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
Net Sales. There were no net sales for the three months ended March 31, 1999,
which represented no change, from the same period in 1998. Because the Company
currently is without a product there are no sales or even prospects of sales in
the near future.
Royalties. There was no royalty income recorded for the three months ended
March 31, 1999, which represented a decrease of $10,000 or 100%, from the same
period in 1998. Such amount for the period ended March 31, 1998 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 Company is not expecting any further royalty income on this
agreement.
Cost of Sales. The Company recorded $0 for cost of sales for the three months
ended March 31, 1999, a decrease of $10,000 from the $10,000 recorded from the
same period in 1998.
Selling, General and Administrative. The Company recorded $3,197 for selling,
general and administrative expenses for the three months ended March 31, 1999, a
decrease of $39,803, or 92%, from the same period in 1998. The Company is
operating at a bare minimum level, at this point there are no employees and no
sales efforts due to the lack of a product.
Net Loss. Net loss for the three months ended March 31, 1999 was $13,197, as
compared to a $44,000 loss for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES. For the three months ended March 31, 1999,
the Company posted a net loss of $13,197. Cash on hand on March 31, 1999 was
$269. Although the Company has actively been pursuing 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 $151,000 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 per share. 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.
7
<PAGE> 8
RISK FACTORS WHICH MAY AFFECT FUTURE RESULTS
HISTORY OF OPERATING LOSSES
For the calendar year ended December 31 1998, the Company incurred a loss of
$220,223. At March 31, 1999 the Company had an accumulated deficit of
$22,711,379.
The absence of a significant level of sales 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 March 31, 1999 was $269, which is inadequate
to meet the Company's budgeted operating requirements. Additional cash resources
are required to sustain the Company's operations. 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. Belden continued to serve as the Chief Executive
Officer on an at-will basis after his employment agreement ended on July 17,
1998. The Company accrued wages for Mr. Belden through the end of 1998. In
January 1999 the Company's activities had subsided and Mr. Belden found other
full time employment, therefore the Company stopped accruing wages at that time.
In total, the Company owed Mr. Belden $48,604 at December 31, 1998, the amount
was still owed at March 31, 1999.
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 "pink sheets", which are generally
considered to be less efficient markets.
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.
8
<PAGE> 9
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, 1999, 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.
9
<PAGE> 10
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K were filed with the SEC during the period covered
by this report. In April 1999 the Company changed accountants, the Company has
been delinquent on its SEC filings and filed a Form 8-K for this event in
November 2000. There were no disagreements with the former accountants regarding
accounting principles or reporting.
10
<PAGE> 11
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: December 27, 2000 /s/ JOHN C. BELDEN
----------------- -----------------------------------
John C. Belden
President & CEO/
Chief Financial Officer
11
<PAGE> 12
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, 1997 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, 1997 ++
10.32 Agreement dated as of August 8, 1997 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>
12
<PAGE> 13
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION NUMBERED PAGE
-------------- -------------------------------------------------------------- --------------
<S> <C> <C>
16.1 Letter dated March 13, 1997 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, 1997.
& Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997 as filed with the SEC on
September 30, 1997.
++ Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997 filed with the SEC on
August 12, 1997.
13
