<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 0-27600
OPTICAL SENSORS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 41-1643592
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7615 Golden Triangle Drive, Suite A, Minneapolis, Minnesota 55344-3733
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 944-5857
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. [X] Yes [ ] No
As of August 1, 2000, the Registrant had 8,982,461 shares of Common Stock
outstanding.
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Index
OPTICAL SENSORS INCORPORATED
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 2000 and December 31, 1999
Statements of Operations - Three and Six Month Periods ended June
30, 2000 and June 30, 1999
Statements of Cash Flows - Six Month Periods ended June 30, 2000
and June 30, 1999
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
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Optical Sensors Incorporated
Balance Sheets
<TABLE>
<CAPTION>
June 30, December 3,
2000 1999
----------------------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 572,564 $ 1,450,872
Accounts receivable 55 52,516
Inventory 1,289,992 1,305,065
Prepaid expenses and other current assets 36,691 29,418
----------------------------
Total current assets 1,899,302 2,837,871
Property and equipment:
Leased Equipment 1,157,989 1,157,989
Research and development equipment 744,136 742,971
Leasehold improvements 340,802 340,802
Furniture and equipment 177,134 161,048
Marketing equipment 1,004,840 1,004,840
Production equipment 479,535 478,919
----------------------------
3,904,436 3,886,569
Less accumulated depreciation (3,347,229) (2,975,140)
----------------------------
557,207 911,429
Other assets:
Patents 583,511 530,198
Other assets 16,278 16,278
----------------------------
599,789 546,476
----------------------------
Total assets $ 3,056,298 $ 4,295,776
============================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 43,652 $ 110,595
Employee compensation 133,528 134,372
Other liabilities and accrued expenses 75,033 75,499
Convertible notes payable 1,400,000
Obligations under capital lease, current portion 328,695 516,487
----------------------------
Total current liabilities 1,980,908 836,953
Obligations under capital lease, less current portion 33,386 104,108
Shareholders' equity
Convertible preferred stock, par value $.01 per share:
Authorized shares--5,000,000
Common stock, par value $.01 per share:
Authorized shares--30,000,000
Issued and outstanding shares 2000--8,982,461; and
1999--8,935,304 89,825 89,353
Additional paid-in capital 70,860,910 69,416,688
Accumulated deficit (69,908,731) (66,151,326)
----------------------------
Total shareholders' equity 1,042,004 3,354,715
----------------------------
Total liabilities and shareholders' equity $ 3,056,298 $ 4,295,776
============================
</TABLE>
Note: The balance sheet at December 31,1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes
2
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Optical Sensors Incorporated
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 0 $ 1,607 $ 0 $ 61,567
Cost of goods sold 0 308,577 0 1,053,665
--------------------------------------------------------
Gross margin 0 (306,970) 0 (992,098)
Operating expenses:
Research and development expenses 757,969 841,168 1,543,974 1,809,943
Selling, general and administrative expenses 262,884 537,809 588,087 1,899,940
--------------------------------------------------------
Operating loss (1,020,853) (1,685,947) (2,132,061) (4,701,981)
Interest expense (23,424) (22,101) (1,450,439) (45,766)
Interest income 12,968 48,922 25,840 123,347
Other expense (697) (782) (200,745) (118)
--------------------------------------------------------
(11,153) 26,039 (1,625,344) 77,463
--------------------------------------------------------
Net loss $(1,032,006) $(1,659,908) $(3,757,405) $(4,624,518)
========================================================
Net loss per common share:
Basic and diluted $ (.11) $ (.19) $ (.42) $ (.52)
========================================================
Shares used in calculation of net loss per share 8,982,461 8,848,517 8,967,501 8,843,889
========================================================
</TABLE>
See accompanying notes.
3
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Optical Sensors Incorporated
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
2000 1999
--------------------------
<S> <C> <C>
Operating activities
Net loss $(3,757,405) $(4,624,518)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash interest expense 1,400,000
Depreciation and amortization 410,688 583,463
Deferred compensation amortization 46,023
Amortization of warrants in connection with debt and lease
financings 3,989
Changes in operating assets and liabilities:
Receivables 52,461 118,516
Inventories 4,294 87,613
Prepaid expenses and other assets (88,406) (2,488)
Accounts payable and accrued expenses (68,253) (408,936)
--------------------------
Net cash (used in) operating activities (2,046,621) (4,196,338)
Investing activities
Purchases of property and equipment (17,867) (37,203)
--------------------------
Net cash used in investing activities (17,867) (37,203)
Financing activities
Proceeds from convertible notes payable 1,400,000
Net proceeds from issuance of Common Stock 44,694 25,236
(Payments) on long-term debt and lease obligations (258,514) (133,423)
--------------------------
Net cash provided by (used in) financing activities 1,186,180 (108,187)
--------------------------
(Decrease) in cash and cash equivalents (878,308) (4,341,728)
Cash and cash equivalents at beginning of period 1,450,872 8,079,871
--------------------------
Cash and cash equivalents at end of period $ 572,564 $ 3,738,143
==========================
</TABLE>
See accompanying notes.
4
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Optical Sensors Incorporated
Notes to Financial Statements
(Unaudited)
June 30, 2000
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Optical Sensors Incorporated
Annual Report on Form 10-K for the year ended December 31, 1999.
Note B - Net Loss Per Share
Basic and diluted net loss per common share is computed using the weighted
average number of common shares outstanding during the period. Options and
warrants were outstanding during the quarters ended June 30, 2000 and 1999, but
were not included in the computation of diluted net loss per common share
because the effect would be antidilutive. All earnings per share amounts for all
periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
Note C - Investment Agreement
In March 2000, the Company entered into an Investment Agreement with Circle F
Ventures, LLC and Special Situations Fund III, L.P., pursuant to which the
Company agreed to issue convertible promissory notes in the aggregate principal
amount of up to $3,000,000. These notes are convertible into units originally at
a conversion price equal to $50,000 per unit, each unit consisting of 50,000
shares of Common Stock and a five-year warrant to purchase 12,500 shares of
common stock at an exercise price of $1 per share. The exercise price of the
warrants held by Circle F Ventures, as amended by the Securities Purchase
Agreement with Circle F Ventures LLC dated as of August 10, 2000, is, at any
time, equal to the lowest price at which the Company sells any shares of its
capital stock (other than a sale pursuant to the exercise of an option, right or
warrant to subscribe for shares of Common Stock that are outstanding on the date
hereof or options granted under the Company's stock option plan) after the first
date on which Circle F purchases shares of the Company's Series A Preferred
Stock. The conversion price per unit of the notes held by Circle F Ventures, as
amended by the Securities Purchase Agreement is, at any time, equal to 50,000
multiplied by the lowest price at which the Company sells any shares of its
capital stock (other than a sale pursuant to the exercise of an option, right or
warrant to subscribe for shares of Common Stock that are outstanding on the date
hereof or options granted under the Company's stock option plan) after the first
date on which Circle F purchases shares of the Company's
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Series A Preferred Stock. The Company received advances under these notes in the
aggregate amount of $1,400,000 on March 10, 2000. The Company had the right to
request additional advances up to the aggregate principal amount of $1,600,000
at any time during the 60 day period beginning on the second day after both of
the following had occurred: (1) the Company executes a definitive distribution
agreement for the Company's CapnoProbe product with a major medical company, and
(2) the stockholders of the Company have approved the future conversion of any
additional advances to be made under the notes into units at the Company's 2000
Annual Meeting of Stockholders. The Company's stockholders approved the
conversion on May 4, 2000. The Company did not enter into a definitive
distribution agreement prior to June 15, 2000 and rights to request additional
advances expired. Accordingly, the Company is unable to convert the outstanding
indebtedness or request additional advances under the notes without the
investor's consent. The notes are due March 10, 2001.
Under FASB reporting rules the Company is required to recognize as interest
expense the "intrinsic value of a beneficial conversion feature embedded in a
convertible security", i.e. the difference between the market price and the
conversion price. The Company's share price as listed on the Nasdaq Stock Market
on March 10, 2000 was $3.53 and the conversion price in the Investment Agreement
was $1.00. The recognizable interest expense is limited to the proceeds of the
convertible security or $1,400,000. Accordingly the Company recognized
$1,400,000 as interest expense in the first quarter of 2000 with a corresponding
addition to additional paid in capital.
Note D - Securities Purchase Agreement
On August 10, 2000, the Company entered into the Securities Purchase Agreement
pursuant to which the Company agreed to issue, and Circle F agreed to purchase
upon request of the Company, up to 4,333,334 shares of the Company's newly
created class of preferred stock designated as Series A Preferred Stock for an
aggregate purchase price of $1,500,000. The Securities Purchase Agreement
provides for a per share price of shares of the Series A Preferred Stock of $.50
for the first $500,000 of purchase price, $.375 for the next $500,000 of
purchase price, and $.25 for the final $500,000 of purchase price. The Company
received $500,000 from the sale of shares of Series A Preferred Stock on August
11, 2000 under this agreement when it issued 1,000,000 shares of the Series A
Preferred Stock to Circle F at $.50 per share. Circle F has committed, upon
request of the Company, to purchase up to 3,333,334 additional shares of the
Series A Preferred Stock for an aggregate additional purchase price of
$1,000,000. The sale of the shares on August 11, 2000 will change the conversion
price of the convertible promissory note held by Circle F Ventures to the lowest
per share price at which the Company sells Common Stock or Common Stock
Equivalents after August 11, 2000. The terms of the Security Purchase Agreement
also provide for all options held by current employees and directors of the
Company to be re-priced at the same average price at which Circle F purchases
Series A Preferred Stock. Such re-pricing will result in the option plan being
subject to variable accounting rules and could result in future compensation
charges to the Company's earnings.
6
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Since October 1998, Optical Sensors Incorporated (the "Company") has been
focusing its resources on development and commercialization of the CapnoProbe,
which is a handheld device with a carbon dioxide ("CO2") probe that is slipped
under the tongue like a thermometer. It non-invasively measures the tissue CO2
of the mucous membrane in the mouth -- a sensitive measure that can indicate
reduced blood flow to non-vital organs. Reduced blood flow, or "hypoperfusion,"
can be an early manifestation of clinical shock, even when traditional vital
signs may still appear relatively normal. Diagnosis of inadequate tissue
perfusion may be difficult in its early stages when the signs and symptoms are
masked by the body's natural compensatory mechanisms that preserve blood supply
to vital organs by reducing blood flow to other organs. If treatment is delayed
to the point that the body's compensatory systems can no longer maintain
adequate circulation and vital tissue perfusion, the consequences can be
disastrous for the patient. To date, there has been no rapid, low-cost,
noninvasive method to objectively determine when a patient has inadequate tissue
perfusion. The Company has completed set up of one manufacturing pod for manual
assembly of the prototype probes and finished preliminary plans for automated
probe assembly. Prototype versions of the CapnoProbe system are currently being
evaluated at clinical sites in the United States
In December 1998, the Company filed a 510(k) application for FDA clearance of
the CapnoProbe as a Class II medical device. At the FDA's request and as part of
that submission, the Company provided additional data to the FDA on March 20,
2000. In June of 2000 the FDA provided questions in regard to the additional
data provided by the Company on March 20, 2000. The Company held discussions
with the FDA and responded to the FDA questions on July 20, 2000. The FDA is
expected to review the new information within 90 days.
Since January 1999, the Company has been exploring strategic alternatives,
including joint ventures, corporate strategic alliances, sale of the business or
product lines, or other business combinations. In January 2000, the Company
signed a non-binding letter of intent with a major supplier of medical products
and services to negotiate a definitive agreement for the Company's CapnoProbe
product and technology. On May 11, 2000 the Company announced that it had
discontinued negotiations with this company. The Company continues to discuss
with other parties potential transactions involving the CapnoProbe.
In the second quarter of 2000, Sam Humprhries, Gary Peterson and Richard Meelia
resigned from the Company's Board of Directors. Charles Snead, a representative
of Circle F Ventures, was elected to the Board. The Board now consists of Mr.
Snead, Paulita LaPlante, Richard Egen and Dr. Demetre Nicoloff. There are no
plans currently to add any additional Board Members.
7
<PAGE>
Results of Operations
Net sales were zero in the second quarter of 2000 as compared to $1,607 in the
second quarter in 1999. Net sales were zero for the six month period ended June
30, 2000 as compared to $61,567 for the six month period ended June 30, 1999.
The decrease in sales is the result of OSI's suspension of direct sales and
support activities of the SensiCath System in January 1999. The Company does not
expect meaningful sales of the SensiCath System in the future.
Costs of products sold were zero in the second quarter of 2000 as compared to
$308,577 in the second quarter in 1999. Costs of product sold were zero for the
six month period ended June 30, 2000 as compared to $1,053,665 for the six month
period ended June 30, 1999. Personnel, equipment and facility costs formerly
utilized in the production of the SensiCath product have been applied fully
towards development of the CapnoProbe product. Accordingly, beginning in year
2000 these costs are being reclassified as research and development activities.
The total amount reclassified for the second quarter of 2000 and for the six
month period ended June 30, 2000 was $182,364 and $394,914, respectively.
Research and development costs for the second quarter of 2000 decreased $83,201
to $757,969 or 10% from $841,168 in the second quarter of 1999. Research and
Development costs for the six month period ended June 30, 2000 decreased
$265,969 to $1,543,974 from $1,809,943 for the six month period ended June 30,
1999. Research and development efforts during the quarter were directed towards
product development and regulatory activities for the CapnoProbe. Research and
development staffing was reduced by approximately 25% in the second quarter of
1999. These savings were offset partially by the reclassification to research
and development of former manufacturing resources and related costs totaling
$182,364 in the second quarter of 2000 and $394,914 for the six month period
ended June 30, 2000. Under the July 1998 license agreement with ICCM, the
Company expects to pay $300,000 in minimum royalties in 2000. The minimum
royalty payments will be recorded as research and development expenses because
no significant CapnoProbe sales are anticipated in 2000. The Company is
obligated to pay ICCM a customary royalty equal to a percentage of sales, which
varies depending on the selling price to the customer of the CapnoProbe.
However, the Company does not currently expect to have any significant
commercial sales of the CapnoProbe in 2000. Research and development costs are
expected to continue at this level for the foreseeable future.
Selling, general and administrative expenses in the second quarter of 2000
decreased $274,925 or 51% to $262,884 from $537,809 in the second quarter of
1999. Selling, general and administrative expenses for the six months ended June
30, 2000 decreased $1,311,853 or 69% to $588,087 from $1,899,940 for the six
months ended June 30, 1999. Substantially all sales and marketing activities
related to the SensiCath product line were suspended during the second quarter
of 1999, accounting for the decreases in 2000. The Company expects selling,
general and administrative expenses to remain at the second quarter levels for
the balance of 2000, not including expenses which might result from its
activities in securing a corporate merger, distribution partner or sale of
8
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a portion or all of the Company. Selling, general and administrative expenses
consist primarily of the cost of ongoing administrative activities and costs of
maintaining the Company's public status.
Interest expense in the second quarter of 2000 increased $1,323 to $23,424 from
$22,101 in the second quarter of 1999. Interest expense, prior to a $1,400,000
accounting charge described below under "Liquidity and Capital Resources ", for
the six month period ended June 30, 2000 increased $4,673 to $50,439 from
$45,766 for the six month period ended June 30, 1999. The increases are the
result of previously reported restructuring of certain capitalized leases
Interest income in the second quarter of 2000 decreased $35,954 to $12,968 from
$48,922 in the second quarter of 1999. Interest income for the six month period
ended June 30, 1999 decreased $97,507 to $25,840 from $123,347 for the six month
period ended June 30,1999. The decrease in interest income in the second quarter
of 2000 is due to declining cash balances. The Company expects interest income
to continue to decline in future periods as it uses cash for operations.
Other expense for the six months ended June 30, 2000 included a $200,000 accrual
in the first quarter of 2000 for a payment to settle an arbitration proceeding.
Except for the $200,000 charge, other expense and income items for the six month
periods ended June 30, 1999 and ended June 30, 2000 were insignificant.
Since its inception, the Company has experienced significant operating losses.
The Company incurred a net loss of $1,032,004 for the quarter ended June 30,
2000, compared to a net loss of $1,659,908 for the quarter ended June 30, 1999.
As of June 30, 2000, the Company had an accumulated deficit of $69,908,731. The
Company anticipates that its operating losses will continue for the foreseeable
future. Except for historical information contained herein, the disclosures in
this report are forward looking statements. See "Certain Important Factors".
9
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Liquidity and Capital Resources
To date, the Company has financed its operations primarily through the sale of
equity securities. From inception through December 31, 1995, the Company raised
net proceeds of $30,400,000 from private equity financings and stock option
exercises. In the second quarter of 1996, the Company completed an initial
public offering of 2,875,000 shares of Common Stock. The net proceeds to the
Company from the public offering were approximately $33,916,000. In January
1998, the Company sold 441,203 shares of Common Stock in a private transaction,
at a price of $5.00 per share (which is equal to the closing market price on the
date before signing of the agreement) for a total price of $2,206,015.
In March 2000, the Company entered into an Investment Agreement with Circle F
Ventures, LLC and Special Situations Fund III, L.P., pursuant to which the
Company agreed to issue convertible promissory notes in the aggregate principal
amount of up to $3,000,000. These notes are convertible into units originally at
a conversion price equal to $50,000 per unit, each unit consisting of 50,000
shares of Common Stock and a five-year warrant to purchase 12,500 shares of
Common Stock at an exercise price of $1 per share. The exercise price of the
warrants held by Circle F Ventures, as amended by the Securities Purchase
Agreement, is, at any time, equal to the lowest price at which the Company sells
any shares of its capital stock (other than a sale pursuant to the exercise of
an option, right or warrant to subscribe for shares of Common Stock that are
outstanding on the date hereof or options granted under the Company's stock
option plan) after the first date on which Circle F purchases shares of the
Company's Series A Preferred Stock. The conversion price per unit of the notes
held by Circle F Ventures, as amended by the Securities Purchase Agreement is,
at any time, equal to 50,000 multiplied by the lowest price at which the Company
sells any shares of its capital stock (other than a sale pursuant to the
exercise of an option, right or warrant to subscribe for shares of Common Stock
that are outstanding on the date hereof or options granted under the Company's
stock option plan) after the first date on which Circle F purchases shares of
the Company's Series A Preferred Stock.
The Company received advances under these notes in the aggregate amount of
$1,400,000 on March 10, 2000. The Company had the right to request additional
advances up to the aggregate principal amount of $1,600,000 at any time during
the 60 day period beginning on the second day after both of the following had
occurred: (1) the Company executes a definitive distribution agreement for the
Company's CapnoProbe product with a major medical company, and (2) the
stockholders of the Company have approved the future conversion of any
additional advances to be made under the notes into units at the Company's 2000
Annual Meeting of Stockholders. The Company's stockholders approved the
conversion on May 4, 2000. The Company did not enter into a definitive
distribution agreement prior to June 15, 2000 and rights to request additional
advances expired. Accordingly, the Company is unable to convert the outstanding
indebtedness or request additional advances under the notes without the
investor's consent.
Under FASB reporting rules the Company is required to recognize as interest
expense the "Intrinsic value of a beneficial conversion feature embedded in a
convertible security", i.e. the difference between the market price and the
conversion price. The Company's share price as listed on the Nasdaq Stock Market
on March 10, 2000 was $3.53 and the conversion price in the Investment Agreement
was $1.00. The recognizable interest expense was limited to the proceeds
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of the convertible security or $1,400,000. Accordingly the Company has
recognized $1,400,000 as interest expense in the first quarter of 2000 with a
corresponding addition to additional paid in capital.
On August 10, 2000, the Company entered into the Securities Purchase Agreement
pursuant to which the Company agreed to issue, and Circle F agreed to purchase
upon request of the Company, up to 4,333,334 shares of the Company's newly
created class of preferred stock designated as Series A Preferred Stock for an
aggregate purchase price of $1,500,000. The Securities Purchase Agreement
provides for a per share price of shares of the Series A Preferred Stock of $.50
for the first $500,000 of purchase price, $.375 for the next $500,000 of
purchase price, and $.25 for the final $500,000 of purchase price. The Company
received $500,000 from the sale of shares of Series A Preferred Stock on August
11, 2000 under this agreement when it issued 1,000,000 shares of the Series A
Preferred Stock to Circle F at $.50 per share. Circle F has committed, upon
request of the Company, to purchase up to 3,333,334 additional shares of the
Series A Preferred Stock for an aggregate additional purchase price of
$1,000,000. The sale of the shares on August 11, 2000 will change the conversion
price of the convertible promissory note held by Circle F Ventures to the lowest
per share price at which the Company sells Common Stock or Common Stock
Equivalents after August 11, 2000. The terms of the Security Purchase Agreement
also provide for all options held by current employees and directors of the
Company to be re-priced at the same average price at which Circle F purchases
Series A Preferred Stock. Such re-pricing will result in the option plan being
subject to variable accounting rules and could result in future compensation
charges to the Company's earnings.
The proceeds from the Investment Agreement and Securities Purchase Agreement are
being used to develop the CapnoProbe product, prepare and submit related FDA
filings and fund operating expenses described above.
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"OPSI."
The Company's cash and cash equivalents were $572,564 and $1,450,872 at June 30,
2000 and December 31, 1999, respectively. The decrease in the Company's cash
balance is due to the operating losses described above offset partially by
$1,400,000 received upon issuance of convertible promissory. The Company
incurred cash expenditures of $2,046,621 for operations and $17,867 for capital
expenditures in the first half of 2000.
The inventory at June 30, 2000 consisted primarily of OpticalCAM monitors and
ABG Modules for which the Company plans to use in conjunction with future
configurations of the CapnoProbe product and other research and commercial
applications.
The Company has contracts to purchase minimum quantities of instrumentation and
other inventory items with an outstanding aggregate commitment of approximately
$1,400,000. Based on discussions with the parties to these obligations, the
Company does not believe that any future costs to the Company under these
agreements are likely. The Company is obligated to pay ICCM
11
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$300,000 annually under the previously described license agreement. As of June
30, 2000, the Company had no other material commitments outstanding for tooling,
equipment or outside development contracts.
The Company currently has cash balances, including the proceeds received on
August 10, 2000, to fund the Company's operations through September, 2000. If
the Company receives $1,000,000 from the sale of additional shares of the Series
A Preferred Stock under the Securities Purchase Agreement, it will have
sufficient funds to fund the Company's operations through December, 2000.
Thereafter, the Company will require additional capital to continue operations.
If the Company is unable to obtain additional financing, it will likely be
forced to cease operations.
SensiCath(R) and OpticalCAM(TM) are trademarks of Optical Sensors Incorporated.
Certain Important Factors
In addition to the factors identified above, there are several important factors
that could cause the Company's actual results to differ materially from those
anticipated by the Company or which are reflected in any forward-looking
statements of the Company. These factors, and their impact on the success of the
Company's operations and its ability to achieve its goals, include the
following:
o Need for Additional Financing. The Company believes that its
current cash balances, including the proceeds received on
August 10, 2000 from the sale of shares of its Series A
Preferred Stock under the Securities Purchase Agreement
described above, will be sufficient to fund the Company's
operations through September, 2000. If the Company is able to
sell all of the additional shares of its Series A Preferred
Stock that the investor has agreed to purchase under
Securities Purchase Agreement, the Company will receive an
additional $1,000,000 from such sales, which will be
sufficient to fund its operations through December, 2000.
Thereafter, the Company will require additional capital to
continue operations. Accordingly, the report of the
independent auditors on the Company's 1999 financial
statements contains an explanatory paragraph regarding the
Company's ability to continue as a going concern. If the
Company is unable to obtain additional financing when needed,
it will likely be forced to cease operations. Additionally,
any additional equity financings may be dilutive to the
Company's existing stockholders, and debt financing, if
available, may involve restrictive covenants on the Company's
business.
o Development and Commercialization of CapnoProbe. The Company's
future success will depend, in large part, on successful
development and commercialization of the CapnoProbe product.
The Company is in the later stages of developing and testing
prototypes and is currently engaged in human clinical trials
of the CapnoProbe product. The Company has set up one
manufacturing pod for manual assembly of the prototype probes
and finished preliminary plans for automated probe assembly.
The Company is re-
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evaluating the anticipated timing of commercialization of the
CapnoProbe. The Company has not yet established commercial
manufacturing for the CapnoProbe. Accordingly, there can be no
assurance that the Company will successfully develop a
commercial CapnoProbe product.
o Completion of Corporate Alliance or Business Combination.
Since January 1999, the Company has been exploring strategic
alternatives, including joint ventures, corporate strategic
alliances, sale of the business or product lines, or other
business combinations. In January 2000, the Company signed a
non-binding letter of intent with a major supplier of medical
products and services to negotiate a definitive agreement for
the Company's CapnoProbe product. On May 11, 2000 the Company
announced that it had discontinued negotiations with this
company. The Company continues to discuss with other parties
potential transactions involving the CapnoProbe.
o OTC Bulletin Board. As of March 31, 2000 the Company had total
net tangible assets of $1.5 million. This amount was below the
minimum requirements for maintaining listing on the Nasdaq
Market. Accordingly, the Company's common stock ceased to be
quoted on the Nasdaq National Market on May 12, 2000 and was
transferred to the Over-The-Counter ("OTC") Bulletin Board.
Because the Company's common stock is traded on the OTC
Bulletin Board, trading is subject to "penny stock" rules
under the Securities Exchange Act of 1934 as amended, and the
public trading market for the Company's common stock could be
adversely affected.
o Competition. Competition among medical device companies is
intense and increasing. There can be no assurance that the
Company's competitors will not succeed in developing or
marketing technologies and products that are more effective or
less expensive than the Company's products or that would
render the Company's products obsolete or non-competitive.
o Regulatory Approvals. The Company's ability to market its
current products and any products that it may develop in the
future requires clearances or approvals from the FDA and other
governmental agencies, including, in some instances, foreign
and state agencies. The process for maintaining and obtaining
necessary regulatory clearances and approvals can be expensive
and time consuming. There can be no assurance that the Company
will be able to maintain or obtain necessary regulatory
approvals and clearances in the future.
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
On August 11, 2000, the Company sold 1,000,000 shares of its Series A Preferred
Stock, par value $.01 per share, to an accredited investor at $.50 per share,
for an aggregate offering price of $500,000. The sale of such shares were exempt
from registration pursuant to Rule 506 promulgated under the Securities Act of
1933, as amended.
13
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Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is included herein:
(4.1) Certificate of Designation of Rights and Preferences of Series A
Preferred Stock
(10.1) Amendment No. 2 to Rights Agreement effective as of August 9, 2000
by and between Optical Sensors Incorporated and Wells Fargo Bank, N.A.
(10.2) Securities Purchase Agreement by and between Optical Sensors
Incorporated and Circle F Ventures LLC (1)
(27) Financial Data Schedule
-------------
(1) Portions of this Exhibit have been omitted pending a request for
confidential treatment by the Commission. The omitted portions have
been filed separately with the Commission.
(b) Reports on Form 8-K
None
14
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\Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL SENSORS INCORPORATED
Date December 22, 2000 /s/ Paulita M. LaPlante
-------------------------------------------
Paulita M. LaPlante
President and Chief Executive Officer
(Principal Executive Officer)
Date December 22, 2000 /s/ Wesley G. Peterson
-------------------------------------------
Wesley G. Peterson
Chief Financial Officer, Vice President of
Finance and Administration and Secretary
(Principal Financial and Accounting Officer)
15
