As filed with the Securities and Exchange Commission on December 14, 2001
REGISTRATION NO. 333-40920
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
POST EFFECTIVE AMENDMENT NO. 7 POST EFFECTIVE AMENDMENT NO. 4
TO TO
FORM SB-2 FORM SB-2
REGISTRATION STATEMENT REGISTRATION STATEMENT
UNDER UNDER
THE SECURITIES ACT OF 1933 THE SECURITIES ACT OF 1933
REGISTRATION NO. 333-40895 REGISTRATION NO. 333-89225
POST EFFECTIVE AMENDMENT NO. 4 POST EFFECTIVE AMENDMENT NO. 3
ON FORM SB-2 TO
TO FORM SB-2
FORM S-3 REGISTRATION STATEMENT
REGISTRATION STATEMENT UNDER
UNDER THE SECURITIES ACT OF 1933
THE SECURITIES ACT OF 1933 REGISTRATION NO. 333-40920
REGISTRATION NO. 333-55951
CELL ROBOTICS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<Table>
Colorado 5049-05 84-1153295
(State or other jurisdiction of (Primary Standard Industrial Classification Code (IRS Employer Identification Number)
incorporation or organization) Number)
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
</Table>
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Dr. Ronald K. Lohrding, President and CEO
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
(Name, address, including zip code, and telephone
number of agent for service of process)
----------------------------
Copy to:
W. Crews Lott
Baker & McKenzie
2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
(214) 978-3000
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the date this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND
RELATES TO AND CONSTITUTES, POST EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION NO.
333-89225, POST EFFECTIVE AMENDMENT NO. 7 TO REGISTRATION NO. 333-40895, POST
EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION NO. 333-55951 AND POST EFFECTIVE
AMENDMENT NO. 3 TO REGISTRATION NO. 333-40920.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 14, 2001
PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
2,642,776 SHARES OF COMMON STOCK
297,576 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This offering relates to the resale of an aggregate of 1,265,200 shares of our
common stock and 217,576 of our redeemable common stock purchase warrants, or
Redeemable Warrants, by persons who are referred to in this prospectus as
selling securityholders. The selling securityholders holding Redeemable Warrants
may also resell 217,576 shares of the common stock issuable when they exercise
their Redeemable Warrants.
We are also registering our offering of 920,000 shares of our common stock
issuable upon exercise of the Redeemable Warrants sold in the 1998 public
offering of our securities. Further, we are offering 160,000 shares of our
common stock and 80,000 of our Redeemable Warrants, which may be acquired upon
exercise of warrants, or Representative Warrants, issued to an underwriter and
its officers in connection with the 1998 public offering of our securities. This
prospectus also relates to our offering of 80,000 shares of our common stock
issuable upon exercise of the Redeemable Warrants underlying the Representative
Warrants.
Our common stock is quoted on the OTC Bulletin Board under the trading symbol
"CRII" and our Redeemable Warrants are quoted on the OTC Bulletin Board under
the trading symbol "CRII.W." On December 12, 2001, the closing bid price per
share of our common stock and the closing bid price of our Redeemable Warrants
were $0.250 and $0.040, respectively.
INVESTING IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD PURCHASE OUR SECURITIES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 2001.
TABLE OF CONTENTS
<Table>
SUMMARY ................................................................... 1
The Company ............................................................... 1
How to Contact Us ......................................................... 2
The Offerings ............................................................. 2
Summary Financial Data .................................................... 3
RISK FACTORS .............................................................. 4
Risks Related to Our Business and Industry ................................ 4
Risks Related to Our Securities and This Offering ......................... 10
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS ................................ 12
USE OF PROCEEDS ........................................................... 12
MARKET PRICE INFORMATION AND DIVIDENDS .................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ........................................................... 14
Results of Operations -- Three Months Ended September 30, 2001 Compared to
the Three Months Ended September 30, 2000 ............................ 14
Results of Operations -- Nine Months Ended September 30, 2001 Compared to
the Nine Months Ended September 30, 2000 ............................. 15
Results of Operations -- Year Ended December 31, 2000 Compared to the Year
Ended December 31, 1999 .............................................. 16
Results of Operations -- Year Ended December 31, 1999 Compared to the Year
Ended December 31, 1998 .............................................. 17
Liquidity and Capital Resources ........................................... 17
BUSINESS .................................................................. 21
Overview .................................................................. 21
Business Strategy ......................................................... 21
Products .................................................................. 22
Laser-Based Medical Devices -- The Lasette ................................ 22
Scientific Research Instruments -- The Cell Robotics Workstation .......... 26
Continuing Interest in the IVF Workstation ................................ 27
Competition ............................................................... 27
Intellectual Property ..................................................... 27
Research and Development .................................................. 29
Government Regulation; Product Approval Process ........................... 29
Employees ................................................................. 30
Facilities ................................................................ 30
Legal Proceedings ......................................................... 30
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES ........................... 30
EXECUTIVE COMPENSATION .................................................... 32
Summary Compensation Table ................................................ 32
Employment Agreements ..................................................... 32
Stock Incentive Plan ...................................................... 33
Option Grants ............................................................. 33
Option Exercises and Option Values ........................................ 33
Board Structure ........................................................... 34
Director Compensation ..................................................... 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................ 35
INDEMNIFICATION ........................................................... 36
DESCRIPTION OF SECURITIES TO BE REGISTERED ................................ 37
Common Stock .............................................................. 37
Preferred Stock ........................................................... 37
Redeemable Warrants ....................................................... 37
Representative Warrants ................................................... 39
SELLING SECURITYHOLDERS ................................................... 40
PLAN OF DISTRIBUTION ...................................................... 41
Selling Securityholders' Securities ....................................... 41
Redeemable Warrants ....................................................... 42
LEGAL MATTERS ............................................................. 42
EXPERTS ................................................................... 42
WHERE YOU CAN FIND MORE INFORMATION ....................................... 43
INDEX TO FINANCIAL STATEMENTS ............................................. F-1
</Table>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different from
what is contained in this prospectus. The delivery of this prospectus shall not,
under any circumstances, create any implication that there has been no change in
the affairs of the company since the date of this prospectus.
SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information that you
should consider before deciding to invest in our securities. We urge you to read
this entire prospectus carefully, including the "Risk Factors" section and the
consolidated financial statements and related notes included elsewhere in this
prospectus. As used in this prospectus, the words "we," "us," "our" and "the
company" refer to Cell Robotics International, Inc. and its subsidiary, Cell
Robotics, Inc. Lasette(R), Personal Lasette(TM), Professional Lasette(TM),
LaserTweezers(R), LaserScissors(TM), CellSelector(TM) and Smart Stage(TM) are
trademarks of the company used in this prospectus. This prospectus also includes
trademarks of other companies.
THE COMPANY
We manufacture, market and sell sophisticated laser-based medical devices and
scientific research instruments. Our product lines consist of a laser-based
medical device, which uses a laser to draw a blood sample to allow diabetics to
measure their glucose levels, and the laser-based research workstation marketed
under the name Cell Robotics Workstation.
Our primary focus is distributing and selling our laser-based medical device to
the clinical and diabetes care markets, namely diabetic consumers, hospitals,
clinics and doctors' offices. We previously marketed two laser-based medical
devices, the Personal Lasette and the Professional Lasette. The Personal Lasette
was marketed for home use, while the Professional Lasette was targeted for
clinical applications. In the third quarter of 2000, we made a strategic
decision to discontinue marketing the Professional Lasette and completed
modifications to the Personal Lasette so that it could be used for either home
or clinical use. In this prospectus, we sometimes refer to the Personal Lasette
as the "Lasette." The primary difference between the Lasette used in these home
and clinical environments is that a different disposable lens shield is attached
to the product for clinical applications than that attached for home use. We
believe that focusing on a single product line will reduce direct costs
associated with manufacturing the Lasette and promote brand awareness of the
Lasette.
The Lasette is a compact, lightweight, portable laser skin perforator that
allows diabetics to perform capillary blood sampling with little pain and
residual soreness. The Lasette is the only alternative to the steel lancet or
needle that has been approved by the Food and Drug Administration, or the FDA,
that allows diabetics to sample their blood for glucose testing so they can
determine their subsequent insulin injections. The Lasette has also been cleared
by the FDA for blood screening test applications for home and clinical settings.
The FDA clearance allows us to commercially market the Lasette in the United
States to diabetics for home and clinical use. The Lasette has also received the
European Community's CE Mark. The CE Mark certification permits us to market the
Lasette in countries comprising the European Union, as well as certain other
countries such as Brazil and Australia.
We also believe the following trends in blood sampling will provide us with
unique opportunities:
o an increasing demand for less painful alternatives for
capillary blood sampling;
o an increasing desire to eliminate cross-contamination from
accidental needle or lancet sticks in hospitals and clinics to
address continued public health concerns and, in U.S. markets,
to comply with bloodborne pathogen standards of the
Occupational Safety and Health Administration, or OSHA,
including the recently adopted standards of OSHA required by
the Needlestick Safety and Prevention Act, or the Needlestick
Safety Act;
o a growing number of diagnosed diabetics seeking better insulin
control; and
o a growing understanding of the need to provide testing methods
for needle-phobic individuals.
To capitalize on these opportunities, we introduced the Lasette and intend to
position the company as a leader in the development of technologically-advanced
medical devices that offer more effective, safer and less painful solutions than
conventional procedures.
Our scientific research instrument consists of the Cell Robotics Workstation.
The Cell Robotics Workstation allows scientists to use a laser to manipulate
objects in micro-space, upgrading the microscope to an interactive
micro-laboratory. The Cell Robotics Workstation enhances the usefulness and
importance of the conventional laboratory microscope as a tool in medical,
biological and genetic applications in the life sciences. Scientists can use the
technology for cell separation, cell-to-cell interaction, micro-dissection and
intercellular manipulation of living cells. A modified version of the Cell
Robotics Workstation, known as the LS300 Pro Workstation, allows pathologists
and researchers to automatically cut out cells of interest from biopsy and
retrieve those cells for DNA and RNA analysis. Third parties currently use the
Cell Robotics Workstation for cancer, immunology, neurobiology, assisted
reproductive techniques and genome research. The principal market for the Cell
Robotics Workstation is the scientific research market, consisting of colleges,
universities, research laboratories, biotechnology and pharmaceutical companies
and commercial laboratories conducting biological research. The Cell Robotics
Workstation has received the European Community's CE Mark. It is not subject to
FDA regulatory clearances. While we intend to focus on the development,
distribution and sale of laser-based medical devices, we will continue to
promote and market the Cell Robotics Workstation through direct sales, dealers,
representatives and distribution arrangements.
HOW TO CONTACT US
Our principal offices are located at 2715 Broadbent Parkway N.E., Albuquerque,
New Mexico 87107. Our telephone number is (505) 343-1131.
THE OFFERINGS
This prospectus relates to multiple offerings by the company and the selling
securityholders identified in this prospectus under the section entitled
"Selling Securityholders." See also "Description of Securities to Be
Registered."
The offerings by the selling securityholders under this prospectus consist of
the following:
o REDEEMABLE WARRANTS AND UNDERLYING COMMON STOCK. The resale by
six selling securityholders of 217,576 Redeemable Warrants. We
are also registering the resale by these selling
securityholders of 217,576 shares of our common stock issuable
upon the exercise of their Redeemable Warrants. These
Redeemable Warrants have an exercise price of $2.40 per share.
o COMMON STOCK. The resale by 10 selling securityholders of
1,265,200 shares of our common stock.
The offerings by the company under this prospectus consist of the following:
o COMMON STOCK. The offering by the company of 920,000 shares of
our common stock issuable to the Redeemable Warrant holders
upon the exercise of their Redeemable Warrants. These
Redeemable Warrants have an exercise price of $2.40 per share.
These Redeemable Warrants were sold in our February 1998
offering.
o COMMON STOCK AND REDEEMABLE WARRANTS UNDERLYING REPRESENTATIVE
WARRANTS. The offering by the company of 160,000 shares of our
common stock and 80,000 of our Redeemable Warrants issuable
upon exercise of the Representative Warrants. We are also
registering the issuance by the company of 80,000 shares of
our common stock upon exercise of those Redeemable Warrants.
The Representative Warrants are exercisable for 40,000 units
at an exercise price of $9.90 per unit. Each unit consists of
four shares of common stock and two Redeemable Warrants. The
exercise price of the Redeemable Warrants is $2.40 per share.
The units underlying the Representative Warrants will be
immediately separated upon exercise. The units are not being
separately registered and there will be no public trading
market developed for the units.
The Representative Warrants may be exercised on a cash basis, a cashless basis
or a combination thereof. We will receive $396,000 as gross proceeds from
exercise of the Representative Warrants, if and to the extent when exercised on
a cash basis. We will receive no gross proceeds to the extent the Representative
Warrants are exercised
2
on a cashless basis. Additionally, if the Redeemable Warrants underlying the
Representative Warrants are exercised then we will receive gross proceeds of
$192,000. We will also receive $2,208,000 as gross proceeds from exercise of the
Redeemable Warrants sold in the February 1998 offering, if and when exercised.
If all of the selling securityholders exercise their Redeemable Warrants, stock
options and other common stock purchase warrants, then we will receive
additional proceeds of $880,965.
Presently, the exercise prices of these stock options, stock purchase warrants,
Redeemable Warrants and Representative Warrants are above the trading price of
our common stock. Accordingly, it is unlikely that these securities will be
exercised unless the trading price of our common stock increases. Whether or not
our common stock trades at a price above the exercise price of these securities,
we cannot assure you that any of our securityholders will exercise any of the
stock options, common stock purchase warrants, Redeemable Warrants or
Representative Warrants. We will not receive any proceeds from the sale of our
common stock or the sale of our Redeemable Warrants.
SUMMARY FINANCIAL DATA
<Table>
<Caption>
UNAUDITED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- --------------------------------
2000 1999 2001 2000
------------- ------------- ------------ ------------
Statement of Operations:
Total revenues $ 1,007,063 $ 1,417,317 $ 1,141,276 $ 766,378
Operating expenses $ 3,404,166 $ 2,165,551 $ 2,119,010 $ 2,377,271
Net loss applicable to common shareholders $ (5,036,182) $ (2,424,630) $ (1,989,762) $ (4,088,825)
Net loss applicable to common $ (0.54) $ (0.31) $ (0.20) $ (0.45)
shareholders per common share, basic
and diluted
Weighted average common shares 9,286,128 7,734,762 9,980,203 9,057,133
outstanding, basic and diluted
- ---------------------------------------------------------------------------------------------------------------------
</Table>
3
RISK FACTORS
An investment in our securities is very speculative and involves a high degree
of risk. You should carefully consider the following risk factors, along with
the other matters referred to in this prospectus, before you decide to buy our
securities. If you decide to buy our securities, you should be able to afford a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE WILL NEED ADDITIONAL FINANCING BY DECEMBER 31, 2001 IN ORDER TO CONTINUE OUR
OPERATIONS. We expect that our existing current working capital and future
product sales will be sufficient to allow us to meet operational obligations
only through December 31, 2001. Accordingly, it is imperative that we complete a
significant financing during the quarter ending December 31, 2001 to fund our
deficits in cash flow from operations as well as repay $1,050,000 in
indebtedness due in January 2002 and significant maturities of additional
indebtedness due in the months following January 2002. Although we have had
discussions with potential investors, we have not been able to obtain financing
on acceptable terms as of the date of this prospectus that will allow us to
continue our operations after December 2001. We intend to continue to seek to
raise equity or debt financing. However, no assurance can be given that we will
be able to obtain additional financing on favorable terms, if at all. Borrowing
money may involve pledging some or all of our assets. Raising additional funds
by issuing common stock or other types of equity securities would further dilute
our existing shareholders and the purchasers of the securities offered under
this prospectus. If we cannot obtain additional financing before December 31,
2001, we will not be able to continue our operations.
EVEN IF WE OBTAIN ADDITIONAL FINANCING TO ALLOW US TO CONTINUE OUR OPERATIONS
AFTER DECEMBER 31, 2001, UNTIL WE GENERATE SUFFICIENT CASH FLOW FROM OUR
OPERATING ACTIVITIES WE WILL STILL NEED TO OBTAIN ADDITIONAL FINANCING TO FUND
OUR OPERATIONS. ADDITIONALLY, OUR INDEPENDENT ACCOUNTANTS HAVE REPORTED THAT WE
MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN IF WE DO NOT OBTAIN ADDITIONAL
FINANCING OR ACHIEVE PROFITABILITY. To date, we have funded our operations
primarily from the sale of equity securities and short term borrowings as we
have not generated sufficient cash from our operations. Even if we are able to
obtain additional financing to allow us to continue our operations after
December 31, 2001, until we generate sufficient cash flow from our operating
activities we will still need to obtain additional financing to fund anticipated
capital requirements, repay existing indebtedness and to achieve and maintain
profitability. Our capital requirements depend upon several factors, including
the rate of market acceptance of our products, particularly the Lasette, our
level of expenditures for marketing and sales, costs associated with our
staffing and other factors. We will need additional cash to fund the costs
associated with manufacturing, marketing and selling our products. Additional
financing will also be needed to repay our indebtedness, including payment of
our notes in the aggregate principal amount of $1,000,000 due January 31, 2002
owing to members of our board of directors and affiliates of members or former
members of our board of directors and our $190,905 note owing to Humagen
Fertility Diagnostics, Inc. payable in $50,000 monthly installments commencing
January 31, 2001. We may also need cash to file, prosecute, defend and enforce
patent claims and other intellectual property rights, purchase capital
equipment, develop new products and maintain or obtain necessary regulatory
approvals. If our capital requirements vary materially from those currently
planned, we may require more financing than currently anticipated. Our inability
to finance our growth, either internally or externally, may limit our growth
potential and our ability to execute our business plan. External financing may
not be available to us on favorable terms or at all. In addition, we have
received a report from our independent auditors covering our fiscal years ended
December 31, 2000 and 1999 financial statements. The report contains an
explanatory paragraph that states that our recurring losses and negative cash
flows from operations raise substantial doubt about our ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty. If we cannot
obtain additional financing as needed, we may not be able to repay existing
indebtedness, continue our operations, grow our market share, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements. This would have a material adverse effect on our business,
financial condition, results of operation and our ability to continue as a going
concern.
WE HAVE A HISTORY OF LOSSES, AND EXPECT TO INCUR LOSSES IN THE FUTURE. IF WE DO
NOT ACHIEVE PROFITABILITY, OUR FINANCIAL CONDITION AND THE PRICE OF OUR COMMON
STOCK AND THE REDEEMABLE WARRANTS WILL SUFFER. To date, we have generated only
limited revenues from the sale of our products and have been unable to
profitably market our products. We incurred net losses applicable to common
shareholders of $5,036,182 and $2,424,630 in 2000 and 1999, respectively, with
revenues from the sale of our products of $992,710 and $1,294,936 in 2000 and
1999,
4
respectively. During 2000, we also experienced negative gross margins due to our
lack of efficiencies. We expect to experience operating losses and negative cash
flow for the foreseeable future. We anticipate that our existing current working
capital, the loans made under our $500,000 convertible note and future product
sales will be sufficient to allow us to meet operational obligations through
December 31, 2001. However, we do not have sufficient cash to sustain continuing
operating losses after that date without additional financing. Even if we are
able to obtain additional financing to allow us to continue operations, we will
still need to generate significant revenues and improve our gross margins to
fund anticipated manufacturing and marketing costs and to achieve and maintain
profitability. We cannot assure you that we will ever generate sufficient
revenues to achieve profitability, which will have a negative impact on the
price of our common stock and the Redeemable Warrants. If we do achieve
profitability, we cannot assure you that we will be able to sustain or increase
profitability in the future.
THE PERSONAL LASETTE WAS ONLY INTRODUCED IN DECEMBER 1999 AND IT IS DIFFICULT TO
PREDICT WHETHER IT OR OTHER PRODUCTS THAT WE MAY DEVELOP IN THE FUTURE WILL GAIN
MARKET ACCEPTANCE OR PROFITABILITY. Total revenues from sales of the Personal
Lasette since its introduction in December 1999 through September 30, 2001 were
$540,775. Demand and market acceptance for newly developed products, such as the
Personal Lasette, are subject to a high level of uncertainty and risk. The risks
associated with the introduction of innovative technologies, like our medical
laser products, include the following, among others:
o the possibility that the cost of the product may not be
covered by private insurance or Medicare;
o the difficulty in predicting the medical laser product's
future growth rate;
o our current and future products may have features which render
them uneconomical, either to manufacture or to market;
o the demand for our products may fail to develop or develop
slower than expected or our products may not achieve or
sustain market acceptance;
o the prices at which our products are accepted by purchasers
may be too low, which may prevent us from operating
profitably;
o third parties may manufacture and market a product superior in
performance and price; and
o the possibility that any proposed product, or enhancement to
existing products, may fail to receive necessary regulatory
clearances.
Currently, the cost of the Lasette does not qualify as a reimbursable expense
under most health insurance programs or Medicare. Further, we cannot assure you
that we will be successful in addressing the other risks described above. Our
failure to address these risks could have a negative impact on our business,
operating results and financial condition.
WE HAVE LIMITED EXPERIENCE IN MARKETING, DISTRIBUTING AND SELLING LASER-BASED
MEDICAL AND RESEARCH PRODUCTS, WHICH MAY DELAY OUR ABILITY TO SUCCESSFULLY BRING
OUR PRODUCTS TO MARKET. We have limited experience marketing, distributing and
selling our products. To successfully market, distribute and sell our current or
future products, we must build a more extensive marketing sales force and
distribution network. Alternatively, we can enter into arrangements with third
parties to market, distribute and sell our products. We cannot assure you that
we will be able to successfully develop such a network or that we will enter
into acceptable agreements with third parties to provide our products. As of the
date of this prospectus, the Lasette for clinical use is distributed through
several regional distributors within and outside the United States, while the
Lasette for home use is sold directly to customers. Our Cell Robotics
Workstation is currently marketed and sold through direct sales, dealers,
representatives and distributors. Our exclusive distributor of the Cell Robotics
Workstation in Japan, Meiwa Shoji Company Ltd., accounted for 16% of our product
sales in 2000. As of the date of this prospectus, no other single customer or
distributor accounts for more than ten percent of our sales. Although we intend
to pursue marketing and distribution relationships for our products,
particularly the Lasette for clinical use, we cannot make any assurances that
any discussions or negotiations with third parties regarding the marketing or
distribution of our products will be successful. If we maintain our own
marketing, distribution and sales capabilities, we will compete against other
companies with experienced and well-funded marketing, distribution and sales
operations. Alternatively, if we enter
5
into a marketing arrangement with a third party, we will likely have to pay a
sales commission or discount the retail price of our products. Further, our
revenues would depend on the efforts of third parties. If we are unable to
develop a plan to market, distribute and sell our products, we may be unable to
successfully bring them to market. We cannot assure you that we will be able to
recruit and retain marketing personnel with the required skills or that we will
be able to enter into the strategic relationships needed to effectively market
and distribute our products.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO HIRE AND RETAIN KEY
PERSONNEL. Medical device companies of our size must retain key scientific,
technical, managerial, marketing and financial personnel as well as attract and
retain additional highly qualified personnel for these areas in order to
successfully operate and grow their businesses. We face intense competition for
qualified personnel in these areas, and we cannot assure you that we will be
able to attract and retain qualified personnel. If we lose our key personnel or
are unable to hire and retain additional qualified personnel in the future, our
business, financial condition and operating results could be adversely affected.
We have employment agreements with Ronald K. Lohrding, Ph.D., our President,
Chief Executive Officer and Chairman of the Board of Directors, and Paul
Johnson, our Chief Financial Officer, Chief Operating Officer and Secretary. Our
key employees, including those with employment agreements, may voluntarily
terminate their employment with us at any time. We do not have key person life
insurance covering our management personnel or other key employees, other than a
$500,000 term policy on the life of Dr. Lohrding.
WE DO NOT HAVE A BROAD RANGE OF PRODUCTS TO SELL, AND IF DEMAND FOR THESE
PRODUCTS DECLINES OR FAILS TO DEVELOP, OUR REVENUES WILL BE ADVERSELY AFFECTED.
Since selling the IVF Workstation and associated technology to Hamilton Thorne
Research in May 2000, our exclusive product lines consist of the Lasette and the
Cell Robotics Workstation. Our primary focus is distributing and selling the
Lasette, a laser skin perforator that replaces the steel lancets or needles
diabetics primarily use. There is an inherent risk in not having a broad base of
products in development, because we will not have alternate sources of revenue
if we are not successful with our current lines. We cannot assure you that we
will be able to profitably sell this narrow line of products. The failure of the
Lasette would have a material adverse affect on our revenues and the future of
our business.
WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND ADVERSELY AFFECT OUR BUSINESS. We may be
required to litigate to enforce our patents, protect trade secrets or know-how
and defend against infringement charges. In this regard, we have entered into
discussions with Becton Dickinson and Company regarding a license or similar
arrangement involving a United States patent relating to the use of a laser for
blood sample collection. In this prospectus, we refer to this patent as the
Tankovich Patent. There can be no assurance that we will reach an agreement with
Becton Dickinson on terms acceptable to us, if at all. If we fail to reach an
agreement with Becton Dickinson, there can be no assurance that Becton Dickinson
will not claim that the Lasette infringes the Tankovich Patent. While we believe
that the Tankovich Patent is invalid and unenforceable due to public disclosure
of the laser perforation concept, as well as public commercialization of
primitive perforator products in the former Soviet Union, there can be no
assurance that any infringement claims by Becton Dickinson would be resolved
without costly litigation. For more information regarding our discussions with
Becton Dickinson, see "Business -- Intellectual Property." An adverse ruling in
any infringement proceedings, including any proceedings with Becton Dickinson,
could subject us to significant liability or require us to seek licenses from
third parties. Patent and intellectual property disputes in the medical and
research device areas have often been settled through licensing or similar
arrangements. The costs associated with these arrangements could be substantial
and include ongoing royalties. Furthermore, we cannot assure you that necessary
licenses would be available to us on satisfactory terms, if at all. An adverse
ruling or judgment or a failure to obtain necessary licenses could prevent us
from manufacturing and selling our products, which could materially adversely
affect us. Additionally, any proceeding in the United States or abroad involving
our intellectual property can be expensive and can divert the attention of our
technical and management personnel.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, INCLUDING OUR PATENTS,
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP, MANUFACTURE AND SELL OUR
PRODUCTS. Our success will depend, in part, upon our ability to develop superior
products that we can market at competitive prices. Our ability to do this will
depend, in part, on our ability to protect and defend our intellectual property
rights and the competitive advantages those rights offer. We rely primarily on
patent, trade secret, copyright and trademark laws, confidentiality procedures
and other intellectual property protection methods to protect our proprietary
technology. Despite the precautions we have taken, unauthorized parties may
attempt to engineer, reverse engineer, copy or obtain and use our products and
other
6
proprietary information. Misappropriations of our intellectual property could
adversely affect our business, results of operations and financial condition.
OUR INDUSTRY IS HEAVILY REGULATED, AND STRINGENT ONGOING REGULATION AND
INSPECTION OF OUR PRODUCTS COULD LEAD TO DELAYS IN THEIR MANUFACTURE, MARKETING
AND SALE. United States government agencies and comparable agencies in countries
outside the United States regulate the testing, manufacture, labeling,
distribution, marketing and advertising of the Lasette and our ongoing research
and development activities. While the Lasette has received all necessary FDA
clearances and has received the European Community's CE Mark, its manufacture
and marketing will be subject to ongoing regulation. We are subject to
inspection and market surveillance by the FDA and the European Community for
compliance with good manufacturing practices and other requirements, which
include testing, design, quality control and documentation procedures. The FDA
conducts periodic audits of the Lasette, and has notified us that it intends to
conduct an audit in 2001. In order to manufacture and sell the Lasette under the
CE Mark, we must also pass annual International Standards Organization, or ISO,
maintenance audits, as well as comprehensive ISO audits every three years. OSHA
also regulates our manufacturing activities. While we have historically been in
compliance with all FDA, CE Mark, ISO and OSHA requirements, there can be no
assurance that we will continue to do so in the future. Our failure to meet FDA,
CE Mark, ISO or OSHA requirements could bar us from further marketing the
Lasette in the United States and in other markets, which would have a material
adverse affect on our business.
OUR SUCCESS DEPENDS IN PART ON ENHANCING OUR CURRENT PRODUCTS AND DEVELOPING NEW
PRODUCTS; HOWEVER, WE CANNOT ASSURE YOU THAT THOSE PRODUCTS WILL BE DEVELOPED
WITHOUT MATERIAL DELAYS, BE CLEARED FOR SALE BY REGULATORS OR BE ACCEPTED IN THE
MARKET. In order to be successful, we will need to continue to enhance our
existing products and develop new products. Enhanced and new products may
require a significant investment, including preclinical and clinical testing,
before we can sell them in the marketplace. From time to time, we may also
experience engineering or manufacturing delays or setbacks in the development of
our products. For example, in 2000, we implemented design improvements to the
Lasette to increase the efficiency of the laser beam profile and to limit the
effect extreme temperatures had on the Lasette's functionality. Although to date
we have not experienced any material engineering or manufacturing delays in
enhancing our current products or developing new products, we cannot assure you
that we will be able to successfully address problems that may arise during the
development and commercialization process. In addition, we cannot assure you
that any of our new products or enhancements to existing products can or will:
o be successfully developed;
o prove to be safe and effective in clinical trials;
o meet applicable regulatory standards;
o be capable of being manufactured in commercial quantities at a
reasonable cost;
o be marketed successfully; or
o achieve market acceptance.
Our failure to successfully and timely complete, obtain regulatory approvals or
achieve commercial acceptance with respect to any of our new products or
improvements to our existing products could materially adversely affect our
business, financial condition and results of operations.
WE MAY BE REQUIRED TO OBTAIN ADDITIONAL REGULATORY CLEARANCES FOR ANY NEW
PRODUCTS OR IMPROVEMENTS TO EXISTING PRODUCTS AND WE MUST OBTAIN REGULATORY
APPROVALS IN SOME FOREIGN JURISDICTIONS TO MARKET OUR PRODUCTS ABROAD. OUR
FAILURE TO OBTAIN NECESSARY REGULATORY CLEARANCES OR APPROVALS COULD ADVERSELY
AFFECT OUR ABILITY TO MARKET AND SELL OUR PRODUCTS. We have received all
necessary FDA clearances to commercially market the Lasette in the United
States. Further, we have obtained CE Mark certification of the Lasette, which
allows us to commercially market the Lasette for home and clinical use in
countries comprising the European Union, and several other countries, such as
Brazil and Australia. However, comparable government agencies in a number of
other foreign countries require lengthy and detailed clinical testing and other
compliance procedures before they permit the introduction of enhancements to the
Lasette and new medical laser products in the marketplace. The cost of
7
complying with these regulations is significant and time consuming. These
applications may require the completion of preclinical and clinical studies and
disclosure of information relating to manufacturing and controls.
Any new products we may develop, or any modifications we make to our products,
in the future may require regulatory approval. The time required for completing
testing and obtaining additional approvals is uncertain, and FDA, CE Mark and
similar clearances may never be obtained for new products or applications. We
may encounter delays or rejections based upon changes in FDA or European
Community policy during the period of product development. We may also encounter
delays with similar agencies in other markets. Even if the FDA, the European
Community or comparable agencies grant clearance for our future products, it may
limit the indicated uses for which our products or applications may be marketed.
THE GROWTH OF OUR BUSINESS COULD BE ADVERSELY AFFECTED BY REFORMS IN THE HEALTH
CARE INDUSTRY OR BY LIMITATIONS IMPOSED ON THIRD PARTY REIMBURSEMENT OF HEALTH
CARE COSTS. The United States government and third parties continue efforts to
contain or reduce the costs of health care, which may adversely affect our
future success. In both the United States and elsewhere, the use of elective
medical procedures by many consumers depends on such consumer's ability to be
reimbursed by third-party payers, such as government and private insurance
plans. Third-party payers are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement. Some health
insurance companies have covered the consumer's costs of the Lasette if a
physician provides documentation indicating a medical necessity. However,
currently the cost of the Lasette does not qualify as a reimbursable expense
under most health insurance programs or Medicare. Although we are pursuing
obtaining Medicare coverage for the Lasette, this is a lengthy approval process
of which we are only in the early stages. There can be no assurance that
Medicare coverage will be obtained. Our failure to obtain Medicare or
third-party coverage of the Lasette will limit our ability to successfully
target the Lasette for home use to those persons that cannot purchase the
Lasette without such assistance, which could adversely affect the growth of our
business.
WE DEPEND ON A SOLE SUPPLIER FOR THE CRYSTALS USED IN THE LASETTE'S ERBIUM:YAG
LASER RODS, WHICH MAKES US SUSCEPTIBLE TO SUPPLY SHORTAGES OR PRICE FLUCTUATIONS
THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. The Erbium:YAG laser rod
we use in the Lasette is made from crystals that are produced and processed from
a single supplier in Russia, New Technologies Engineering Center. To date, we
have experienced no material interruptions in the supply of our laser
components. However, our agreements with our Russian supplier have historically
been short-term in nature expiring after a specified dollar volume of rods are
purchased or a specified period of time has elapsed, which has typically been
one year or less. Although to date we have been able to maintain arrangements
for the supply of our rods from New Technologies, we cannot assure you that we
will be able to continue to do so in the future. Additionally, our source of
supply could be restricted due to events flowing from Russia's political or
economic instability, or due to the supplier's non-performance. Although we
believe alternative crystal suppliers will be available if needed, we believe
the prices quoted by these alternative crystal suppliers would be significantly
higher than the prices we currently pay. The prices of our laser rods from our
Russian supplier may fluctuate each time we enter into a new agreement. Since
January 1, 2000, the prices we have negotiated for the purchase of rods from our
Russian supplier have ranged between approximately $85 to $107 per rod.
Depending upon on our purchase volumes, we believe that the price of similar
rods provided by alternative suppliers would range between approximately $175
and $380 per rod. Therefore, we believe we realize a significant cost savings by
having our crystals manufactured by New Technologies. We cannot assure you that
will be able to purchase rods from New Technologies at prices that will result
in cost savings to the company in the future. Additionally, if we are unable to
maintain commitments from New Technologies to supply rods or any of the above
events or other events beyond our control occur, we could lose our strategically
important source of supply for laser crystals. This would increase our
manufacturing costs and impair our competitive advantage.
THE COMPETITION IN THE LASER BIOMEDICAL PRODUCTS INDUSTRY IS INTENSE, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUES AND MARKET SHARE. Our
industry is characterized by intense competition. Our competition includes
pharmaceutical and medical diagnostic equipment companies, academic
institutions, public and private research institutions and others. Many of these
companies and institutions are developing products that will be used for the
same purposes as our products. In many cases, our competitors have substantially
greater resources, research and development staffs and facilities than we do, as
well as greater experience in developing and marketing products. Our competitors
may succeed in developing products that are more effective or less costly than
our products. If these new products are developed and become widely available
and accepted, then we may be forced to reduce the price of our products. As a
result, we may not be able to sell our products at a price that will allow us to
realize a return on our investment.
8
Some of these companies and other companies are marketing traditional stainless
steel lancets. Additionally, several companies are developing or have developed
safety lancets that are intended to reduce accidental needlesticks and
cross-contamination in compliance with OSHA's bloodborne pathogens standards.
These standards, as revised by the Needlestick Safety Act, require health care
facilities to select safer needle devices to reduce or eliminate accidental
needlesticks suffered by health care workers. The Lasette will compete directly
with companies that are manufacturing, marketing and distributing stainless
steel lancets and safety lancets. Many of these competitors have more
established sales and customer support organizations than we do. In addition,
many of these competitors have greater name recognition, more extensive customer
bases, better developed distribution channels and broader product offerings than
we have. These companies can leverage their customer bases and broader product
offerings and adopt aggressive pricing policies to gain market share.
Further, these new technologies may render some or all of our products
non-competitive, obsolete and/or unmarketable, which would have a material
adverse affect on our business. For example, our competitors are developing
glucose-testing products based on partially invasive or non-invasive
technologies that could be an alternative to the Lasette. These non-invasive
technologies include needle implants, watches with skin patches and non-invasive
laser products that are designed to read glucose levels through the skin. If
these products or other new products are approved for sale and become
commercially available in the United States or Europe in the future, they could
have a material adverse affect on sales of the Lasette and on our business and
financial condition.
OUR PRODUCTS MAY NOT GAIN MARKET ACCEPTANCE AND MAY NOT ACHIEVE A COMPETITIVE
POSITION IN THE MARKETPLACE. We cannot assure you that the marketplace will
accept our products or that customers will be willing to pay more for our
products than for existing products. The cost of the Lasette is significantly
higher than that of the stainless steel lancets and safety lancets. The
suggested retail price of the Lasette is presently $995, although this initial
cost could be substantially less depending on the program accepted by the
customer, such as the number of units purchased or the commitment by the
customer to purchase disposable shields in the future. Comparatively, we believe
that the price of stainless steel lancets is currently less than $0.05 per unit
and the price of safety lancets is between $0.49 and $0.52 per unit. In addition
to the stainless steel lancets and safety lancets, the Lasette will also compete
directly with non-invasive procedures and products that are currently being
developed by other companies. Market acceptance will depend, in large part, upon
our ability to educate potential customers, including third-party distributors,
about our products' distinctive benefits and/or create pricing strategies that
are attractive to potential customers. We cannot assure you that we will be
successful in these efforts or that our products will gain market acceptance or
be competitive.
WE DO BUSINESS INTERNATIONALLY, WHICH SUBJECTS US TO RISKS RELATED TO FOREIGN
REGULATIONS AND LAWS, DUTIES AND TARIFFS, FOREIGN INSTABILITY AND EXCHANGE
RATES, AMONG OTHER THINGS. We sell our products internationally. Sales outside
of the United States accounted for 27% and 54% of our sales for the Lasette and
Cell Robotics Workstation, respectively, in 2000. We also purchase some of the
components used in their manufacture from an international supplier. In
particular, we purchase the Erbium:YAG laser we use in the Lasette from a single
supplier in Russia. The risks associated with these international activities
include, but are not limited to, the following:
o regulation of fund transfers by foreign governments and the
United States;
o foreign export and import duties and tariffs;
o political and economic instability;
o compliance by our foreign suppliers with export laws and
licenses; and
o fluctuating exchange rates.
We cannot assure you that any of the foregoing will not have a material adverse
affect on our business.
WE MAY NOT MANAGE OUR GROWTH PROPERLY. The medical device industry is
characterized by extensive research efforts, rapid technological progress,
evolving industry standards and frequent new product and service introductions.
Our success depends on our ability to timely deliver state-of-the-art products
and provide meaningful customer support for a highly technical product. For this
reason, our long-term growth strategy is to develop our product lines,
particularly the Lasette, strengthen our market position through continued
research and development
9
efforts and make appropriate acquisitions. This strategy will require the
continued improvement and expansion of our management, operational and financial
systems and controls. Any measurable growth in our business will demand more
from our customer support, sales, marketing, administrative and technical
resources. It will also place significant strain on our management and financial
resources. We cannot assure you that we will be able to successfully address
these additional demands. Additionally, we cannot assure you that our operating
and financial control systems will be adequate to support our future operations
and anticipated growth. Failure to manage our growth properly could have a
material adverse effect on our business, financial condition and results of
operations.
OUR LICENSE WITH LUCENT IS COSTLY, AND THERE CAN BE NO ASSURANCE THAT THE
LASERTWEEZERS PRODUCT WILL GAIN WIDE MARKET ACCEPTANCE. Our Cell Robotics
Workstation is based on our LaserTweezers, LaserScissors, CellSelector and
SmartStage technologies. The LaserTweezers application of our Cell Robotics
Workstation is based upon a non-exclusive patent license from AT&T, which was
transferred by AT&T to Lucent Technologies, Inc. Our license will expire in
January 2007, the end of the term of the licensed patent. We were in default
under this license agreement, and renegotiated its terms in 1998. Under the
renegotiated agreement, we paid Lucent $100,000 in lieu of all sums due and
owing for prior years. Additionally, we agreed to increase the royalty from five
to seven percent of the value of each product sold utilizing the patent.
Finally, the minimum annual royalties under the license have been reduced to
$35,000 per year for the term of the license. Based on these changes, we must
pay Lucent a royalty of seven percent per year with a minimum annual payment of
$35,000. Even with these changes to the license, we may not be able to increase
sales of the Cell Robotics Workstation that include the LaserTweezers
application to a level that renders use of that application in our product
economically attractive.
Furthermore, in 1992, we became aware that at least two European companies have
developed and are marketing products that we believe violate Lucent's patent.
These products compete with the Cell Robotics Workstation. Lucent has recently
decided to pursue patent infringement actions in connection with these
infringements. However, under the terms of our license with Lucent, we cannot
compel Lucent continue to pursue these infringement proceedings or initiate any
other infringement proceedings. If Lucent continues to pursue these infringement
proceedings, we cannot assure you of their outcome and what effect, if any, they
would have on our business, operations or financial condition.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS REPUTATION WHETHER OR NOT THEY ARE CONCLUDED IN
OUR FAVOR. The design, development, manufacture and use of our products can
involve product liability claims and associated adverse publicity. Producers of
medical products such as ours may face substantial liability for damages if
their products fail or consumers allege that their products caused harm. We
currently maintain $2,000,000 of product liability insurance, but this insurance
is expensive and difficult to obtain. We cannot assure you that we will not be
subject to product liability claims. Additionally, we cannot assure you that our
current insurance would cover any claims, or that adequate insurance will
continue to be available on acceptable terms in the future. If damages for
successful product liability claims exceed our insurance coverage limits, or if
any claim or product recall creates significant adverse publicity, then our
business reputation, financial condition and results of operations could be
materially and adversely affected.
WE COULD BE ADVERSELY AFFECTED IF THE GOVERNMENT REDUCES ITS SUPPORT OF
SCIENTIFIC RESEARCH AND DEVELOPMENT. We market our Cell Robotics Workstation
principally to colleges, universities, research laboratories, biotechnology and
pharmaceutical companies and commercial laboratories engaged in scientific
research. Our present customers of the Cell Robotics Workstation include
colleges, universities, research laboratories and similar institutions. These
customers accounted for substantially all of our sales of the Cell Robotics
Workstation and 61% and 57% of our total product sales in 2000 and 1999,
respectively. Most, if not all, of these customers rely upon federal and state
funding in order to support their research activities. The ability of these
institutions to purchase our products is dependent upon receiving adequate
funding from the public sector. A reduction or withdrawal of government support
of scientific pursuits could result in a lower demand for our products, which
could adversely affect our ability to become profitable.
RISKS RELATED TO OUR SECURITIES AND THIS OFFERING
WE MAY CONTINUE TO SELL STOCK OR OTHER SECURITIES TO RAISE MONEY. IF WE DO SO,
THESE SALES COULD SUBSTANTIALLY DILUTE OUR SECURITYHOLDERS' INVESTMENT. We have
the authority to issue up to 50,000,000 shares of common stock and to issue
options and warrants to purchase shares of our common stock without shareholder
approval. Further, we may authorize the issuance, without shareholder approval,
of our preferred stock with rights preferential to the rights of investors in
this offering. We will be required to raise additional funds during the fourth
quarter of 2001,
10
which may be through the issuance of equity securities. We may issue additional
equity securities without shareholder approval. If we do issue additional equity
securities, those securities may have rights, preferences or privileges senior
to those of existing holders of our common stock. Additionally, the issuance of
additional equity securities could substantially dilute the holdings of our
existing shareholders and the investors in this offering.
TRADING IN OUR SECURITIES IS LIMITED AND SPORADIC, THEREFORE YOU MAY NOT BE ABLE
TO LIQUIDATE YOUR INVESTMENT WITHOUT CONSIDERABLE DELAY, OR AT ALL. While there
currently exists a limited and sporadic public trading market for our common
stock and the Redeemable Warrants, the price paid for these securities and the
amount of securities traded are volatile. For example, between January 2000 and
September 2001, the daily trading volume in our common stock has ranged from
approximately 100 to 1,500,000 shares. We cannot assure you that these markets
will improve in the future. As a result, you may not be able to liquidate your
investment without considerable delay, if at all.
OUR SECURITIES MAY BE REGULATED BY THE SECURITIES ENFORCEMENT AND PENNY STOCK
REFORM ACT OF 1990. THE ADDITIONAL SALES PRACTICES IMPOSED BY THIS ACT COULD
ADVERSELY AFFECT THE MARKET FOR OUR SECURITIES. Because our common stock is not
listed or quoted on any exchange or on NASDAQ, and no other exemptions currently
apply, the Securities and Exchange Commission, or SEC, "penny stock" rules
govern the trading in our common stock. These rules require any broker engaging
in a transaction in our securities to provide its customers with certain
disclosures and information both before and after effecting the transaction.
Brokers are generally less willing to effect transactions in our securities
because of these rules. This may make it more difficult for investors to dispose
of our common stock. In addition, the broker prepares the information provided
to its customer. Because we do not prepare the information, we cannot assure you
that such information is accurate, complete or current.
WE HAVE NOT PAID DIVIDENDS TO OUR SHAREHOLDERS IN THE PAST, AND WE DO NOT
ANTICIPATE PAYING DIVIDENDS IN THE NEAR FUTURE. We have not declared or paid
cash dividends on our common stock. We intend to retain all future earnings, if
any, to fund the operation of our business, and therefore we do not anticipate
paying dividends on our common stock in the future.
PROVISIONS OF OUR CHARTER DOCUMENTS AND CERTAIN AGREEMENTS WITH OUR OFFICERS MAY
HAVE ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE OR PREVENT A CHANGE OF CONTROL,
WHICH MAY SUPPRESS OUR STOCK PRICE OR CAUSE IT TO DECLINE. Our articles of
incorporation authorize the issuance of up to 2,500,000 shares of preferred
stock. Our board of directors has the authority to fix and determine the
relative rights and preferences of preferred stock, as well as issue preferred
stock without shareholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock which would grant to
holders preferred rights to our assets upon liquidation, the right to receive
dividends before dividends would be declared to common shareholders, and the
right to the redemption of preferred shares, together with a premium, prior to
the redemption of common stock. Common shareholders have no redemption rights.
In addition, we have agreements with some of our officers that have change of
control provisions. The ability to issue preferred stock without shareholder
approval and our arrangements with officers may discourage, delay or prevent
someone from acquiring or merging with us.
WE MAY REDEEM THE REDEEMABLE WARRANTS AT TIMES WHICH MAY BE DISADVANTAGEOUS TO
THE HOLDERS. We may redeem the Redeemable Warrants at a price of $0.25 per
Redeemable Warrant upon 30 days notice, mailed after the closing bid price of
our common stock has equaled or exceeded $4.80 for a period of ten consecutive
trading days. Holders of the Redeemable Warrants have exercise rights until the
close of the business day preceding the date fixed for redemption. Redemption of
the Redeemable Warrants could force the holders to exercise their Redeemable
Warrants and pay the exercise price at a time when it may be disadvantageous for
them to do so, to sell the Redeemable Warrants at the then-current market price
when they might otherwise wish to hold the Redeemable Warrants, or to accept the
redemption price, which is likely to be substantially less than the market value
of the Redeemable Warrants at the time of redemption. The Redeemable Warrants
may not be redeemed or exercised unless a registration statement covering the
underlying shares of common stock has been filed and is current and such shares
have been qualified for sale, or there is an exemption from applicable
qualification requirements, under the securities laws of the holder's state of
residence.
HOLDERS OF REDEEMABLE WARRANTS MAY EXERCISE THE REDEEMABLE WARRANTS TO ACQUIRE
SHARES OF OUR COMMON STOCK ONLY IF THERE IS A CURRENT REGISTRATION STATEMENT AND
PROSPECTUS COVERING THOSE SHARES OF COMMON STOCK. Holders of the Redeemable
Warrants may exercise their Redeemable Warrants to acquire shares of our common
stock only if there is a current and effective registration statement and
prospectus covering the shares of common stock issuable upon such exercise, and
only if the shares are qualified for sale under the securities laws of the
applicable state or
11
states. While we have undertaken and plan to do so, there can be no assurance
that a current registration statement and prospectus will be in effect when any
of the holders attempt to exercise their Redeemable Warrants. Although we will
seek to qualify the shares of common stock underlying the Redeemable Warrants
for sale in those states in which the securities are to be offered, we cannot
assure you that we will be successful in achieving qualification in the
necessary states. The Redeemable Warrants may be deprived of any value if a
prospectus covering the shares issuable upon their exercise is not kept
effective and current, or if such underlying shares are not, or cannot be,
registered in the applicable states.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology, for instance the
terms "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms or
other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of our financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o our ability to manufacture and distribute our products.
Potential investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties. Actual results will differ and
could differ materially from these forward-looking statements. The factors that
could cause actual results to differ materially from those in the
forward-looking statements include the following: (1) industry conditions and
competition, (2) reforms in the health care industry or limitations imposed on
third party reimbursement of health care costs, (3) the rate of market
acceptance of our products, particularly the Lasette, (4) operational risks and
insurance, (5) risks associated with operating in foreign jurisdictions, (6)
product liabilities which may arise in the future which are not covered by
insurance or indemnity, (7) the impact of current and future laws and government
regulation, as well as repeal or modification of same, affecting the medical
device industry and our operations in particular, (8) the ability to retain key
personnel, (9) renegotiation, nullification or breach of contracts with
distributors, suppliers or other parties and (10) the relationship with our
suppliers, particularly our supplier of crystals used in our Ebrium:YAG lasers.
In light of these risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained in this
prospectus will in fact occur.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock offered by
the selling securityholders, or the sale of our Redeemable Warrants. We will,
however, receive proceeds if any of the following occurs:
12
o The Representative Warrants may be exercised on a cash basis,
a cashless basis or a combination thereof. If the
Representative Warrants are exercised in full for cash, then
we will receive additional gross proceeds of $396,000.
However, to the extent they are exercised on a cashless basis,
we will receive no gross proceeds from the exercise.
Additionally, if the Redeemable Warrants underlying the
Representative Warrants are exercised in full, then we will
receive gross proceeds of $192,000;
o If all of the shares we are offering are purchased pursuant to
the exercise of the Redeemable Warrants sold in the February
1998 public offering, then we will receive additional gross
proceeds of $2,208,000; and
o If all of the selling securityholders exercise their
Redeemable Warrants, stock options and other stock purchase
warrants in full, then we will receive additional gross
proceeds of $880,965.
Presently, the exercise prices of these stock options, stock purchase warrants,
Redeemable Warrants and Representative Warrants are above the trading price of
our common stock. Accordingly, these securities will likely not be exercised
unless the trading price of our common stock increases. Whether or not our
common stock trades at a price above the exercise price of these securities, we
cannot assure you that any of our securityholders will exercise any of the stock
options, common stock purchase warrants, Redeemable Warrants or Representative
Warrants. We will not receive any proceeds from the resale of our common stock
or the sale of our Redeemable Warrants by the selling securityholders.
If we were to receive proceeds from any of the foregoing, we anticipate that the
proceeds will be used as working capital in our day-to-day operations. While we
regularly evaluate possibilities for the acquisition of other businesses,
technologies and products as a part of our long-term business strategy, we do
not have any arrangements, agreements or understandings with respect to any such
acquisitions. At this time, we do not anticipate the proceeds we receive from
the exercise of the Representative Warrants, the Redeemable Warrants, stock
options or other common stock purchase warrants will be used to repay debt.
MARKET PRICE INFORMATION AND DIVIDENDS
Our common stock and Redeemable Warrants are traded over-the-counter and quoted
on the OTC Bulletin Board on a limited and sporadic basis under the symbols
"CRII" and "CRII.W," respectively. The reported high and low bid prices for our
common stock and the high and low bid and ask prices for our Redeemable
Warrants, each as reported by the OTC Bulletin Board, are shown below for our
two prior fiscal years through December 12, 2001. These over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<Table>
<Caption>
COMMON STOCK BID
-------------------------------------------------------------------
LOW HIGH
------------------------------- -------------------------------
1999
First Quarter $1.813 $2.813
Second Quarter $1.500 $2.188
Third Quarter $1.531 $2.125
Fourth Quarter $1.563 $2.313
</Table>
<Table>
<Caption>
BID
-------------------------------------------------------------------
LOW HIGH
------------------------------- -------------------------------
2000
First Quarter $ 1.531 $7.750
Second Quarter $ 3.128 $5.813
Third Quarter $ 1.813 $4.125
Fourth Quarter $ 0.500 $2.250
</Table>
13
<Table>
<Caption>
BID
-------------------------------------------------------------------
LOW HIGH
------------------------------- -------------------------------
2001
First Quarter $0.453 $1.313
Second Quarter $0.281 $0.830
Third Quarter $0.210 $0.760
Through December 12, 2001 $0.190 $0.500
</Table>
<Table>
<Caption>
REDEEMABLE WARRANTS
LOW - BID HIGH - ASK
------------------------------- -------------------------------
1999
First Quarter $0.813 $0.938
Second Quarter $0.813 $1.063
Third Quarter $0.875 $0.969
Fourth Quarter $0.688 $0.938
</Table>
<Table>
<Caption>
LOW - BID HIGH - ASK
------------------------------- -------------------------------
2000
First Quarter $2.813 $3.000
Second Quarter $1.750 $2.000
Third Quarter $0.906 $1.063
Fourth Quarter $0.250 $0.375
</Table>
<Table>
<Caption>
LOW - BID HIGH - ASK
------------------------------- -------------------------------
2001
First Quarter $0.156 $0.234
Second Quarter $0.070 $0.156
Third Quarter $0.040 $0.080
Through December 12, 2001 $0.040 $0.060
</Table>
As of December 12, 2001, there were approximately 165 holders of record of our
common stock and 9 holders of record of our Redeemable Warrants.
We have not paid any dividends on our common stock and do not expect to do so in
the foreseeable future. We anticipate that any earnings generated from our
operations will be used to finance our ongoing operations. No contractual
restrictions exist upon our ability to pay dividends.
Our Series A Convertible Preferred Stock automatically converted into shares of
our common stock in January 1999, when the sum of the closing bid prices of our
Series A Convertible Preferred Stock and two Redeemable Warrants was at least
$12.375 for ten consecutive days. Due to the automatic conversion, a final
dividend in the form of shares of our common stock was accrued for all
shareholders of record on February 2, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2000
Sales of products for the three-month period ended September 30, 2001 increased
$129,430 or 47% to $402,063 from $272,633 in the three-month period ended
September 30, 2000. The increase in sales resulted mainly from our scientific
research instruments products. The sales of scientific instrumentation products
increased $112,754 during the quarter ended September 30, 2001 to $320,057 from
$207,303 when compared to the same quarter of the prior year. The increase
resulted because we placed a greater emphasis on our scientific research
instrumentation products in 2001 than we did in 2000. Additionally, at the end
of September 2001 we released a newly developed model of our scientific research
instrumentation products, which contributed to the increase. Our sales of
laser-based medical products increased $16,676 from $65,330 during the quarter
ended September 30, 2000 to $82,006 for the quarter ended September 30, 2001.
Revenue generated from research and development grants increased
14
$78,894 to $88,923 in the quarter ended September 30, 2001 from $10,029 in the
quarter ended September 30, 2000. The increase is attributed to more work being
completed on a specific grant by our personnel in the third quarter of 2001
compared to the work completed during the comparable period in 2000.
Our gross margin increased to 33% for the quarter ended September 30, 2001 from
a negative gross margin of 166% for the quarter ended September 30, 2000. The
significant negative gross margin experienced during the quarter ended September
30, 2000 was primarily due to an accrual of $400,000 that was made in
anticipation of the settlement of the lawsuit. This lawsuit was settled in the
first quarter of 2001. Additionally, during the quarter ended September 30, 2000
we accrued approximately $64,000 in cost of sales to pay expenses associated
with a design improvement in one of the main components of the laser-based
medical products. As a result of the modification, certain parts in stock had to
be reworked. Additionally, the negative gross margin in 2000 was due to a lack
of efficiencies in the production of our laser-based medical products. As sales
have increased in 2001 our gross margin has returned to a positive level.
Operating expenses decreased 33% or $299,359 from $906,468 for the quarter ended
September 30, 2000 to $607,109 for the quarter ended September 30, 2001. The
decrease occurred in nearly all areas of our operations. Because our cash
resources are limited, management took steps to reduce expenditures during the
quarter ended September 30, 2001.
Interest income decreased in the quarter ended September 30, 2001 from the
amount in the quarter ended September 30, 2000 primarily due to fact that the
cash received by us from the $2 million private placement that was completed in
May 2000 and proceeds from the issuance of the $1.2 million convertible note in
March 2000 was depleted in 2001; therefore, we had less cash to invest in 2001.
Interest expense decreased in 2001 from 2000 because of the required beneficial
conversion charge to interest expense associated with the conversion of our $1.2
million convertible note in August 2000 into 500,000 shares of our common stock.
A similar charge was not incurred in 2001. In accordance with accounting rules,
we were required to include a non-cash charge to interest expense when the $1.2
million convertible note was converted to our common stock in August 2000.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 2000
Sales of products for the nine-month period ended September 30, 2001 increased
$258,398 or 35% to $1,007,453 from $749,055 in the comparable period of 2000.
The increase is due primarily to sales of our scientific instrumentation
products. As was discussed above, we increased selling efforts with respect to
these products in 2001. Also, we introduced a new scientific research instrument
product in September 2001 that contributed to the sales increase.
Our gross margin increased from a negative gross margin of 67% for the
nine-month period ended September 30, 2000 to a gross margin of 19% for the
nine-month period ended September 30, 2001. The increase is primarily due to
increased sales in 2001 when compared to sales in 2000 and the one-time charges
recorded in 2000 as mentioned above were not required in 2001.
Operating expenses decreased $258,261 from $2,377,271 for the nine-month period
ended September 30, 2000 to $2,119,010 for the nine-month period ended September
30, 2001. The decrease is primarily due to our curtailment of expenditures
because our cash resources are limited. The decrease in general and
administrative expenses resulted primarily from decreases in fees paid for legal
services. Legal fees decreased by approximately $260,000 during the nine-month
period ended September 30, 2001 when compared to the same period 2000. Marketing
and sales expenses increased during the nine-month period ended September 30,
2001 when compared to the same period of 2000 primarily because of increased
sales personnel. The decrease in research and development expenses occurred
because we decided to devote fewer resources toward research and development
during the nine-month period ended September 30, 2001 considering our decreasing
available cash balance.
As was explained above, interest income decreased in the period ended September
30, 2001 from the amount in the period ended September 30, 2000 primarily due to
smaller cash balances available for investments in 2001 when compared with 2000.
Interest expense decreased in 2001 from 2000 because of the beneficial
conversion charge to interest expense associated with the conversion of our $1.2
million convertible note in August 2000 into 500,000 shares of our common stock.
A similar charge was not required in 2001.
15
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1999
Product sales for the year ended December 31, 2000 decreased $302,226, or 23%,
to $992,710 from $1,294,936 in the comparable period of 1999. The decrease is
due to our change in emphasis from our scientific instrumentation products and
Professional Lasette to the Lasette that can be used for either home or clinical
use. Sales of scientific instrumentation products and the Professional Lasette
decreased $130,740 to $605,877 and $300,667 to $23,550, respectively, during the
year ended December 31, 2000 when compared with 1999. The sales decline in
scientific instrumentation products is due to fewer resources being allocated to
achieve sales of those products. We terminated our distribution arrangement with
the distributor of the Professional Lasette in August 2000 because of low sales
activity by the distributor. Also, in May 2000, we sold the IVF Workstation and
related technology. This resulted in a decline of revenues in the year ended
December 31, 2000 of approximately $126,000 when compared with the prior year.
Sales of our Lasette that can be used for either home or clinical use increased
approximately $250,000 during 2000 when compared with no sales in 1999. As
previously mentioned, we have made a strategic decision to focus our efforts to
develop and market the Lasette that can be used for either home or clinical use.
Our research and development grant revenue decreased $108,381 from the period
ended December 31, 1999 to the period ended December 31, 2000 as a result of our
decision to divert our resources from work on the grant to other projects.
Our gross margin on product sales decreased from 18% during 1999 to a negative
gross margin of 53% for 2000. The decrease is primarily due to an accrual of
$400,000 that we made during the third fiscal quarter of 2000 as an estimate of
the financial impact of settling our lawsuit with Big Sky Laser Technologies,
Inc., or BSLT. The lawsuit was settled in January 2001. See "Business -- Legal
Proceedings." Additionally, during the third fiscal quarter we accrued
approximately $64,000 in cost of sales to pay the cost associated with a design
improvement in one of the main components of the Lasette to increase the
efficiency of the laser beam profile. As a result of the design modification,
certain parts in stock had to be reworked. Additionally, the negative gross
margin is due to a lack of efficiencies in the production of our laser-based
medical products that we market. We expect our margins to improve as sales
increase and our manufacturing process becomes more efficient; however, there
are several risk factors that need to be considered, such as our ability to
effectively market the products and significantly increase sales and our ability
to achieve economies of scale and efficiently manufacture the products. We are
working to achieve sales and manufacturing efficiencies, but no assurances can
be given that we will succeed in these areas.
Operating expenses increased $1,238,615 from $2,165,551 for the period ended
December 31, 1999 to $3,404,166 for the year ended December 31, 2000. Our
operating expenses increased as a result of greater marketing and sales, general
and administrative and research and development expenses in 2000 compared to
1999. Of this increase, $663,951 is due to our marketing and selling expenses as
we launched an aggressive campaign to sell our laser-based medical products and
increased our sales staff from two persons in 1999 to nine persons in 2000. The
increase in general and administrative expenses is primarily due to the legal
fees we incurred in the second quarter of fiscal 2000 primarily to update
previous registration statements filed with the SEC and for legal services in
connection with a secured convertible note. Our legal fees increased $339,028
for the year ended December 31, 1999 compared to the year ended December 31,
2000. We paid these legal fees by issuing shares of our common stock rather than
by expending working capital resources.
Our research and development expenses increased $265,173 from $551,468 for the
period ended December 31, 1999 to $816,659 for the period ended December 31,
2000. This increase is primarily due to the expenses we incurred to hire an
additional engineer in 2000 and resources we committed to research to enhance
and further develop the Lasette. Interest income increased $49,977, or 191%, in
the year ended December 31, 2000 compared to the prior year. The increase is due
to additional cash investments primarily as a result of the $2 million private
placement that was completed in May 2000 and proceeds from the issuance of the
$1.2 million convertible note in March 2000.
Interest expense increased because of a required beneficial conversion charge to
interest expense associated with our conversion of a $1.2 million convertible
note in August 2000 into 500,000 shares of common stock. In accordance with
accounting rules, we made a non-cash charge of $1.2 million to interest expense
when the $1.2 million convertible note was converted to our common stock. The
increase in other income resulted from the sale of the IVF Workstation and
related technology.
16
Our net loss for the year ended December 31, 2000 was $5,036,182 compared to a
net loss of $2,424,630 for the same period in 1999. The increase in our net loss
in 2000 is primarily attributed to the factors discussed above.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998
During the year ended December 31, 1999, our operating activities primarily
included continuing efforts to complete the development of our laser-based
medical devices and marketing of the Lasette. Product sales for the period were
generated from sales of our scientific research instruments and our Professional
Lasette.
o Total revenues from product sales and grant revenue decreased
0.8% from $1,429,001 during the 1998 period to $1,417,317
during 1999.
o Research and development grant revenue decreased 31.7% from
$179,298 during 1998 to $122,381 during 1999.
o The gross profit realized by our product sales generated
during fiscal 1999 was $230,806, or 17.8%, compared to a gross
profit of $401,463, or 32.1%, realized during fiscal 1998.
This decrease was primarily attributed to a reduction in
retail selling prices due to competitive pricing pressures as
well as increased warranty expenses associated with the
Professional Lasette.
Operating expenses incurred during fiscal 1999 were $2,165,551, a decrease of
$103,712, or 4.6%, compared to fiscal 1998 operating expenses of $2,269,263.
This decrease was principally attributable to a reduction in research and
development expenses.
o Research and development expenses decreased by $297,680, or
35.1%, in 1999 due primarily to a reduction in professional
design and engineering consulting fees required by our
laser-based medical devices.
o Marketing and sales related expenses incurred during fiscal
1999 were $625,777, an increase of $16,489, or 2.7%, when
compared to fiscal 1998 marketing and sales related expenses
of $609,288. Expenses related to the marketing introduction of
our new Personal Lasette product were primarily responsible
for this increase.
o General and administrative expenses associated with the
conduct of our business increased from $810,809 during the
year ended December 31, 1998 to $988,288 for the year ended
December 31, 1999, an increase of $177,479 or 21.9%. This
increase is primarily attributed to our effort to maintain ISO
9001 certification, increased product liability premiums,
increased SEC compliance costs and increased investor
relations' activities.
During the fiscal year ended December 31, 1999, other income and expenses
decreased from an $84,454 net contribution to income for the year ended December
31, 1998 to a $25,395 net contribution to income. This decrease was due almost
exclusively to the reduction of interest earned on declining cash balances.
As a result of the foregoing, our net loss applicable to common shareholders for
the year ended December 31, 1999 increased by $367,057, or 17.8%, when compared
to the year ended December 31, 1998. Our net loss applicable to common
shareholders was $2,057,573 for the year ended December 31, 1998, and $2,424,630
for the comparable period ended December 31, 1999. We had a net loss of $0.31
per share on 7,734,762 weighted average shares outstanding for the year ended
December 31, 1999 compared to a net loss of $0.39 per share on 5,278,347
weighted average shares outstanding for the comparable period ended December 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, to provide working capital for our product development and
marketing activities we have relied principally upon the proceeds of both debt
and equity financings and, to a lesser extent, the proceeds of Small Business
Innovative Research grants. Research and development grant revenue was $14,353
and $122,381 in 2000
17
and 1999, respectively. We have not been able to generate sufficient cash from
operations and, as a consequence, we must seek additional financing to fund
ongoing operations. Recent financings include the following:
o In July 1999, we sold 9.5 units to four investors in a private
placement of our securities. Each unit consisted of 35,000
shares of our common stock and 7,500 Redeemable Warrants. We
also granted 15,000 Redeemable Warrants to two placement
agents. Gross proceeds received from this private placement
totaled $475,000. We also granted an additional 15,000
Redeemable Warrants for legal services rendered that were
unrelated to this private placement.
o The February 2000 exercise of the warrants issued to an
underwriter and its officers in connection with a previous
offering of our securities, what we refer to as the Placement
Agent's Warrants, and underlying class A warrants resulted in
$466,756 of proceeds to the company. The Placement Agent's
Warrants were issued to Paulson Investment Company, Inc. and
its officers, who served as placement agent in connection with
a 1995 private offering. The Placement Agent's Warrants were
exercisable for a period of five years to purchase 11.5 units
at a price of $25,000 per unit, each unit consisting of 20,000
shares of our common stock and our class A warrants
exercisable for 10,000 shares of our common stock.
o In February 2000, we executed a secured convertible promissory
note payable to Oton Tisch, a member of our board of
directors, which was amended in March 2000. Mr. Tisch advanced
$250,000 on March 3, 2000; $250,000 on March 9, 2000; $200,000
on March 28, 2000; and the remaining $500,000 on April 26,
2000 under the note. The principal amount of $1,200,000 was
paid in full with and converted into 500,000 shares of common
stock on August 30, 2000. In connection with the beneficial
conversion of this note, we recorded a non-cash charge of
$1,200,000 in the quarter ended September 30, 2000.
o On May 26, 2000, we issued 500,000 shares of our common stock
in a private placement with Paulson Investment Company, Inc.,
which resulted in gross proceeds to us of $2,000,000. A five
percent placement fee (or $100,000) was paid to Bridgeworks
Capital, Inc. after the close of the transaction. Mark Waller,
one of our former directors, is an officer and majority owner
of Bridgeworks Capital.
o In January 2001, certain members of our board of directors and
affiliates of members or former members of our board of
directors also agreed to make term loan advances to us in an
aggregate amount of $1,000,000. Loans in the amount of
$100,000, $400,000 and $500,000 under this $1,000,0000
commitment were made in February 2001, March 2001 and May
2001, respectively. The loans are evidenced by unsecured
promissory notes, bear interest at the rate of ten percent per
annum and are due on January 31, 2002. In connection with the
January 2001 loan commitment, each lender was issued a warrant
in proportion to the amount of the loan made by that lender.
The warrants allow the lenders to purchase an aggregate of
150,000 shares of our common stock. The warrants may be
exercised until January 31, 2004, at a price equal to $1.125
per share of our common stock. We used $45,000 of the proceeds
of the above loans by our directors as payment against the
outstanding balance of principal and accrued interest on the
$250,000 note payable to Humagen Fertility Diagnostic, Inc.,
whose president, chief executive officer and majority
shareholder is Dr. Debra Bryant, a former director of the
company. The remaining proceeds were used to pay trade
payables and for working capital and other general corporate
purposes.
o In August 2001, we signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, one of our
directors. Mr. Tisch, funded $190,000 after the signing of the
convertible note. The remaining $310,000 may be requested by
us, at our option, so long as we have not completed a round of
debt or equity financing providing gross proceeds to us of at
least $310,000. Principal and accrued interest evidenced by
the note are convertible into shares of our common stock at
any time. The conversion price of the convertible note is
$0.5994 per share of our common stock or 90% of the average
closing price per share of our common stock for 15 trading
days ending on the trading day immediately prior to the date
of conversion, whichever is less. However, the conversion
price cannot be less than $0.30 per share. The convertible
note bears interest at 10% per annum and is presently secured
by our equipment. Unless sooner converted, the convertible
18
note is due on August 2, 2002. We anticipate that a non-cash
beneficial conversion charge will be expensed as interest as a
result of this transaction. The amount of this charge cannot
be reasonably determined at this time due to the variable
nature of the conversion price. In connection with the
issuance of the convertible note, Mr. Tisch was issued a
warrant to purchase up to 37,500 shares of our common stock,
of which 14,250 shares have become exercisable. The remaining
shares covered by the warrant will become exercisable in
proportion to the amount funded by Mr. Tisch under the
convertible note. The warrant is exercisable until August 2,
2004, for common stock at a price of $0.67 per share. The
proceeds from the loan made to date under the convertible note
were used to pay trade payables and for working capital and
other general corporate purposes.
Cash used in operations for the years ended December 31, 2000 and 1999 was
$2,959,301 and $1,584,722, respectively. The primary reasons for the increase in
cash used in operations during the year ended December 31, 2000, as compared to
the prior year, are increases in selling and marketing expenses during that
period. Cash used in operations for the nine months ended September 30, 2001 and
2000 was $2,022,008 and $2,110,391, respectively.
Cash provided by financing activities for the years ended December 31, 2000 and
1999 was $3,864,805 and $887,551, respectively. The increase in net cash
provided by financing activities resulted primarily from net proceeds from the
debt and equity financings closed during those periods, as discussed above. Cash
provided by financing activities for the nine months ended September 30, 2001
and 2000 was $1,112,150 and $3,864,804, respectively. The decrease in net cash
provided by financing activities resulted primarily from fewer available sources
of capital during the nine month ended September 30, 2001 compared to the same
period in the prior year.
Our liquidity and capital resources improved in 2000 due to the debt and equity
financings discussed above, but will decrease in the future due primarily to our
ongoing operating losses. Our current ratio at September 30, 2001 was 0.75:1,
compared to a current ratio of 1.9 to 1 at December 31, 2000 and 1.6 to 1 on
December 31, 1999.
Total assets decreased from $3,135,816 at December 31, 2000 to $2,206,870 at
September 30, 2001. Total assets increased from $2,013,666 at December 31, 1999
to $3,135,816 at December 31, 2000, an increase of $1,122,150 or 56%.
o Our current assets increased $1,062,848, or 71%, as of
December 31, 2000 compared to our current assets as of
December 31, 1999. This increase was the result of the
increased cash received from the debt and equity transactions
completed in 2000 and, to a lesser extent, by increases in
accounts receivable and inventory as discussed below.
o Accounts receivable increased $172,575 from $206,278 at
December 31, 1999 to $378,853 at December 31, 2000. A
substantial increase in fourth quarter sales during 2000 over
1999 was the primary reason for the increase. The fourth
quarter sales in 2000 were $243,655 compared with fourth
quarter sales of $23,643 in 1999. Inventory increased by
$181,115, or 20%, to $1,079,086 at December 31, 2000 from
$897,971 at December 31, 1999 due to manufacturing ramp up for
expected sales in 2001.
o Accounts receivable decreased and inventory increased $54,317,
or 14%, and $187,536, or 17%, respectively, as of September
30, 2001 when compared with December 31, 2000. The decrease in
accounts receivable was primarily due to our being more
aggressive in collecting. The increase in inventory was due
mainly to the purchase of inventory parts associated with a
new scientific research instrumentation model that was
introduced at the end of September 2001. Because of expected
sales of this product in the fourth quarter of 2001, we made
advanced purchases of inventory.
o At December 31, 2000, our total current liabilities increased
$441,482 from $908,833 at December 31, 1999 to $1,350,315 at
December 31, 2000. Increases in current liabilities resulted
from the $400,000 accrual for the BSLT lawsuit and the
reclassification to current, from long term, of the $250,000
note that was outstanding at the end of 1999 and payable to
Humagen Fertility Diagnostics, Inc., whose president, chief
executive officer and majority shareholder is Dr. Debra
Bryant, a former director of the company. As of September 30,
2001, our total liabilities were $2,351,394 compared to
$1,350,315 at December 31, 2000. This increase was primarily
due to the
19
additional loans provided to us under our January 2001 loan
agreement and the August 2001 convertible note. The increase
is also due, in part, to an increase in the payment cycle of
accounts payable at September 30, 2001 when compared with the
level at December 31, 2000.
Our working capital increased to $1,211,704 at December 31, 2000 from $590,338
at December 31, 1999, an increase of $621,366. This increase was primarily
attributed to the financing provided by the debt and equity transactions in 2000
as described above. Our working capital decreased to a deficit of $591,746 at
September 30, 2001 from a surplus of $1,211,704 at December 31, 2000.
To date, we have funded our operations primarily from the sale of equity
securities and short term borrowings as we have not generated sufficient cash
from our operations. We expect cash used in operating activities will increase
during 2001 as a more aggressive sales and marketing campaign is launched and as
full-scale production of the Lasette is implemented.
In December 1999, we borrowed $250,000 from Humagen Fertility Diagnostic, Inc.,
whose president, chief executive officer and majority shareholder is Dr. Debra
Bryant, a former director of the company. The note did not bear interest until
June 2000, at which time the unpaid balance of the note began to accrue interest
at six percent per annum. In February 2001, we used $45,000 of the proceeds of
the above loans by our directors as payment against the outstanding principal
balance of $250,000, plus accrued interest. We paid monthly installments of
$10,000 each as payments toward principal and accrued interest from February
through April 2001. The remaining principal balance of the note of $190,905 is
now payable in equal monthly installments of $50,000 each commencing January 31,
2002, until paid in full.
We expect that our existing current working capital and future product sales
will be sufficient to allow us to meet operational obligations only through
December 31, 2001. Accordingly, it is imperative that we complete a significant
financing during the quarter ending December 31, 2001 to fund our deficits in
cash flow from operations as well as repay $1,050,000 in indebtedness due in
January 2002 and significant maturities of additional indebtedness due in the
months following January 2002 as described above. Although we have had
discussions with potential investors, we have not been able to obtain financing
on acceptable terms as of the date of this prospectus that will allow us to
continue our operations after December 2001. We intend to continue to seek to
raise equity or debt financing. However, no assurance can be given that we will
be able to obtain additional financing on favorable terms, if at all. Borrowing
money may involve pledging some or all of our assets. Raising additional funds
by issuing common stock or other types of equity securities would further dilute
our existing shareholders and the purchasers of the securities offered under
this prospectus. If we cannot obtain additional financing before December 30,
2001, we will not be able to continue our operations.
To date, we have funded our operations primarily from the sale of equity
securities and short term borrowings as we have not generated sufficient cash
from our operations. Even if we are able to obtain additional financing to allow
us to continue our operations after December 31, 2001, until we generate
sufficient cash flow from our operating activities we will still need to obtain
additional financing to fund anticipated capital requirements, repay existing
indebtedness and to achieve and maintain profitability. Our capital requirements
depend upon several factors, including the rate of market acceptance of our
products, particularly the Lasette, our level of expenditures for marketing and
sales, costs associated with our staffing and other factors. We will need
additional cash to fund the costs associated with manufacturing, marketing and
selling our products. Additional financing will also be needed to repay our
indebtedness, including payment of our notes in the aggregate principal amount
of $1,000,000 due January 31, 2002 owing to members of our board of directors
and affiliates of members or former members of our board of directors and our
$190,905 note owing to Humagen Fertility Diagnostics, Inc. described above. We
may also need cash to file, prosecute, defend and enforce patent claims and
other intellectual property rights, purchase capital equipment, develop new
products and maintain or obtain necessary regulatory approvals. If our capital
requirements vary materially from those currently planned, we may require more
financing than currently anticipated. Our inability to finance our growth,
either internally or externally, may limit our growth potential and our ability
to execute our business plan. External financing may not be available to us on
favorable terms or at all. In addition, we have received a report from our
independent auditors covering our fiscal years ended December 31, 2000 and 1999
financial statements. The report contains an explanatory paragraph that states
that our recurring losses and negative cash flows from operations raise
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty. If we cannot obtain additional
financing as needed, we may not be able to, repay existing indebtedness,
continue our operations, grow our market share, take advantage of future
opportunities or respond to
20
competitive pressures or unanticipated requirements. This would have a material
adverse effect on our business, financial condition, results of operation and
our ability to continue as a going concern.
To date, we have generated only limited revenues from the sale of our products
and have been unable to profitably market our products. We incurred net losses
applicable to common shareholders of $5,036,182 and $2,424,630 in 2000 and 1999,
respectively, with revenues from the sale of our products of $992,710 and
$1,294,936 in 2000 and 1999, respectively. During 2000, we also experienced
negative gross margins due to our lack of efficiencies. We expect to experience
operating losses and negative cash flow for the foreseeable future. We
anticipate that our existing current working capital, the loans made under our
$500,000 convertible note and future product sales will be sufficient to allow
us to meet operational obligations through December 31, 2001. However, we do not
have sufficient cash to sustain continuing operating losses after that date
without additional financing. Even if we are able to obtain additional financing
to allow us to continue operations, we will still need to generate significant
revenues and improve our gross margins to fund anticipated manufacturing and
marketing costs and to achieve and maintain profitability. We cannot assure you
that we will ever generate sufficient revenues to achieve profitability, which
will have a negative impact on the price of our common stock and the Redeemable
Warrants. If we do achieve profitability, we cannot assure you that we will be
able to sustain or increase profitability in the future.
BUSINESS
OVERVIEW
We manufacture, market and sell a sophisticated laser-based medical device and a
scientific research instrument. Our key targets include the clinical and
diabetes care markets for the Lasette and the scientific research market for the
Cell Robotics Workstation. We were incorporated in Colorado on September 28,
1988, under the name Intelligent Financial Corporation. In February 1995, we
acquired all of the issued and outstanding shares of Cell Robotics, Inc., a New
Mexico corporation, which had been formed in 1988 to develop the Cell Robotics
Workstation. In May 1995, we changed our name from Intelligent Financial
Corporation to Cell Robotics International, Inc.
BUSINESS STRATEGY
We hope to become a leader in the development and sale of technologically
advanced laser-based medical devices. To achieve this goal, our business
strategy capitalizes on our core laser technologies to develop unique products
targeted at large markets in which we can compete effectively. Key components of
our business strategy include the following:
o DEVELOP UNIQUE TECHNOLOGY. Through know-how and core
technology, we plan to develop products that offer more
effective, safer and less painful solutions than conventional
procedures. This development strategy includes using patents,
licenses and collaboration where appropriate.
o DEVELOP MARKET RECOGNITION. We are positioning our laser-based
medical devices as preferred technological solutions to
clearly-defined medical needs. We seek to create significant
brand awareness for the Lasette, our signature product,
particularly with consumers that use the Lasette for home use.
To accomplish this, we are advertising in diabetes-related
publications, direct mailings, tradeshows and print and
Internet media. We also use trademarked product names that can
be clearly recognized by customers, such as Lasette(R) and
LaserTweezers(R).
o EXPAND DISTRIBUTION CHANNELS. We believe that expanding our
distribution channels will be a key component to the success
of our products, particularly the Lasette for clinical use.
Currently, the Lasette for clinical use is distributed through
several regional distributors within and outside the United
States, as well as one national distributor in the United
States. We intend to pursue additional non-exclusive
distribution agreements for our Lasette for clinical use with
national, international and regional distributors of medical
products to take advantage of their existing distribution
channels and name recognition.
o CAPITALIZE ON THE OPPORTUNITY PRESENTED BY THE NEEDLESTICK
SAFETY ACT. The Needlestick Safety Act requires OSHA to revise
its existing bloodborne pathogens standards to set forth in
greater
21
detail, and make more specific, OSHA's requirement for health
facilities to identify, evaluate and implement safer medical
devices, such as safety engineered sharps devices or
needleless systems, to reduce or eliminate the accidental
needlesticks suffered by health care workers. The needle-free,
laser-based design of the Lasette eliminates the risk of
accidental needlesticks because a patient's blood sample is
obtained by the use of a laser pulse rather than by a needle
or lancet. We believe this feature of the Lasette will be an
important selling strategy for developing the market for the
Lasette for clinical use. Accordingly, we intend to market the
Lasette for clinical use to hospitals, clinics and doctors'
offices as a means to comply with the OSHA regulations and the
Needlestick Safety Act and offer their patients a more
effective, safer and less painful solution than conventional
procedures.
We also believe the following trends in blood sampling will provide us with
unique opportunities:
o an increasing demand for less painful alternatives for
capillary blood sampling;
o an increasing desire to eliminate cross-contamination from
accidental needle or lancet sticks in hospitals and clinics to
address continued public health concerns and, in U.S. markets,
to comply with bloodborne pathogen standards of OSHA,
including the recently adopted standards of OSHA required by
the Needlestick Safety Act;
o a growing number of diagnosed diabetics seeking better insulin
control; and
o a growing understanding of the need to provide testing methods
for needle-phobic individuals.
PRODUCTS
LASER-BASED MEDICAL DEVICES -- THE LASETTE
GENERAL. Our primary focus is distributing and selling our laser-based medical
device to the clinical and diabetes care markets, namely diabetic consumers,
hospitals, clinics and doctors' offices. The Lasette is a compact, lightweight,
portable crystal laser that utilizes laser light to vaporize a small hole in the
finger for capillary blood sampling. At nine ounces, the Lasette is slightly
larger than a handheld cellular telephone and it fits into a suit-coat pocket or
a purse. The Lasette is a better alternative for capillary blood sampling for
many diabetics because, for many patients, it causes less pain and residual
soreness than the traditional steel lancet. The Lasette may be a better
alternative for children with diabetes, newly diagnosed diabetics and
needle-phobic or needle-adverse individuals.
We previously marketed two laser-based medical devices, the Personal Lasette and
the Professional Lasette. The Personal Lasette was marketed for home use, while
the Professional Lasette was targeted for clinical applications. In the third
quarter of 2000, we made a strategic decision to discontinue marketing the
Professional Lasette and completed modifications to the Personal Lasette so that
it could be used for either home or clinical use. The primary difference between
the Lasette used in these home and clinical environments is that a different
disposable lens shield is attached to the product for clinical applications than
that attached for home use. We believe that focusing on a single product line
will reduce direct costs associated with manufacturing the Lasette and promote
brand awareness of the Lasette.
The Lasette for home use allows diabetics to test their glucose levels at home.
This application requires a disposable lens shield, which is a cassette of
specialized plastic film. The film advances with each use of the device and has
the capacity for 120 applications. We designed the disposable cassette to
provide a one-month supply of film for diabetic patients who test four times per
day.
The Lasette for clinical use is used to draw blood for various tests, including
testing glucose levels, in the clinical setting. This application requires a
single disposable lens shield that inserts into the device for each use. The
patented disposable lens shield is replaced after each use in a clinical setting
which prevents the patient's blood from contaminating the Lasette unit and
therefore minimizes the risk of cross-contamination. The disposable shield also
uses a specialized plastic film to prevent any vapors from condensing on the
laser lens.
22
We have encountered some design and quality problems with the Lasette since we
introduced it on a limited basis in December 1999. For instance, we implemented
design improvements to increase the efficiency of the Lasette beam profile and
to limit the effect extreme temperatures had on the Lasette's functionality. We
believe that we have resolved these problems; however, we cannot provide any
assurances that quality and design problems will not occur in the future with
the Lasette or enhancements to the Lasette.
MARKETS. In the United States, an estimated 15.7 million people have some form
or variation of diabetes. However, only 10.3 million people in the United States
have been diagnosed with diabetes. Further, according to industry sources,
doctors are expected to diagnose approximately 800,000 new cases annually in the
United States.
We will market the Lasette for home use primarily to children with diabetes,
newly diagnosed diabetics, high frequency testing diabetics with sore fingers
and needle-phobic and needle-adverse patients. The needle-phobic and
needle-adverse market is an attractive market for this model. Presently, a
diabetic must stick himself or herself with a steel lancet or needle to draw a
blood sample for glucose testing. Diabetics' needle phobia prevents them from
testing their glucose levels on the regularly recommended basis. Others dislike
the pain of the steel lancet sticks and the continual residual soreness in their
fingertips from the multiple daily sticks. In medical literature, needle phobics
are estimated to number between 5 and 25% of the diabetic population. The
Lasette draws blood in a way that eliminates the effects of needle phobia,
minimizes pain and eliminates the long-term finger soreness.
Capillary blood sampling is performed in virtually all clinical settings. These
include hospitals, dialysis clinics, blood banks, nursing facilities, home
health agencies and physicians' offices. Presently, the most commonly used
device for capillary blood sampling is the stainless steel lancet. Needlestick
injuries and other sharps-related injuries, including accidental lancet sticks,
that result in occupational bloodborne pathogens exposure, such as human
immunodeficiency virus, hepatitis B virus, hepatitis C virus and others,
continue to be an important public health concern. OSHA estimates that 5.6
million workers in the health care industry and related occupations are at risk
of occupational exposure to bloodborne pathogens. According to The Centers for
Disease Control and Prevention, or CDC, in March 2000, it is estimated that
600,000 to 800,000 needlestick injuries and other skin introduced or effected
injuries occur annually among health care workers. The CDC estimates that 62 to
88% of sharps injuries can potentially be prevented by the use of safer medical
devices.
In response to these health concerns, OSHA's bloodborne pathogens standards
require health care facilities to select safer needle devices to reduce or
eliminate accidental needlesticks suffered by health care workers. The
Needlestick Safety Act was enacted in November 2000, requiring OSHA to revise
its existing bloodborne pathogens standards to set forth in greater detail, and
make more specific, OSHA's requirement for health facilities to identify,
evaluate and implement safer medical devices, such as safety engineered sharps
devices or needleless systems, to reduce or eliminate the accidental
needlesticks suffered by health care workers. The Needlestick Safety Act and
OSHA regulations also require health care facilities to, among other things:
o Review their exposure control plans annually to reflect
changes in technology that will help eliminate or reduce
exposure to bloodborne pathogens. Health care facilities must
take into account innovations in medical procedure and
technological developments that reduce the risk of exposure to
accidental needlesticks. That review must include
documentation of the employer's consideration and
implementation of appropriate, commercially available and
effective safer devices;
o Solicit input from non-managerial health care workers
regarding the identification, evaluation and selection of
effective engineering controls, including safer medical
devices; and
o Maintain a sharps injury log if the health care facility
employs 11 or more employees and the health care facility is
required to keep records by current recordkeeping standards.
We believe that the Lasette for clinical use can substantially reduce the pain
and trauma involved with capillary blood sampling and the risk of inadvertent
cross-contamination for both the clinician and the patient, as well as eliminate
the risk of accidental needlesticks. The needle-free, laser-based design of the
Lasette substantially reduces the risk of cross-contamination and eliminates the
risk of accidental needlesticks because a patient's blood sample is obtained by
the use of a laser pulse rather than by a needle or lancet. We believe this
feature of the Lasette will be an important selling strategy for developing the
market for the Lasette for clinical use.
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MANUFACTURING. We are currently manufacturing the Lasette at our Albuquerque,
New Mexico facility. We have instituted the record keeping, quality control and
production procedures needed to meet the manufacturing regulatory requirements
of the FDA MDQSR, ISO 9001 and EN 46001. We believe our manufacturing capacity
at our existing facility is adequate to meet customer demands for the Lasette
for the foreseeable future.
MARKETING AND DISTRIBUTION. We employ different marketing and distribution
strategies for the Lasette for home use and the Lasette for clinical use.
Currently, we are selling the Lasette for home use directly to home-use
customers, eliminating distributor costs. However, we are pursuing distribution
and marketing partners for this Lasette product line. If we can obtain these
partnerships, we believe they will enhance our ability to rapidly ramp-up our
marketing and distribution of the Lasette to end users. Several of the drug
store, supermarket and superstore chains have expressed interest in distributing
the Lasette for home use, but we have not entered into any formal discussions or
reached any definitive agreements.
We advertise the Lasette for clinical use in journals placed with clinics and
direct marketing to medical device distributors and other groups and
organizations that may have an interest in the benefits of the Lasette for
themselves and for their clients. The Lasette for clinical use is distributed
through several regional distributors within and outside the United States. In
January 2001 we also entered into a three year non-exclusive distribution
agreement with Bindley Western Industries, Inc., a national distributor covering
the United States. To date these distribution relationships have not generated
significant revenues. We believe that we will accomplish marketing and
distribution of this Lasette product line through a collection of large national
and international distributors of diabetic supplies or through manufacturers'
representatives. Although we intend to pursue additional non-exclusive regional
and national distribution relationships we cannot make any assurances that any
discussions or negotiations with third parties regarding the marketing or
distribution of our products will be successful.
COMPETITION. We are not aware of any product similar to the Lasette that has
received FDA clearance or the CE Mark certification for commercial marketing in
either the United States or European Union. However, the Lasette directly
competes with traditional stainless lancets and safety lancets used for routine
capillary blood sampling. The Lasette also indirectly competes with non-invasive
and partially invasive products that determine and/or control glucose levels in
diabetic patients.
The Lasette represents a technological alternative to the traditional stainless
steel lancet and the safety lancet for routine capillary blood sampling. We
designed it to reduce the pain, fear and anxiety associated with drawing blood.
The Lasette for clinical use, with its disposable lens, also eliminates the risk
of cross contamination as well as reduces the costs associated with lancet waste
disposal incurred by hospitals, clinics and doctors' offices. In response to
OSHA's bloodborne pathogens standards, as well as the Needlestick Safety Act,
which requires health facilities to employ measures to reduce or eliminate
accidental needlesticks, several companies are marketing or are developing
safety lancets. Safety lancets have retractable blades or nails intended to
reduce accidental needlesticks and, thus, the threat of cross-contamination.
While these devices will not eliminate the pain associated with using a
traditional steel lancet, the safety lancets may reduce the threat of
cross-contamination. While the investment in the Lasette is significantly higher
than that for either a steel lancet or safety lancet, we believe that users of
the Lasette will be able to recover this investment over time through cost
savings. The cost for each stainless steel lancet or safety lancet has indirect
costs associated with them, such as disposal costs, that are higher than the
Lasette. Users of the Lasette for home use may obtain 120 uses from the
disposable shield before it must be replaced. The user may dispose of the shield
in the regular trash following the 120 uses. While the disposable shield on the
Lasette for clinical use is disposed of after each use, hospitals, clinics and
doctors' offices incur lower costs disposing of the Lasette's disposable shields
as compared to disposing of sharps devices, such as the steel lancets and safety
lancets. By reducing or eliminating the indirect costs associated with the steel
lancets and safety lancets, we believe that the Lasette provides a competitive
alternative.
The Lasette's position in the market is also threatened by corporate research
and development efforts throughout the world that are focusing on the
development of new, advanced non-invasive and partially invasive technologies
for determining and/or controlling glucose levels in diabetic patients. Several
companies have developed or are attempting to develop minimally invasive or
non-invasive glucose testing products. The technologies that appear to be
receiving the most attention are the GlucoWatch(R) by Cygnus, Inc. and the
continuous glucose monitoring system, or CGMS, by MiniMed Inc.
Cygnus' GlucoWatch(R) has recently been approved by the FDA for detecting trends
and tracking patterns in adult diabetics' glucose levels. Information released
by MiniMed states that the CGMS has been cleared by the FDA for
24
use by physicians to track trends and patterns in patients' glucose levels as
well. The CGMS is only for use by physicians and is not for determining the
amount of insulin to inject or pump into a patient at a given time. The
GlucoWatch(R) and CGMS study the trends or track the patterns of diabetics who
do not have their diabetes under control. For those particular patients, either
the GlucoWatch(R) or the CGMS is a good supplement to the Lasette product line
as each require multiple daily finger sticks to calibrate the devices.
Currently, neither product is a substitute or a replacement for testing the
blood from a traditional finger-stick and meter.
REGULATORY STATUS. Our products are subject to a great deal of regulation. See
"Business - Government Regulation; Product Approval Process" for a description
of government regulations affecting our products. The following details the
regulatory clearances we have obtained for the Personal Lasette and the
Professional Lasette since mid-1997:
o FDA clearance for use of the Professional Lasette for testing
glucose and hematocrit in healthy adult patients in a clinical
setting (application submitted December 1996, clearance
received August 1997);
o FDA clearance for use of the Professional Lasette for testing
glucose and hematocrit in diabetic adult patients in a
clinical setting (application submitted July 1996, clearance
received October 1997);
o CE Mark testing complete for Professional Lasette (May 1998);
o FDA clearance for use of the Professional Lasette for testing
glucose and hematocrit in all juvenile patients in a clinical
setting (application submitted and clearance received June
1998);
o ISO 9001/EN 46001/Medical Device Directive Certification
(September 1998; recertified in September 1999 and September
2000);
o FDA clearance for use of all glucose meters with the
Professional Lasette (application submitted March 1998,
clearance received September 1998);
o FDA Variance for Professional Lasette design (application
submitted September 1998, clearance received October 1998);
o FDA clearance for home use of the Professional Lasette for
glucose monitoring (application submitted May 1998, clearance
received December 1998);
o FDA approval of 510(k) amendment to include Personal Lasette
safety and efficacy (application submitted December 1998,
approval received January 1999);
o FDA clearance of the Lasette for all screening blood tests in
a clinical setting (application submitted October 1998,
clearance received January 1999);
o CE Mark certification for the Professional Lasette (March
1999);
o Registration Certificate of the Lasette for medical devices
granted by China (May 1999);
o CE Mark certification for the Personal Lasette (August 2000);
and
o Medical device license granted in Canada for the Personal
Lasette (August 2000).
The Lasette has received 510(k) clearance from the FDA for drawing capillary
blood samples. In addition, the FDA has cleared the Lasette for capillary blood
sampling for all clinical screening tests. The Lasette has also received the CE
Mark designation. The Lasette is the only alternative to the steel lancet or
needle that has been approved by the FDA that allows diabetics to sample their
blood for glucose testing so they can determine their subsequent insulin
injections. Clearance of the Lasette by the FDA allows us to market the Lasette
in the United States. The CE Mark designation of the Lasette also permits us to
market the Lasette in the European Union and certain other countries
25
such as Brazil and Australia. To date, we have not had any recalls of our
products by the FDA or any other comparable agency.
SCIENTIFIC RESEARCH INSTRUMENTS -- THE CELL ROBOTICS WORKSTATION
DESCRIPTION. In 1996, we introduced the computer-controlled Cell Robotics
Workstation for optical trapping, micromanipulation and microsurgery. This
workstation is based on our core LaserTweezers, LaserScissors, CellSelector and
SmartStage technologies. The LaserTweezers application of the Cell Robotics
Workstation is based upon a non-exclusive license from AT&T, which was
transferred by AT&T to Lucent Technologies, Inc. Computer control provides
powerful, user-friendly features such as interactive software with mouse or
keyboard control, a unique motorized stage and a motorized focus drive providing
motion in three directions. The Cell Robotics Workstation integrates our
research instruments into a complete computer-controlled optical trapping and
ablation workstation.
We have made, and are continuing to make, enhancements to the Cell Robotics
Workstation so that it includes a sophisticated imaging and quantitative
measurement capability. In addition, we have developed a more specialized
diagnostics workstation known as the LS300 Pro Workstation, which is a
modification of the Cell Robotics Workstation. The LS300 Pro Workstation
contains a more powerful LaserScissors and is marketed primarily to pathologists
and researchers. The enhancements to the LaserScissors applications will allow
pathologists and researchers to automatically cut out cells of interest from a
biopsy and retrieve those cells for DNA and RNA analysis. The LS300 Pro
Workstation is the first configuration of the Cell Robotics Workstation to be a
diagnostics instrument instead of being simply limited to a research instrument.
APPLICATIONS OF THE SCIENTIFIC RESEARCH INSTRUMENTS. The Cell Robotics
Workstation allows scientists to manipulate objects in micro-space, upgrading
the microscope to an interactive micro-laboratory. The scientific research
instruments enhance the usefulness and importance of the conventional laboratory
microscope as a tool in medical, biological and genetic applications in the life
sciences. Scientists can use the technology for cell separation, cell-to-cell
interaction, micro-dissection and intercellular manipulation of living cells.
Third parties currently use the Cell Robotics Workstation for cancer,
immunology, neurobiology, assisted reproductive techniques and genome research.
With respect to genome research, the Cell Robotics Workstation can be used by
third parties to assist in the human genome project. Using the genome as a
blueprint, the study of proteins helps explain what can cause or cure diseases.
The study of proteins, called functional genomics or proteomics, is a new
emphasis area for biology. The Cell Robotics Workstation, through its
LaserTweezers(R) and LaserScissors, allows new ways to study the function and
structure of proteins. Understanding proteins is a key to curing such
neurological diseases as Multiple Sclerosis, Parkinson's and Alzheimer's.
The Cell Robotics Workstation also provides increased efficiency in the
production of transgenic animals and laboratory. Transgenic animals are animals
that have human genes inserted into them. For example, transgenic chickens may
produce a particular protein in the whites of their eggs. This protein can then
be harvested from the egg as a constituent of a drug to treat disease. The Cell
Robotics Workstation can be used in the production process to isolate the nuclei
and make it possible to create a transgenic chicken. Each transgenic chicken has
the potential to produce thousands of eggs that are harvested to produce the
specific drug. In the laboratory, scientists can supervise technicians using the
Cell Robotics Workstation rather than being required to use their personal
expertise to perform detailed operations. For example, technicians can isolate
stem cells from such tissues as fat obtained by liposuction for the growing of
skin, bone or cartilage.
MARKET. The principal market for the Cell Robotics Workstation is the scientific
research market, consisting of colleges, universities, research laboratories,
biotechnology and pharmaceutical companies and commercial laboratories
conducting biological research. Our present customers of the Cell Robotics
Workstation include colleges, universities, research laboratories and similar
institutions. These customers accounted for all of our sales of the Cell
Robotics Workstation and 61% and 57% of our total product sales in 2000 and
1999, respectively. We intend to identify scientists that have specific research
applications particularly well suited to the company's scientific research
instrument.
26
MANUFACTURING. To minimize capital outlay, we outsource parts of the Cell
Robotics Workstation to machine shops and circuit board companies. We complete
final assembling and testing at our Albuquerque, New Mexico, facility to ensure
the quality of the final product. We plan to continue this approach for the
foreseeable future.
MARKETING AND DISTRIBUTION. While we intend to focus on the distribution and
sale of our laser-based medical devices, we will continue to promote and market
the scientific research instruments through direct sales, dealers,
representatives and distribution arrangements. We currently have an agreement
with Meiwa Shoji Company Ltd. granting exclusive distribution rights for the
Cell Robotics Workstation in Japan. Meiwa Shoji accounted for 16% of our product
sales in 2000. The agreement expires in September 2005. We have also expanded
domestic and international non-exclusive distribution channels for the Cell
Robotics Workstation to include distributors in 17 countries.
COMPETITION. Third party competitors of the Cell Robotics Workstation include
P.A.L.M. and S&L Microtest, both German companies, Sigma Koki, a Japanese
company, and Arcturus, a United States company. P.A.L.M., S&L Microtest and
Sigma Koki make multi-trap and custom trapping instruments that compete with the
Cell Robotics Workstation. Arcturus offers a laser micro-dissection system.
REGULATORY STATUS. We received the CE Mark for the Cell Robotics Workstation in
September 1997. This product line does not currently require other regulatory
clearances, including clearance from the FDA.
CONTINUING INTEREST IN THE IVF WORKSTATION
In May 2000, we sold the IVF Workstation product line to Hamilton Thorne
Research, a major producer and marketer of sperm analysis equipment worldwide,
for $100,000 in cash and 12% royalty payments on future net sales. We do not
expect these royalty payments will have a material effect on our cash flow. We
decided to sell the IVF Workstation and associated technology to further focus
our efforts on the development and sale of the Lasette.
The IVF Workstation is a computer-controlled multi-functional workstation that
combines, for the first time, a technological solution to both the functional
and informational requirements of clinicians working in the in vitro
fertilization environment. Utilizing a microscope, computer-controlled motorized
stage, video camera, sophisticated laser-based technology and data storage and
retrieval systems, the IVF Workstation permits standardized evaluation,
measurement and diagnosis of eggs and embryos, sperm injection and
laser-assisted embryo hatching in one integrated system. With its computer
hardware and software, the IVF Workstation also permits the detailed cataloguing
and documentation of each in vitro fertilization procedure and the organization
and retrieval of data and other information.
In vitro fertilization is a rapidly-growing area of human fertility treatment.
However, success rates with current procedures vary significantly from clinic to
clinic. The IVF Workstation is designed to improve success rates for clinics and
in vitro fertilization patients.
COMPETITION
While the Lasette currently has no direct competitors and the Cell Robotics
Workstation has a few competitors as detailed above, specialized laser-based
medical device companies, pharmaceutical and medical diagnostic equipment
companies, colleges, universities, governmental agencies and other public and
private research institutions will continue to conduct research and protect
technologies that they may develop or have developed, some of which will be
directly competitive to us. The principal factor affecting our competitive
position is the suitability of our instruments for, and their performance in, a
particular application. We face potential competition from a number of
established domestic and international companies, many of which have
substantially greater engineering, manufacturing, marketing and financial
capabilities. Our ability to compete successfully in existing and future markets
will depend on elements both within and outside of our control.
INTELLECTUAL PROPERTY
Our success will depend, in part, upon our ability to develop superior products
that we can market at competitive prices. Our ability to do this will depend, in
part, on our ability to protect and defend our intellectual property rights and
the competitive advantages those rights offer. We rely primarily on patent,
trade secret, copyright and trademark laws, confidentiality procedures and other
intellectual property protection methods to protect our
27
proprietary technology. As of the date of this prospectus, we have been issued
three patents and have applied for additional patent protection for our
laser-based medical devices. Additionally, we have been issued two patents for
our scientific research instrument. Our products have only limited patent
protection. It is our policy to require our employees to execute confidentiality
agreements upon the commencement of such relationships.
LASETTE. The Lasette was originally developed using the multifaceted crystal
resonator, or MCR, patent acquired from Tecnal Products, a subsidiary of
Lovelace Scientific Resources, Inc., in January 1996. The patent expires in
March 2014. The MCR patent was originally developed under a license agreement
with New Technology Engineering Center of Russia. However, new developments in
crystal laser coating technologies have decreased the value of the MCR patent
and related patent applications and licenses.
We have since advanced the Lasette's laser design and have sought, or are
preparing to seek, continuations of existing patents and/or new patents
protecting those designs. Two issued United States patents cover certain
technological foundations of the current Lasette product line. These patents
were issued in September 1996 and June 1999 and include claims regarding
mechanisms to create and control laser energy distribution profiles that are
essential for reducing pain in laser lancing devices. The patents expire in
August 2014. In November 1999, we received a United States patent for the
disposable finger shield used with the Lasette for clinical use. This patent
expires in April 2017. We also have received a United States patent covering the
disposable finger shield mechanism used in the Lasette for home use. That patent
expires in December 2018. Other mechanisms for reducing the size and cost and
improving the reproducibility and painlessness of laser lancing devices are
regarded as trade secrets, or are the subject of planned patent applications.
Finally, we have registered the mark Lasette(R) with the United States Patent
and Trademark Office.
In 1996, we became aware that Mr. Tankovich, a former employee of the Russian
Academy of Science now residing in San Diego, California, holds the United
States patent relating to the use of a laser for blood sample collection. In
this prospectus, we sometimes refer to Mr. Tankovich's patent as the "Tankovich
Patent." The Tankovich Patent was issued on November 24, 1992. Becton Dickinson
and Company, a leading producer of blood collection products, obtained an
exclusive license of the Tankovich Patent from Mr. Tankovich in December 1995.
The Lasette contains technological foundations that are similar to the claims
made by the Tankovich Patent.
We have entered into discussions with Becton Dickinson and Company regarding a
license or similar arrangement including the Tankovich Patent. The costs
associated with these arrangements could include up-front payments and ongoing
royalties which may adversely affect our operating results. These discussions
are still ongoing as of the date of this prospectus; therefore, there can be no
assurance that we will reach an agreement with Becton Dickinson on terms
acceptable to us, if at all. If we fail to reach an agreement with Becton
Dickinson, there can be no assurance that Becton Dickinson will not claim that
the Lasette infringes the Tankovich Patent. While we believe that the Tankovich
Patent is invalid and unenforceable due to public disclosure of the laser
perforation concept in the international scientific literature, as well as
public commercialization of primitive perforator products in the former Soviet
Union, as early as October 1990, there can be no assurance that any infringement
claims by Becton Dickinson would be resolved without costly litigation. An
adverse ruling or judgment in any litigation could have a significant negative
effect on the Lasette product line and our operating results. Moreover, if we
are found to infringe, we could be subject to significant liability and could be
prevented from manufacturing and selling the Lasette, which would materially
adversely affect our business, financial results and operations. Management
attention consumed by and legal costs associated with any litigation could also
have a negative effect on our operating results.
In October 1997, Transmedica (formerly Venisect) commenced a patent infringement
action against us in which it claimed the Lasette infringed the United States
patent underlying Transmedica's skin perforator. A federal court dismissed the
suit on procedural grounds. Transmedica appealed the federal court ruling, but
subsequently withdrew its appeal. Transmedica was recently purchased by Norwood
Abbey Ltd. Transmedica did not begin any further proceedings against us prior to
being acquired by Norwood Abbey. As of the date of this prospectus, Norwood
Abbey has also not begun any further proceedings against us.
CELL ROBOTICS WORKSTATION. Our Cell Robotics Workstation is based on our
LaserTweezers, LaserScissors, CellSelector and SmartStage technologies. The
LaserTweezers application of our Cell Robotics Workstation is based upon a
non-exclusive patent license from AT&T, which was transferred by AT&T to Lucent
Technologies, Inc. Our license will expire in January 2007, the end of the term
of the licensed patent. We were in default under this license agreement, and
renegotiated its terms in 1998. Under the renegotiated agreement, we paid Lucent
28
$100,000 in lieu of all sums due and owing for prior years. Additionally, we
agreed to increase the royalty from five to seven percent of the value of each
product sold utilizing the patent. Finally, the minimum annual royalties under
the license have been reduced to $35,000 per year for the term of the license.
Based on these changes, we must pay Lucent a royalty of seven percent per year
with a minimum annual payment of $35,000. We own two issued United States
patents that cover certain technological foundations of the Cell Robotics
Workstation. These patents were issued in November 1994 and December 1994 and
include claims regarding the flexure structure for 3-D microscope stage and the
manipulation chamber for LazerTweezers. The patents expire in July 2012. We have
also registered the LaserTweezers(R) mark with the United States Patent and
Trademark Office.
RESEARCH AND DEVELOPMENT
To succeed, we must continually enhance existing products and develop new
products incorporating the latest improvements in laser technology. Accordingly,
we are committed to investing resources in research and development activities.
During the years ended December 31, 2000 and 1999, we spent $816,659 and
$551,486, respectively, on internal research and development programs. As of
December 12, 2001, five of our scientists and engineers were engaged in research
and development activities. We channeled the majority of the proceeds from
equity financing, short-term borrowings and the sale of securities in 1995
through 2000 to fund our internal research and development activities. We do not
have research arrangements with any outside research and development firms. We
received a Small Business Innovative Grant from the National Cancer Institute in
April 1997. Originally, the grant awarded funds for two years of development of
a proprietary laser instrument for semi-automated single cell sorting. The grant
was recently modified to validate capabilities of applying laser energy in
connection with a polymerase chain reaction or PCR. Additionally, the period
during which funds could be expended was extended until September 30, 2001. The
total grant award that was available to and expended by us was approximately
$635,000, substantially all of which we have received.
GOVERNMENT REGULATION; PRODUCT APPROVAL PROCESS
Government regulations govern various aspects of our marketing, sales and
manufacturing processes. We have successfully obtained many of the regulatory
clearances necessary to market and sell our products in our current markets;
however, we may require additional clearances if we enter new markets, improve
existing products or develop new products. We must also maintain our current FDA
clearances by periodic audits. There can be no assurance that we will obtain,
maintain or receive additional necessary clearances.
For research applications, our products are subject only to FDA safety
regulations. However, the European Community requires that research instruments
receive the CE Mark before they can be exported to Europe. We received the CE
Mark for the Cell Robotics Workstation and all of its modules in September 1997.
We also received the CE Mark for the Personal Lasette in August 2000.
In the United States, federal and state statutes regulate the testing,
manufacture, safety and efficacy, labeling, record keeping, approval,
advertising and promotion of our products. Product development and approval
within this regulatory framework may take many months and may involve the
expenditure of substantial resources. In addition to obtaining FDA clearances
for each product, we must register and seek FDA approval for each manufacturing
establishment. These establishments must be certified to meet ISO 9001 and EN
46001 requirements.
The FDA has separate review procedures for medical devices before such products
may be commercially marketed in the United States. There are two basic review
procedures for medical devices in the United States. Certain products may
qualify for a Section 510(k) procedure, under which the manufacturer gives the
FDA a Pre-Market Notification, or 510(k) Notification, of the manufacturer's
intention to commence marketing of the product at least 90 days before the
product will be introduced for clinical use. The manufacturer must obtain
written clearance from the FDA before it can commence marketing the product.
Among other requirements, the manufacturer must establish in the 510(k)
Notification that the product to be marketed is "substantially equivalent" to
another legally-marketed, previously existing product. If a device does not
qualify for the 510(k) Notification procedure, the manufacturer must file a
Pre-Market Approval Application. The Pre-Market Approval Application requires
more extensive pre-filing testing than the 510(k) Notification procedure and
involves a significantly longer FDA review process. See "Business -- Products --
Laser-Based Medical Devices -- The Lasette -- Regulatory Status" for a
29
listing of the regulatory clearances we have obtained for the Personal Lasette
and Professional Lasette since mid-1997.
We can market the Lasette for essentially all applications requiring capillary
blood drawing for blood screening and/or sampling in the United States. For
marketing outside of the United States, we will be subject to foreign regulatory
requirements governing clinical trials and marketing approval for the products.
Requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. Although we have
employees who are experienced with the regulatory procedures of the European
Community and other jurisdictions, we do not currently have any facilities or
employees outside of the United States. In some cases, we will rely on our
strategic partners in foreign markets to satisfy the regulatory requirements
imposed by those jurisdictions.
EMPLOYEES
As of December 12, 2001, we had 22 permanent full-time employees, one permanent
part-time employee and one temporary full-time employee. Of the employees, five
were principally engaged in product development, eight in manufacturing,
including quality control, eight in marketing and sales and the balance in
administration and finance. Our employees are not represented by a labor
organization or covered by a collective bargaining agreement. We have not
experienced work stoppages and we believe that our relationship with our
employees is good.
FACILITIES
Our facilities are located in approximately 12,000 square feet in Albuquerque,
New Mexico. This facility contains our executive and administrative offices, as
well as facilities for our assembly, production, testing, storage and inventory
functions. Our monthly rent payments are $8,745, subject to a three percent
annual increase. We renegotiated our lease to terminate in November 2002. We
believe that this facility is adequate for our present and near-term
requirements. Our equipment, fixtures and other assets located within the
facility are insured against loss.
LEGAL PROCEEDINGS
During 2000, BSLT filed a lawsuit alleging that we were in breach of contract.
In January 2001, we reached a settlement with BSLT and the lawsuit was dismissed
with prejudice. Under the settlement agreement, we paid BSLT $350,000. As
consideration for this payment, BSLT completed and shipped to us 100 units of
the Professional Lasette that BSLT had previously been manufacturing for us and
shipped to us all remaining parts inventory in their possession. We had accrued
$400,000 for the anticipated costs of settling the lawsuit during the quarter
ended September 30, 2000.
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The name, age and position of our directors, executive officers and key
employees are as follows:
<Table>
<Caption>
NAME AGE POSITION
---- --- --------
Dr. Ronald Lohrding 60 President, Chief Executive Officer and Chairman of the Board of Directors
Paul Johnson 38 Chief Financial Officer, Chief Operating Officer and Secretary
Richard Zigweid 53 Vice President of Manufacturing
Steve Aiken 46 Vice President of Research and Development
Dr. Larry Keenan 54 Product Manager, Cell Robotics Workstation
Dr. Gerald Bernstein 67 Director
Dr. Raymond Radosevich 63 Director
Oton Tisch 71 Director
Steven Crees 47 Director
</Table>
DR. RONALD LOHRDING has served as our Chief Executive Officer, President and
Chairman of the Board of Directors since February 23, 1995. He co-founded our
wholly-owned subsidiary, Cell Robotics, Inc., in 1988, and has served as the
Chairman, President and Chief Executive Officer of the subsidiary since its
incorporation. Dr. Lohrding has
30
over 25 years of management experience. Dr. Lohrding worked at Los Alamos
National Laboratory as a manager and as a scientist from 1968 to 1988. While at
Los Alamos National Laboratory, Dr. Lohrding served as Assistant Director for
Industrial and International Initiatives, Deputy Associate Director for
Environment and Biosystems and Program Director for Energy, Environment and
Technology, among other senior management positions. Concurrently, he has been a
general partner in seven real estate partnerships, two of which are currently
active. He received his Ph.D. in mathematical statistics from Kansas State
University in 1969.
PAUL JOHNSON was appointed as our Chief Financial Officer in July 2000,
Secretary in November 2000 and Chief Operating Officer in June 2001. From
September 1994 to July 2000, he served as Assistant Controller and then the
Controller for Helen of Troy Limited, a $300 million manufacturer and
distributor of personal care products. From November 1987 to September 1994, he
was employed by KPMG Peat Marwick LLP, now known as KPMG LLP. He has a degree in
accounting and a masters degree in accountancy from Brigham Young University.
RICHARD ZIGWEID was appointed as our Vice President of Manufacturing in August
1996. Mr. Zigweid was Manufacturing Manager at Olympus America from May 1994 to
August 1996. He served as engineering manager at Bausch & Lomb from 1991 to 1994
and as engineering manager and manufacturing engineer at Baxter Healthcare from
1983 to 1991. He received his B.S. degree in Mechanical Engineering from the
University of Wyoming.
STEVE AIKEN was appointed as our Vice President of Research and Development in
October 2000. Mr. Aiken joined the company as a laser engineer in July 2000. Mr.
Aiken worked as an engineer from March 1995 to June 2000 for Decade Optical
Systems and from May 1991 to February 1995 for the Core Group.
DR. LARRY KEENAN was appointed as our Sales Representative in January 1993 and
has been Product Manager for the Cell Robotics Workstation since July 1997. Dr.
Keenan was the Regional Sales Manager of BioRad for the confocal microscope
product line of BioRad from 1991 through 1992. He received his Ph.D. in
Biological Sciences at the University of California at Irvine and was an
Associate Research Scientist in Neurobiology at Yale University.
DR. GERALD BERNSTEIN was appointed to the board in May 2001. He entered into
medical practice in 1966 after completing a Research Fellowship. Dr. Bernstein
presently holds several professional positions. He is an Associate Clinical
Professor at the Albert Einstein College of Medicine in New York (1966-present),
Attending Physician at Beth Israel Medical Center (1999-present), Associate
Attending Physician, Montefiore Medical Center in New York (1966-present) and
Attending Physician at Lenox Hill Hospital in New York (1974-present). In 1998
and 1999, Dr. Bernstein was also the President for the American Diabetes
Association (National). He is still active with the American Diabetes
Association and is on several of its committees. Dr. Bernstein is the author of
many clinical and scientific papers and of the book, "If It Runs In Your Family:
Diabetes Mellitus, Reducing Your Risk." Dr. Bernstein graduated from Dartmouth
College in 1955 and Tufts University School of Medicine in 1959.
DR. RAYMOND RADOSEVICH was elected as a director of the company in 1995. From
November 1998 to the present, Dr. Radosevich has been a limited partner for
Valley Ventures II, a venture capital fund. Dr. Radosevich was a director of
BioDetect, Inc. from 1997 to November 1999. He is currently a director of three
additional companies: Charter Bank since 1994, Cryo Fuel Systems Inc. since 1997
and Quasar International Inc. since January 2000. From 1985 to 1989, he was Dean
of the Anderson School of Management at the University of New Mexico. Dr.
Radosevich was also a Professor of Management at the University of New Mexico
from 1976 until he retired from active teaching in December 1997. As a Professor
of Management, he specialized in business strategy and the management of
technology. In addition, he taught a course in Technology Entrepreneurship and
lectured on the subject nationally and internationally. Dr. Radosevich earned
his Ph.D. from Carnegie-Mellon University, a B.S. in Mechanical Engineering and
M.S. in Industrial Engineering from the University of Minnesota.
OTON TISCH was appointed to our board of directors as an interim director in
February 2000 and was elected as a director in May 2000. Mr. Tisch is an
international businessman and is the President, Chief Executive Officer and sole
owner of Obras Electromecanicas TKV, located in Caracas, Venezuela, and its
subsidiary located in Zurich, Switzerland. These enterprises were incorporated
in 1980 and today generate approximately $10 million of aggregate annual
revenues. Mr. Tisch's businesses specialize in equipment procurement and
building and financing high voltage turn-key substations up to 400 kV, including
the electronic and/or digital automatic control.
STEVEN CREES previously served as an advisor to our board of directors and was
elected as a director in May 2000. In March 2000, Mr. Crees started HaeMedic
LLC, a medical distribution and manufacturing company. In March 2000, he
resigned as Senior Vice President and General Manager of the Medical Diagnostic
Products Division of
31
Chronimed, Inc., where he had been employed since 1986. While at Chronimed, Mr.
Crees was responsible for planning and implementing distribution strategies for
proprietary and licensed medical products to the hospital, long term care,
physician, alternative care and retail markets for this $32 million dollar
business unit emphasizing the diabetic market. He also served as Vice President
for Marketing and Sales and managed the diabetes centers. Prior to 1986, he was
Territory Manager for the Medical Products Division of Baxter Healthcare
Corporation. He has a B.S. in Economics and Business Administration from the
University of Minnesota.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary of compensation paid to our Chief
Executive Officer and our other most highly compensated executive officers in
fiscal years 1998 through 2000.
<Table>
<Caption>
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ----------------------------------------------------------- ------------ -------------- ------------------
Ronald Lohrding, Chief Executive Officer, President and 2000 $119,799 $2,625
Chairman of the Board 1999 $123,115 $6,343
1998 $123,115 $6,343
Travis Lee, Vice President of Sales and Marketing(1) 2000 $113,611 $ 0
1999 $110,000 $3,898
1998 $110,000 $4,204
</Table>
- ----------
(1) Mr. Lee resigned on March 2, 2001.
EMPLOYMENT AGREEMENTS
On July 1, 2000, we entered into a new employment agreement with Dr. Lohrding
under which he will serve as our Chief Executive Officer, President and Chairman
of the Board. The employment agreement expires on June 30, 2003. Dr. Lohrding
agreed to serve as Chief Executive Officer and President on a full-time basis
through June 30, 2002. During the third year of his contract, Dr. Lohrding has
asked to be able to resign as Chief Executive Officer and President, but agreed
that he will continue to serve as a consultant to the company through June 2003.
As a consultant, Dr. Lohrding agreed to devote no less than one-half of his time
to the company's business. Dr. Lohrding will receive a base salary of $130,513
during the first year of the contract, which will be increased in the second
year by the average increase of compensation to all of our employees, or as
determined by the Compensation Committee of our board of directors. Dr. Lohrding
will be paid one-half of his second year base salary during the third year of
his contract. The contract granted Dr. Lohrding 100,000 stock options that
vested immediately and expire on July 1, 2005. These options were granted
outside of the company's Stock Incentive Plan. Dr. Lohrding is also entitled to
bonuses based upon the achievement of specified target sales of the Lasette. Dr.
Lohrding will receive a bonus equal to five percent of his base salary once we
ship and sell 500 Lasettes for three consecutive months and then again once we
ship and sell 1,000 Lasettes for three consecutive months. If a third party
acquires at least 30% of our capital stock, then Dr. Lohrding will be entitled
to the following:
o a lump sum payment, in cash, equal to his base salary under
his employment agreement, which may not be less than $50,000;
o a lump sum payment, in cash, equal to any accrued but unpaid
bonus; and
o all options, warrants and other rights subject to vesting will
accelerate and vest on his termination of employment.
On June 28, 2000, we entered into an employment agreement with Paul Johnson, our
Chief Financial Officer, Chief Operating Officer and Secretary. Under the
employment agreement, if there is a change in control that results in his
termination or he resigns within 45 days of the change in control, then we must
pay Mr. Johnson in 12 equal
32
monthly installments commencing after the termination date an aggregate amount
equal to Mr. Johnson's then prevailing annual total compensation, including base
salary but excluding fringe benefits.
STOCK INCENTIVE PLAN
During fiscal 1992, we adopted a Stock Incentive Plan. Pursuant to the Stock
Incentive Plan, stock options granted to eligible participants may be incentive
stock options, or ISOs, under Section 422 of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options, or NSOs. Eligible participants under
the Stock Incentive Plan include our directors, officers and other salaried key
employees.
Under the Stock Incentive Plan, an option is not transferable, except by will or
the laws of descent and distribution. The board of directors may administer the
Stock Incentive Plan, or delegate administration of the plan to a committee
comprised of disinterested directors. Currently, the Stock Incentive Plan is
administered by our board of directors. The administrator decides when and to
whom to make grants, the number of shares to be covered by the grants, the
vesting schedule, the type of award and the terms and provisions relating to the
exercise of the awards. An aggregate of 1,500,000 shares of our common stock is
available for issuance under the Plan.
As of December 31, 2000, we have granted options to purchase a total of 830,242
shares of our common stock under the Stock Incentive Plan consisting of ISOs and
NSOs to purchase 650,272 shares and 179,970 shares, respectively. The ISOs are
exercisable at prices ranging from $1.375 to $4.47 per share. The NSOs are
exercisable at prices ranging from $1.75 to $4.38 per share. All options have
been issued with exercise prices at or above market value on the date of grant.
OPTION GRANTS
The following table sets forth certain information concerning individual grants
of stock options made during the last completed fiscal year to each of the named
executive officers:
<Table>
<Caption>
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE PRICE
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE
- ---------------------------- ---------------- -------------------- ------------------- -------------------
Dr. Ronald Lohrding 100,000 37% $2.734 08/05/05
Travis Lee -0- -0- -0- -0-
</Table>
OPTION EXERCISES AND OPTION VALUES
The following tables sets forth certain information concerning the exercise of
options during the last completed fiscal year by each of the named executive
officers and the fiscal year-end value of such named executive officers'
unexercised options on an aggregated basis:
<Table>
<Caption>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)(2)
SHARES ------------------- -------------------
ACQUIRED ON VALUE REALIZED(1) UNEXERCISABLE/ UNEXERCISABLE/
NAME EXERCISE (#) ($) EXERCISABLE EXERCISEABLE
- ---------------------------- ---------------- -------------------- ------------------- -------------------
Dr. Ronald Lohrding -0- -0- 300,000/425,000 $0/$0
Travis Lee -0- -0- 0/74,174 $0/$0
</Table>
- ------------
(1) Value realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value
of our common stock on the date the options are exercised.
33
(2) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options. The
closing bid price of our common stock at fiscal year end 2000 was $0.50.
BOARD STRUCTURE
Our board of directors currently has five members. Each director is elected to
serve for a term of one year until the next annual meeting of shareholders or
until a successor is duly elected and qualified.
DIRECTOR COMPENSATION
The members of our board of directors that are not employees of the company are
reimbursed for the expenses they incur in attending meetings of the board. No
officer of the company receives any additional compensation for his services as
a director, and we do not contribute to any retirement, pension or profit
sharing plans covering our directors. We do, however, maintain a group health
insurance plan and retirement plan for our employees, and those directors who
are also our employees are eligible to participate in each plan. Our directors
are also entitled to participate in the Stock Incentive Plan. Non-employee
directors may also receive stock option grants outside of the Stock Incentive
Plan. No member of any committee of our board of directors receives any
additional compensation for his service as a member of that committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 12, 2001, for the following: (1)
each person who is known by us to own beneficially five percent or more of our
outstanding common stock, (2) each of our directors and officers who
beneficially own such shares and (3) our officers and directors as a group.
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
-----------------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------------- ------------------- ------------------
Chester Paulson(1) 1,185,989(2) 9.70
Paulson Investment Company, Inc.(3) 1,133,339(4) 9.26
Dr. Ronald Lohrding(5) 1,219,978(6) 9.97
Oton Tisch(5) 1,287,583(7) 10.52
Dr. Gerald Bernstein(5) 25,000(8) *
Dr. Raymond Radosevich(5) 29,000(9) *
Steven Crees(5) 26,500(10) *
Paul Johnson(5) 140,934(8) 1.15
All officers and directors as a group (6 persons) 2,728,995(11) 22.30
</Table>
- ----------
* Represents ownership interests of less than one percent.
(1) The business address is c/o Paulson Investment Company, 811 S.W., Naito
Parkway, Suite 200, Portland, Oregon 97204.
(2) Includes 21,600 shares issuable upon exercise of Representative
Warrants and the underlying Redeemable Warrants exercisable within 60
days of December 12, 2001 and 31,050 shares of our common stock owned
directly by Mr. Paulson. Also includes 1,133,339 shares of our common
stock beneficially owned by Paulson Investment Company of which Mr.
Paulson is an officer. Mr. Paulson is also the controlling shareholder
of Paulson Capital Corp., the parent company of Paulson Investment
Company. Mr. Paulson disclaims beneficial ownership of the shares
beneficially owned by Paulson Investment Company, Inc.
(3) The business address of Paulson Investment Company, Inc. is 811 S.W.,
Naito Parkway, Suite 200, Portland, Oregon 97204.
(4) Includes 178,800 shares subject to the Representative Warrant and
underlying Redeemable Warrants exercisable within 60 days of December
12, 2001.
(5) The business address is c/o Cell Robotics International, Inc., 2715
Broadbent Parkway N.E., Albuquerque, New Mexico 87107.
(6) Includes 916,228 shares subject to options exercisable within 60 days
of December 12, 2001 and 3,750 shares underlying immediately
exercisable warrants.
34
(7) Includes 5,000 shares subject to options exercisable within 60 days of
December 12, 2001 and 149,250 shares underlying immediately exercisable
warrants. Also includes 500,000 shares issued upon conversion of a
$1,200,000 secured promissory note in August 2000. Additionally,
includes 633,333 shares issuable upon conversion of the outstanding
balance of a convertible note issued to Mr. Tisch in August 2001 based
on a conversion price of $0.30 per share.
(8) Represents shares subject to options exercisable within 60 days of
December 12, 2001.
(9) Represents shares subject to options exercisable within 60 days of
December 12, 2001 and 3,000 shares underlying immediately exercisable
warrants.
(10) Represents shares subject to options exercisable within 60 days of
December 12, 2001. Also includes 1,500 shares underlying immediately
exercisable warrants held by HaeMedic LLC, of which Mr. Crees is the
president and principal equity holder.
(11) Includes 1,138,162 shares subject to options exercisable within 60 days
of December 12, 2001 and 157,500 shares underlying immediately
exercisable warrants. Additionally, includes 633,333 shares issuable
upon conversion of the outstanding balance of a convertible note
issued to Mr. Tisch in August 2001 based on a conversion price of
$0.30 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1999, we borrowed $250,000 from Humagen Fertility Diagnostic, Inc.,
whose president, chief executive officer and majority shareholder is Dr. Debra
Bryant, a former director of the company. The unsecured note did not bear
interest until June 2000, at which time the unpaid balance of the note began to
accrue interest at six percent per annum. In February 2001, we used $45,000 of
the proceeds of the above loans by our directors as payment against the
outstanding principal balance of $250,000, plus accrued interest. We paid
monthly installments of $10,000 each as payments toward principal and accrued
interest from February through April 2001. The remaining principal balance of
the note of $190,905 is now payable in equal monthly installments of $50,000
each commencing January 31, 2002, until paid in full.
In February 2000, as subsequently amended in March 2000, we executed a secured
convertible promissory note in the principal amount of $1,200,000 payable to
Oton Tisch, a director of the company. In August 2000, the note was converted
into 500,000 shares of our common stock. Pursuant to the terms of the note, the
note was converted at a price equal to $2.40 per share. We recorded a charge of
$1,200,000 upon registration of the common stock for resale with the SEC and
conversion of the note into our common stock.
Bridgeworks Capital, Inc., of which Mark Waller, one of our former directors, is
an officer and majority owner, received a placement fee of 5% (or $100,000) in
connection with our May 2000 private placement.
In January 2001, the following members and affiliates of members or former
members of our board of directors agreed to make term loan advances to us in the
following amounts: Oton Tisch, $900,000; Ronald K. Lohrding, Ph.D., $25,000;
Raymond Radosevich, Ph.D., $20,000; HaeMedic LLC, $10,000; and Humagen Fertility
Diagnostics, Inc., $45,000. Mr. Tisch and Dr. Radosevich are members of our
board of directors. Steven A. Crees, a member of our board of directors, is
president and principal equity holder of HaeMedic LLC. Dr. Lohrding also serves
as our President, Chief Executive Officer and Chairman of the Board. The loans
were made to us in the amounts of $100,000, $400,000 and $500,000 in February,
March and May 2001, respectively. The loans are evidenced by unsecured
promissory notes, bear interest at the rate of ten percent per annum and are due
on January 31, 2002. We used $45,000 of the proceeds from the foregoing loans as
payment against the outstanding balance of principal and accrued interest on the
$250,000 promissory note issued to Humagen Fertility Diagnostics, Inc. The
remaining proceeds of the loans were used to pay trade payable and for working
capital and other general corporate purposes.
In connection with the loans, each lender was issued a warrant to purchase that
number of shares of our common stock equal to 15% of the amount of the lender's
respective loan. The warrants allow the lenders to purchase an aggregate of
150,000 shares of our common stock The warrants may be exercised until January
31, 2004, at a price equal to $1.125 per share of our common stock.
In August 2001, we signed a convertible note in the face amount of $500,000
payable to Mr. Oton Tisch, one of our directors. Mr. Tisch, funded $190,000
after the signing of the convertible note. The remaining $310,000 may be
requested by us, at our option, after August 31, 2001 so long as we have not
completed a round of debt or equity financing providing gross proceeds to us of
at least $310,000. Principal and accrued interest evidenced by the note are
convertible into shares of our common stock at any time. The conversion price of
the convertible note is $0.5994 per share of our common stock or 90% of the
average closing price per share of our common stock for 15
35
trading days ending on the trading day immediately prior to the date of
conversion, whichever is less. However, the conversion price cannot be less than
$0.30 per share. The convertible note bears interest at 10% per annum and is
presently secured by our equipment. Unless sooner converted, the convertible
note is due on August 2, 2002. In connection with the issuance of the
convertible note, Mr. Tisch was issued a warrant to purchase up to 37,500 shares
of our common stock, of which 14,250 shares have become exercisable. The
remaining shares covered by the warrant will become exercisable in proportion to
the amount funded by Mr. Tisch under the convertible note. The warrant is
exercisable until August 2, 2004, for common stock at a price of $0.67 per
share. The proceeds from the loan made to date under the convertible note were
used to pay trade payables and for working capital and other general corporate
purposes.
We believe that any transactions between us and our officers, directors,
principal shareholders or other affiliates have been on terms no less favorable
to us than could be obtained from unaffiliated third parties on an arms-length
basis.
INDEMNIFICATION
The Colorado Business Corporation Act, or the CBCA, provides that a company may
indemnify a person who was, is or is threatened to be made a named defendant or
respondent in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (a "proceeding"), because the person is or was a director against
liability incurred in the proceeding if:
o the person conducted himself or herself in good faith;
o the person reasonably believed, in the case of conduct in an
official capacity with the company, that his or her conduct
was in the company's best interests;
o in all other cases, that his or her conduct was at least not
opposed to the company's best interests; and
o in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
A company may not indemnify a director in connection with a proceeding by or in
the right of the company in which the director was adjudged liable to the
company or in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which proceeding the director was adjudged liable on the
basis that he or she derived an improper personal benefit.
Our Articles of Incorporation provide that we may and shall indemnify each of
our directors, officers, employees or agents, and their respective heirs,
executors and administrators, against any and all expenses or liability
reasonably incurred by them in connection with any action, suit or proceeding to
which he may be a party by reason of his being or having been a director,
officer, employee or agent of the company to the full extent required or
permitted by the CBCA.
Our Amended and Restated Bylaws also state that we may indemnify against
liability incurred in any proceeding an individual who was, is or is threatened
to be made a named defendant or respondent in any proceeding because he is or
was a director if that person meets the conditions for indemnification under the
CBCA as described above. We may not indemnify a director in connection with a
proceeding by or in the right of the company in which the director was adjudged
liable to the company or in connection with any proceeding charging improper
personal benefit to the director, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him. We must indemnify a person who is or was
a director or officer of the company and who was wholly successful, on the
merits or otherwise, in defense of any proceeding to which he was a party
against reasonable expenses incurred by him in connection with the proceeding.
Under the sections of the CBCA and the company's Bylaws included in this
prospectus, a "director" includes an individual who is or was a director of a
company or an individual who, while a director of a company, is or was serving
at the company's request as a director, an officer, an agent, an associate, an
employee, a fiduciary, a manger,
36
a member, a partner, a promoter or a trustee of, or to hold any similar position
with, another domestic or foreign corporation or other person or of an employee
benefit plan.
We currently maintain a $1,000,000 insurance policy that covers directors and
officers' liability.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
Each holder of our common stock is entitled to one vote for each share held of
record. There is no right to cumulative voting of shares for the election of
directors. The shares of common stock are not entitled to preemptive rights and
are not subject to redemption or assessment. Each share of common stock is
entitled to share ratably in distributions to shareholders and to receive
ratably any dividends we may declare out of funds legally available for the
payment of dividends. Upon our liquidation, dissolution or winding up, the
holders of common stock are entitled to receive, pro-rata, that portion of our
assets which are legally available for distribution to shareholders, subject to
the rights of preferred shareholders, if any. The issued and outstanding shares
of common stock are validly issued, fully paid and non-assessable.
PREFERRED STOCK
We are authorized to issue up to 2,500,000 shares of preferred stock. Our
preferred stock can be issued in one or more series as may be determined from
time to time by our board of directors. Our board of directors has the
authority, without shareholder approval, to fix the rights, preferences,
privileges and restrictions of any series of preferred stock, including:
o the rate of distribution;
o the price at and the terms and conditions on which shares can
be redeemed;
o the amount payable upon shares for distributions of any kind;
o sinking fund provisions for the redemption of shares;
o the terms and conditions on which shares may be converted if
shares of any series are issued with the privilege of
conversion; and
o voting rights except as limited by law.
We do not currently have any plans to issue shares of preferred stock, or to
designate any series of preferred stock. However, there can be no assurance that
we will not issue preferred stock in the future. In the near future, we will be
required to raise additional funds to finance our operations, which may be
through the issuance of preferred stock. Any issuance of preferred stock may
grant to holders preferred rights to our assets upon liquidation, the right to
receive dividends before dividends would be declared to common shareholders, and
the right to redemption of their preferred shares, together with a premium,
prior to the redemption of our common stock. Common shareholders have no
redemption rights. The ability to issue preferred stock without shareholder
approval may discourage, delay or prevent someone from acquiring or merging with
us.
REDEEMABLE WARRANTS
Redeemable Warrants exercisable for 1,503,826 shares of our common stock have
been issued or reserved for issuance, of which 80,000 Redeemable Warrants are
issuable upon exercise of Representative Warrants. Each Redeemable Warrant is
exercisable to purchase one share of our common stock at a price of $2.40,
subject to
37
adjustment. The exercise price of the Redeemable Warrants is subject to
adjustment upon certain events such as stock splits, stock dividends and similar
transactions. We can redeem the Redeemable Warrants in accordance with the
provisions described below. The Redeemable Warrants expire at 5:00 p.m.,
Mountain time, on February 2, 2003. We may at any time and from time to time
extend the term of the Redeemable Warrants or reduce their exercise price,
provided written notice of any extension or reduction is given to the registered
holders of the Redeemable Warrants prior to the expiration date then in effect.
We do not presently contemplate any extension of the Redeemable Warrant term or
reduction in the Redeemable Warrant exercise price.
Subject to compliance with applicable securities laws, Redeemable Warrant
certificates may be transferred or exchanged for new certificates of different
denominations at the offices of the warrant agent described below. The holders
of Redeemable Warrants, as such, are not entitled to vote, to receive dividends
or to exercise any of the rights of shareholders for any purpose.
EXERCISE. The Redeemable Warrants may be exercised during their term only upon
surrender of the Redeemable Warrant certificate at our offices with the
completed and signed form of "Election to Purchase" on the reverse side of the
Redeemable Warrant certificate. The Election to Purchase must be accompanied by
payment of the full exercise price for the number of Redeemable Warrants being
exercised. Holders of the Redeemable Warrants will receive one share of our
common stock for each Redeemable Warrant exercised, subject to any adjustment
required by the warrant agreement with the warrant agent. For a holder to
exercise his or her Redeemable Warrants, there must be a current registration
statement in effect with the SEC and various state securities authorities
registering the shares of common stock underlying the Redeemable Warrants, or
alternatively, in our sole determination, there must be a valid exemption from
these requirements.
We have undertaken, and intend, to maintain a current registration statement,
which will permit the exercise of the Redeemable Warrants during their term.
Maintaining a current effective registration statement could result in
substantial expense. Although we believe that we will be able to register or
qualify the shares of common stock underlying the Redeemable Warrants for sales
in those states where the securities are offered, we cannot assure you that any
registration or qualification, or an exemption from these requirements, can be
accomplished without undue hardship or expense. The Redeemable Warrants may be
deprived of any value if a registration statement covering the shares issuable
upon exercise of the Redeemable Warrants, or an exemption from these
requirements, cannot be filed or obtained without undue expense or hardship or
if the underlying shares are not registered or exempted from registration in the
states in which the holder of a Redeemable Warrant resides. In the latter event,
the only option available to a holder of a Redeemable Warrant may be to attempt
to sell his or her Redeemable Warrants into the market, if a market then exists,
and only then in compliance with applicable securities laws and restrictions on
transfer.
REDEMPTION. We have the right, at our discretion, to call all or less than all
of the Redeemable Warrants for redemption on 30 days' prior written notice at a
redemption price of $.25 per Redeemable Warrant if:
o the closing bid price of our common stock exceeds $4.80 per
share for at least ten consecutive trading days;
o we have in effect a current registration statement covering
the common stock issuable upon exercise of the Redeemable
Warrants; and
o the expiration of the 30-day notice period is within the term
of the Redeemable Warrant.
If we elect to exercise our redemption right, holders of Redeemable Warrants may
either exercise their Redeemable Warrants, sell the Redeemable Warrants in the
market until the date next preceding the date fixed for redemption or tender
their Redeemable Warrants to us for redemption. Within five business days after
the end of the 30-day period, we will mail a redemption check to each registered
holder of a Redeemable Warrant who holds unexercised Redeemable Warrants as of
the end of the 30-day period, whether or not the holder has surrendered the
Redeemable Warrant certificates for redemption. The Redeemable Warrants may not
be exercised after the end of the 30-day notice period.
NO RIGHT TO COMPEL EXERCISE. We do not have the right to compel the exercise of
our outstanding Redeemable Warrants and no one has committed to exercise any of
our outstanding Redeemable Warrants. Whether any Redeemable Warrants are
exercised will depend upon several factors, including the prevailing market
price of our
38
common stock, the liquidity of that market, if any, and the personal investment
objectives of the warrant holders. Accordingly, there can be no assurance of the
number of shares, if any, that will be purchased pursuant to the exercise of our
outstanding Redeemable Warrants.
WARRANT SOLICITATION FEES. We have no agreement or any arrangement whereby any
fees or other compensation will be paid to any person or entity upon exercise of
the Redeemable Warrants.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR. The transfer agent, warrant agent
and registrar for our common stock and Redeemable Warrants is Corporate Stock
Transfer, Inc., located in Denver, Colorado.
REPRESENTATIVE WARRANTS
The Representative Warrants are exercisable for 40,000 units, each unit
consisting of one share of Series A Convertible Preferred Stock convertible into
four shares of our common stock and two Redeemable Warrants. The units
underlying the Representative Warrants will be immediately separated upon
exercise. Additionally, in January 1999, the Series A Convertible Preferred
Stock issuable under the Representative Warrants automatically converted into
shares of our common stock. Therefore, upon exercise the units underlying the
Representative Warrants will immediately separate into a total of 160,000 shares
of our common stock and 80,000 Redeemable Warrants. The Representative Warrants
may be exercised until 5:00 p.m., Pacific time, on February 1, 2003, at an
exercise price of $9.90 per unit, subject to adjustment. The number, class and
price of securities for which the Representative Warrants may be exercised are
subject to adjustment upon certain events such as stock splits, stock dividends,
merger, reorganization and similar events.
Subject to compliance with applicable securities laws, Representative Warrant
certificates may be exchanged for new certificates of different denominations.
The holders of Representative Warrants are not entitled to vote, to receive
dividends or to exercise any of the rights of shareholders.
EXERCISE. The Representative Warrants may be exercised in whole or in part
during the term only upon surrender of the duly executed Representative Warrant
certificate at our offices (or such other office or agency as we may designate)
accompanied by payment in full of the full exercise price for the number of
underlying securities for which the Representative Warrant is being exercised.
Additionally, in lieu of any cash payment, the holder may exercise the
Representative Warrants in whole or in part by surrendering the Representative
Warrant certificate in exchange for that number of units equal to (1) the
difference between (a) the number of units or other securities as to which the
Representative Warrant is being exercised multiplied by the per share market
price of the unit or other securities and (b) the number of units or other
securities as to which the Representative Warrant is being exercised multiplied
by the exercise price divided by (2) the per share market price of the unit or
other securities. The market price on any date is (1) the last reported sale
price of the security, or if no sale took place on such date, the average of the
last reported sale prices for the last three trading days as officially reported
by the principal securities exchange on which the security is listed or admitted
to trading or by the NASDAQ Stock Market, or (2) if the security is not listed
or admitted to trading on any national securities exchange or quoted by the
National Association of Securities Dealers Automated Quotation System, or
NASDAQ, the average closing bid price as furnished by the National Association
of Securities Dealers, Inc. through NASDAQ or similar organization if NASDAQ no
longer reports this information, or (3) if the security is not quoted on NASDAQ,
as determined in good faith by our board of directors. The market price may be
determined on the date the warrantholder's notice of election is sent to us or
the average of the market prices for each of the five trading days preceding the
notice date, whichever is greater. Because our common stock and Redeemable
Warrants are not currently listed or admitted to trading on any national
securities exchange or quoted by NASDAQ, the market price of the securities
underlying the Representative Warrant will be determined based on the average
closing bid price as furnished by the National Association of Securities
Dealers, Inc.
For a holder to exercise Representative Warrants, there must be a current
registration statement in effect with the SEC and various state securities
authorities registering the securities underlying the Representative Warrants
or, in our and our counsel's sole determination, there must be a valid exemption
from registration. We have undertaken, and intend, to maintain a current
registration statement which will permit the exercise of the Representative
Warrants during the term. Maintaining a current effective registration statement
could result in substantial expense to us and there is no assurance that we will
be able to maintain a current registration statement covering the securities
issuable upon exercise of the Representative Warrants. Holders of Representative
Warrants will have the right to exercise the Representative Warrants only if a
registration statement is then in effect and only if the
39
securities included therein are qualified for sale under the securities laws of
the state in which the exercising warrantholder resides or if we, in our and our
counsel's sole discretion, are able to obtain valid exemptions from the
foregoing requirements. Although we believe that we will be able to register or
qualify the securities underlying the Representative Warrants for sales in those
states where the securities are offered, there can be no guarantee that such
registration or qualification, or an exemption therefrom, can be accomplished
without undue hardship or expense to us. The Representative Warrants may be
deprived of any value if a registration statement covering the securities
issuable upon exercise thereof or an exemption therefrom cannot be filed or
obtained without undue expense or hardship or if such underlying securities are
not registered or exempted from such registration in the states in which the
holder of a Representative Warrant resides. In the latter event, the only option
available to a holder of a Representative Warrant may be to attempt to sell his
or her Representative Warrants into the market, if a market then exists and only
then in compliance with applicable securities laws and restrictions on transfer.
The Representative Warrants may not be sold, transferred, assigned or
hypothecated except to the underwriters participating in the public offering of
the units. The Representative Warrants may not be called or redeemed by us at
any time.
WARRANT SOLICITATION FEES. We have no agreement or any arrangement whereby any
fees or other compensation will be paid to any person or entity upon exercise of
the Representative Warrants.
SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders who may
sell their common stock or Redeemable Warrants pursuant to this prospectus. No
selling securityholder has, or within the past three years has had, any
position, office or other material relationship with us or any of our
predecessors or affiliates, except as noted below.
The following table sets forth certain information as of December 12, 2001, to
the best of our knowledge, regarding the ownership of our common stock and our
Redeemable Warrants by the selling securityholders and as adjusted to give
effect to the sale of all the common stock and our Redeemable Warrants offered
by the selling securityholder pursuant to this prospectus.
<Table>
<Caption>
NUMBER OF NUMBER OF
SHARES SECURITIES BEING OFFERED SHARES PERCENTAGE
BENEFICIALLY -------------------------- BENEFICIALLY BENEFICIAL
SELLING OWNED BEFORE COMMON REDEEMABLE OWNED AFTER OWNERSHIP AFTER
SECURITYHOLDER OFFERING(1) STOCK WARRANTS THE OFFERING THE OFFERING
- ------------------------------------- ---------------- ------------ -------------- ---------------- ------------------
Paulson Investment Company, Inc.(2) 1,133,339(3) 500,000(4) --- 633,339 5.18
Richard S. Hall 92,184(5) 78,788(6) 78,788 13,396 *
Richard S. Hall, Jr. 46,092(5) 39,394(7) 39,394 6,698 *
William R. Hall 46,092(5) 39,394(7) 39,394 6,698 *
Paul G. Bardacke(8) 145,000 70,000(8) 30,000(8) 75,000 *
Thomas J. Pennello 10,000 10,000 --- --- *
GL Investment Group, Inc.(9) 20,000 20,000(9) 20,000(9) --- *
Jean E. Canavan(10) 12,000 10,000(10) 10,000(10) 2,000 *
Oton M. Tisch 1,287,583(11) 500,000(12) --- 787,583 6.40
RCG Capital Markets Group, Inc. 100,000 100,000(13) --- --- *
GEM Edwards, Inc. 40,200 40,200(14) --- --- *
Coffin Communications, Inc. 60,000 60,000(15) --- --- *
Alan Stone & Co., LLC 6,667 6,667(16) --- --- *
Richard M. Goldman 3,333 3,333(17) --- --- *
Nimish P. Patel 3,333 3,333(18) --- --- *
Mona S. Buchanan 1,667 1,667(18) --- --- *
TOTAL 1,482,776 217,576
</Table>
- ----------
* Represents ownership interests of less than one percent.
(1) Includes shares of our common stock issuable upon exercise of our
warrants and stock options within 60 days of December 12, 2001.
(2) Paulson Investment Company, Inc. is an investment banking firm that has
served as our underwriter and placement agent in our prior private and
public offerings. For their services as our underwriter and placement
agent, we have paid Paulson Investment Company, Inc. various fees as
well as issued our securities to them, including shares of common stock
and warrants.
40
(3) Includes 178,800 shares issuable upon exercise of Representative
Warrants and the underlying Redeemable Warrants.
(4) Represents shares of our common stock issued to Paulson Investment
Company, Inc. in connection with our May 2000 private placement.
(5) Based upon information obtained from Richard S. Hall, as of July 26,
2001, Richard S. Hall, Richard S. Hall, Jr. and William R. Hall may be
deemed to be the beneficial owner of 92,184 shares, 46,092 shares and
46,092 shares, respectively, of our common stock.
(6) Represents 78,788 shares of our common stock issuable upon exercise of
Redeemable Warrants.
(7) Represents 39,394 shares of our common stock issuable upon exercise of
Redeemable Warrants.
(8) Mr. Bardacke is an attorney who has provided services to us for which
we issued him a Redeemable Warrant exercisable for 15,000 shares of our
common stock. Mr. Bardacke also acquired 40,000 shares of our common
stock and 15,000 Redeemable Warrants in a private offering.
(9) GL Investments Group, Inc. served as one of our placement agents in our
private placement for which it received Redeemable Warrants exercisable
for 5,000 shares of our common stock. In addition, it has provided
various investment banking services to us for which we issued it an
additional Redeemable Warrant exercisable for 15,000 shares of our
common stock.
(10) Ms. Canavan served as a placement agent in our private offering for
which she received Redeemable Warrants exercisable for 10,000 shares.
(11) Mr. Tisch serves on our board of directors. We issued Mr. Tisch 500,000
shares of our common stock upon conversion of a secured convertible
promissory note in the principal amount of $1,200,000. Also includes
149,250 shares issuable upon exercise of a common stock purchase
warrant issued to Mr. Tisch in connection with loans made by him to us
in March, May and August 2001 and stock options covering 5,000 shares
issued to Mr. Tisch for serving as a director. Additionally, includes
633,333 shares issuable upon conversion of the outstanding balance of a
convertible note issued to Mr. Tisch in August 2001 based on a
conversion price of $0.30 per share.
(12) Represents shares of our common stock issued to Mr. Tisch upon
conversion of a secured convertible promissory note in the principal
amount of $1,200,000.
(13) Represents 100,000 shares issuable under the stock options issued to
RCG Capital Markets Group as payment for public relations services
provided to us. The stock options are exercisable as follows: 35,000
shares at $0.8438 per share, 40,000 shares at $2.00 per share and
25,000 shares at $3.25 per share. Options covering 75,000 shares and
25,000 shares expire September 4, 2003 and February 15, 2004,
respectively.
(14) Represents shares beneficially owned by GEM Edwards, a previous
distributor of our products, acquired upon exercise of its common stock
purchase warrant.
(15) Represents shares issuable under the common stock warrants issued to
Coffin Communications Group as payment for public relations services
provided to us. The warrants expire on February 3, 2003 and have an
exercise price of $2.40 per share.
(16) Represents shares issuable under the common stock purchase warrant
issued to Alan Stone & Co. as payment for public relations services
provided to us. The warrants expire on February 3, 2003 and have an
exercise price of $2.40.
(17) Represents shares issuable under the common stock warrant issued to
Richard Goldman, a director of Alan Stone & Co., as payment for public
relations services provided to us. The warrants expire on February 3,
2003 and have an exercise price of $2.40.
(18) Represents shares issued under a shares for debt agreement entered into
between us and the law firm Pollet & Richardson and certain of its
employees for providing legal services to us.
We will pay all expenses to register the common stock and the Redeemable
Warrants. The selling securityholders will pay any underwriting and brokerage
discounts, fees and commissions, specified attorneys' fees and other expenses to
the extent applicable to them.
PLAN OF DISTRIBUTION
SELLING SECURITYHOLDERS' SECURITIES
The selling securityholders may offer their shares of common stock and/or
Redeemable Warrants at various times in one or more of the following
transactions:
o on any of the United States securities exchanges where our
common stock and/or Redeemable Warrants are listed or may be
listed in the future;
o in the over-the-counter market;
41
o in transactions other than on such exchanges or in the
over-the-counter market;
o in connection with short sales of our common stock and
Redeemable Warrants;
o by pledge to secure debts and other obligations;
o in connection with the writing of non-traded and
exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or
over-the-counter options; or
o in a combination of any of the above transactions.
The selling securityholders may sell their common stock and/or Redeemable
Warrants at market prices prevailing at the time of sale, prices related to such
prevailing market prices, negotiated prices or fixed prices.
The selling securityholders may use broker/dealers to sell their shares of
common stock and/or Redeemable Warrants. In this event, the broker/dealers will
either receive a discount or commission from the selling securityholder, or they
will receive commissions from the purchaser of common stock and/or Redeemable
Warrants for whom they acted as agent.
The selling securityholders and any broker/dealers who sell their shares of
common stock and Redeemable Warrants may be deemed to be "underwriters" within
the meaning of the Securities Act. The commissions, discounts or other
compensation paid to such persons may be regarded as underwriters' compensation.
These shares may later be distributed, sold, pledged, hypothecated or otherwise
transferred. In addition to any other applicable laws or regulations, selling
securityholders must comply with regulations relating to distributions by
selling securityholders, including Regulation M under the Securities Exchange
Act of 1934.
To comply with the securities laws of certain jurisdictions, the securities
offered in this prospectus will be offered or sold in those jurisdictions only
through registered or licensed broker/dealers. In addition, in certain
jurisdictions the securities offered in this prospectus may not be offered or
sold unless they have been registered or qualified for sale in those
jurisdictions, or unless an exemption from registration or qualification is
available and is complied with.
REDEEMABLE WARRANTS
We are also offering up to 920,000 shares of our common stock issuable upon
exercise of 920,000 Redeemable Warrants currently owned by certain investors who
acquired the Redeemable Warrants as part of the units sold in the 1998 public
offering or purchased from the secondary trading markets. The shares of common
stock to be issued upon exercise of the Redeemable Warrants are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.
LEGAL MATTERS
The legality of the common stock and Redeemable Warrants offered under this
prospectus was passed on for us by Neuman & Drennen, LLC.
EXPERTS
Our consolidated financial statements as of December 31, 2000 and 1999, and for
the years then ended, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, included herein, and upon the authority of said firm as experts in
accounting and auditing.
The report of KPMG LLP covering the December 31, 2000 and 1999 financial
statements contains an explanatory paragraph that states that the company's
recurring losses and negative cash flows from operations raise substantial doubt
about the company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
42
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file with the SEC at the SEC's Public Reference Room in
Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, in New York,
New York at 7 World Trade Center, Suite 1300, New York, New York 10048 and in
Chicago, Illinois at Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Rooms. Our electronic SEC filings are also
available on the web site maintained by the SEC, which is found at
http://www.sec.gov. Our SEC filings are also available from commercial document
retrieval services.
43
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<Table>
Independent Auditors' Report....................................................................................F-2
Consolidated Balance Sheets - December 31, 2000 and December 31, 1999...........................................F-3
Consolidated Statements of Operations - for the years ended December 31, 2000 and 1999..........................F-4
Consolidated Statements of Stockholders' Equity - for the years ended December 31, 2000 and 1999................F-5
Consolidated Statements of Cash Flows - for the years ended December 31, 2000 and 1999..........................F-6
Notes to Consolidated Financial Statements......................................................................F-7
Consolidated Balance Sheets - September 30, 2001 (unaudited) and December 31, 2000 (audited)...................F-18
Consolidated Statements of Operations - for the three months ended September 30, 2001 and 2000 (unaudited).....F-19
Consolidated Statements of Operations - for the nine months ended September 30, 2001 and 2000 (unaudited)......F-20
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2001 and 2000 (unaudited)......F-21
Notes to Unaudited Consolidated Financial Statements...........................................................F-22
</Table>
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cell Robotics International, Inc.
We have audited the accompanying consolidated balance sheets of Cell Robotics
International, Inc. and subsidiary as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cell Robotics
International, Inc. and subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 11 to
the consolidated financial statements, the Company has suffered recurring losses
and negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 11. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Albuquerque, New Mexico
March 15, 2001
F-2
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,043,230 $ 358,379
Accounts receivable, net of allowance for
doubtful accounts of $1,841 in 2000 and
$23,841 in 1999 378,853 206,278
Inventory 1,079,086 897,971
Other current assets 60,850 36,543
------------ ------------
Total current assets 2,562,019 1,499,171
Property and equipment, net 549,688 485,556
Other assets, net 24,109 28,939
------------ ------------
Total assets $ 3,135,816 $ 2,013,666
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 350,399 $ 684,403
Note payable - related party 250,000 --
Payroll related liabilities 152,860 116,617
Royalties payable 79,046 67,519
Accrued litigation costs 400,000 --
Other current liabilities 118,010 40,294
------------ ------------
Total current liabilities 1,350,315 908,833
Note payable - related party -- 250,000
------------ ------------
Total liabilities 1,350,315 1,158,833
------------ ------------
Stockholders' equity:
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero shares
issued and outstanding at December 31, 2000
and 1999 -- --
Common stock, $.004 par value. Authorized
50,000,000 shares, 9,965,644 and 8,244,121
shares issued and outstanding at December 31,
2000 and 1999, respectively 39,863 32,976
Additional paid-in capital 25,114,871 19,154,908
Accumulated deficit (23,369,233) (18,333,051)
------------ ------------
Total stockholders' equity 1,785,501 854,833
------------ ------------
Commitments and contingencies $ 3,135,816 $ 2,013,666
============ ============
</Table>
See accompanying notes to consolidated financial statements.
F-3
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
2000 1999
----------- -----------
Product sales $ 992,710 $ 1,294,936
Research and development grants 14,353 122,381
----------- -----------
Total revenues 1,007,063 1,417,317
----------- -----------
Product cost of goods sold (1,516,846) (1,064,130)
SBIR direct expenses (14,353) (122,381)
----------- -----------
Total cost of goods sold (1,531,199) (1,186,511)
----------- -----------
Gross profit (loss) (524,136) 230,806
----------- -----------
Operating expenses:
General and administrative 1,297,779 988,288
Marketing & sales 1,289,728 625,777
Research and development 816,659 551,486
----------- -----------
Total operating expenses 3,404,166 2,165,551
----------- -----------
Loss from operations (3,928,302) (1,934,745)
----------- -----------
Other income (expense):
Interest income 76,088 26,111
Interest expense (1,258,453) (716)
Other, net 74,485 0
----------- -----------
Total other income (expense) (1,107,880) 25,395
----------- -----------
Net loss (5,036,182) (1,909,350)
Preferred stock dividends -- (515,280)
----------- -----------
Net loss applicable to common shareholders $(5,036,182) $(2,424,630)
=========== ===========
Weighted average common shares
outstanding, basic and diluted 9,286,128 7,734,762
=========== ===========
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.54) $ (0.31)
=========== ===========
</Table>
See accompanying notes to consolidated financial statements.
F-4
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
Preferred Stock Common Stock
---------------------- --------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
--------- --------- --------- --------- ----------- -----------
Balance at December 31, 1998 465,533 $ 18,622 5,739,248 $ 22,957 17,916,565 (15,908,421)
Conversion of series A preferred stock (465,533) (18,622) 1,862,132 7,449 11,173 --
Stock dividend paid on
series A preferred stock -- -- 183,211 732 514,548 (515,280)
Options issued for services -- -- -- -- 76,909 --
Issuance of shares at $1.50 -- -- 100,000 400 149,600 --
Exercise of stock options -- -- 27,030 108 37,058 --
Issuance of units at $8.25, less
costs of offering -- -- 332,500 1,330 449,055 --
Net loss for 1999 -- -- -- -- -- (1,909,350)
--------- --------- --------- --------- ----------- -----------
Balance at December 31, 1999 -- -- 8,244,121 32,976 19,154,908 (18,333,051)
Shares issued for services -- -- 130,000 520 550,885 --
Exercise of stock options -- -- 162,048 649 224,418 --
Exercise of stock warrants -- -- 429,475 1,718 690,038 --
Issuance of shares at $4.00 in a private
placement, less costs of offering -- -- 500,000 2,000 1,733,502 --
Options & warrants issued
for services -- -- -- -- 350,640 --
Issuance of stock on conversion of notes, less
costs of offering -- -- 500,000 2,000 2,410,480 --
Net loss for 2000 -- -- -- -- -- (5,036,182)
--------- --------- --------- --------- ----------- -----------
Balance at December 31, 2000 -- $ -- 9,965,644 $ 39,863 25,114,871 (23,369,233)
========= ========= ========= ========= =========== ===========
</Table>
See accompanying notes to consolidated financial statements.
F-5
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $(5,036,182) (1,909,350)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 126,351 116,914
Beneficial conversion charge 1,200,000 --
Loss on sale of property and equipment 35,000 --
Amortization of options issued for services -- 7,279
Options and warrants issued for service 350,640 76,909
Common stock issued for services 551,405 --
(Increase) decrease in accounts receivable (172,575) 40,295
Increase in inventory (181,115) (371,722)
(Increase) decrease in other current assets (24,307) 79,449
(Decrease) increase in accounts payable
and payroll related liabilities (297,761) 329,146
Increase in other current
liabilities, accrued litigation costs
and royalties payable 489,243 46,358
----------- -----------
Net cash used in operating activities (2,959,301) (1,584,722)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 232,500 --
Purchase of property and equipment (453,153) (320,025)
----------- -----------
Net cash used in investing activities (220,653) (320,025)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,735,502 150,000
Proceeds from exercise of stock options 225,067 37,166
Proceeds from exercise of warrants 691,756 --
Proceeds from sale of units, net of offering costs -- 450,385
Proceeds from loan - related party -- 250,000
Proceeds from issuance of secured convertible
note, net of expenses 1,212,480 --
----------- -----------
Net cash provided by financing activities 3,864,805 887,551
----------- -----------
Net increase (decrease) in cash and cash equivalents: 684,851 (1,017,196)
Cash and cash equivalents:
Beginning of year 358,379 1,375,575
----------- -----------
End of year $ 1,043,230 358,379
=========== ===========
Supplemental information:
Conversion of secured convertible note $ 1,200,000 --
Stock options and warrants issued for services $ -- 76,909
Stock dividends on Series A Preferred Stock $ -- 515,280
Interest paid $ -- 716
=========== ===========
</Table>
See accompanying notes to consolidated financial statements.
F-6
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND ACTIVITIES
The Company has developed and is manufacturing and marketing a
laser-based medical device with applications in the blood sample and
glucose collection and in vitro fertilization markets. During fiscal
2000 the Company sold the technology related to its in vitro
fertilization products to Hamilton Thorne Research. The Company also
develops, produces and markets a line of advanced scientific
instruments that increase the usefulness and importance of the
conventional laboratory microscope. The Company markets its scientific
instruments in both domestic and international markets.
The Company's customers consist primarily of research institutes,
universities, the diabetic patient and diabetic nurse educator as well
as the physician community, medical clinics, and distributors.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Cell Robotics International, Inc. and its wholly owned
subsidiary (the Company). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
(b) Financial Statement Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all short-term investments with original maturities
of three months or less to be cash equivalents. The Company
has included as cash a certificate of deposit of approximately
$85,000 that is used as a guarantee for loans to three
employees.
(d) Inventory
Inventory is recorded at the lower of cost, determined by the
first-in, first-out method, or market.
Inventory at December 31 consists of the following:
<Table>
<Caption>
2000 1999
---------- ----------
Finished goods $ 56,273 $ 78,358
Parts and components 1,022,813 741,841
Sub-assemblies -- 77,772
---------- ----------
$1,079,086 $ 897,971
========== ==========
</Table>
F-7
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is
calculated on a straight-line basis over the estimated useful
lives of the assets, which range from five to seven years.
Leasehold improvements are amortized over the life of the
lease.
(f) Earnings Per Share
Basic loss per share is computed on the basis of the weighted
average number of common shares outstanding during the year.
Diluted loss per share, which is computed on the basis of the
weighted average number of common shares and all potentially
dilutive common shares outstanding during the year, is the
same as basic loss per share for 2000 and 1999, as all
potentially dilutive securities were anti-dilutive.
Options to purchase 1,594,575 and 1,618,123 shares of common
stock were outstanding at December 31, 2000 and 1999,
respectively. Additionally, warrants to purchase 1,503,826 and
1,878,826 shares of common stock were outstanding at December
31, 2000 and 1999, respectively. These were not included in
the computation of diluted earnings per share as the exercise
of these options and warrants would have been anti-dilutive
because of the net losses incurred in 2000 and 1999.
(g) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, payroll related liabilities,
royalties payable and accrued liabilities in the consolidated
financial statements approximate fair value because of the
short-term maturity of these instruments. The fair value of
the note payable at December 31, 2000 cannot be determined
without excessive costs due to its related party nature.
(h) Income Taxes
The Company follows the asset and liability method for
accounting for income taxes whereby deferred income taxes are
recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
(i) Revenue
The Company recognizes revenue on sales of its products when
the products are shipped from the plant and ownership is
transferred to the customer. In certain cases where the
Company is required to install its products at a customer's
site, the recognition of revenue is deferred until the
installation is completed. Appropriate allowances are made for
returns.
(j) Research and Development
Research and development costs related to both present and
future products are expensed as incurred. Research and
development costs consist primarily of salaries, materials and
supplies.
F-8
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(k) Warranties
The Company warrants their products against defects in
materials and workmanship for one year. The warranty reserve
is reviewed periodically and adjusted based upon the Company's
historical warranty costs and its estimate of future costs.
(l) Stock Option Plan
The Company accounts for its stock option plan in accordance
with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. SFAS No.
123, "Accounting for Stock Based Compensation," permits
entities to recognize as an expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
The Company also issues stock, stock options or stock warrants
to non-employees for services. The fair value of the stock, as
determined by the market price on the date of issuance, or of
the options or warrants, as determined by the Black-Scholes
option pricing model, is charged to expense when incurred.
Stock issued is discussed in Note 9 and the options or
warrants issued are included in the disclosures in Note 5.
(m) New accounting pronouncements
In June 1999, Statement of Financial Accounting Standards
("SFAS") No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, was issued. SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. The provisions of this
statement are now effective for financial statements for
fiscal years beginning after June 15, 2000, although early
adoption is allowed. We plan to adopt the provisions of SFAS
No. 133 on January 1, 2001. We do not expect the adoption of
this standard to have a material effect on our results of
operations or financial position.
In March 2000, the Financial Accounting Standards Board
("FASB") issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation: an
Interpretation of APB Opinion No. 25. This interpretation
clarifies the application of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and was effective July 1, 2000.
Our adoption of this interpretation did not have a material
effect on our results of operations or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition in Financial Statements.
This bulletin summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue
recognition in financial statements. In June 2000, the SEC
issued SAB No. 101B, which delayed the implementation date of
SAB No. 101 until the fourth fiscal quarter of fiscal years
beginning after December 15, 1999, although early adoption is
allowed. Our adoption of the provisions of this statement did
not have a material effect on our results of operations or
financial position.
F-9
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<Table>
<Caption>
2000 1999
----------- -----------
Furniture and fixtures $ 14,791 $ 10,688
Computers 391,487 350,059
Equipment 970,581 830,459
Leasehold improvements 48,961 48,961
----------- -----------
1,425,820 1,240,167
Accumulated depreciation (876,132) (754,611)
----------- -----------
Net property and equipment $ 549,688 $ 485,556
=========== ===========
</Table>
(4) OTHER ASSETS
Other assets consist of the following at December 31:
<Table>
<Caption>
2000 1999
----------- -----------
Patents 48,246 48,246
Non-compete agreements 8,116 8,116
----------- -----------
56,362 56,362
Accumulated amortization (32,253) (27,423)
----------- -----------
Net other assets $ 24,109 $ 28,939
=========== ===========
</Table>
(5) STOCK OPTIONS AND WARRANTS
(a) Stock Options
The Company has adopted a Stock Incentive Plan (the Plan)
pursuant to which the Company's Board of Directors may grant
to eligible participants options in the form of Incentive
Stock Options (ISO's) under Section 422 of the Internal
Revenue Code of 1986, as amended, or options which do not
qualify as ISO's (Non-Qualified Stock Options or NQSO's). An
aggregate of 1,500,000 shares of the Company's common stock is
reserved for issuance under the Plan. Generally, stock options
granted under the Plan have five-year terms and become fully
exercisable after three or four years from the date of grant.
Following is a summary of activity in the Company's options for
employees, directors, outside consultants, and technical advisors:
F-10
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
2000 1999
----------------------- -----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE NUMBER PRICE NUMBER
---------- ---------- ---------- ----------
Outstanding at beginning of year $ 1.73 1,618,123 $ 1.81 1,631,820
Granted $ 2.56 605,833 $ 1.81 20,000
Exercised $ 1.39 (162,048) 1.38 (27,030)
Forfeited $ 1.87 (467,333) $ 1.38 (6,667)
---------- ---------- ---------- ----------
Outstanding at end of year $ 2.14 1,594,575 $ 1.82 1.618.123
========== ========== ========== ==========
Exercisable at end of year $ 2.06 1,110,993 $ 1.73 1,119,565
========== ========== ========== ==========
</Table>
The following summarizes certain information regarding outstanding
stock options at December 31, 2000:
<Table>
<Caption>
TOTAL EXERCISABLE
--------------------------------------------------- ----------------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE RANGE NUMBER PRICE LIFE (YEARS) PRICE NUMBER
- ------------------ ---------------- --------------- ---------------- --------------- ---------------
$ 0.78 to 0.84 45,000 $ 0.83 3.25 $ 0.84 35,000
1.38 to 2.06 1,061,075 1.84 2.30 1.75 725,243
2.69 to 3.97 458,500 2.81 4.33 2.78 340,750
4.38 to 4.47 30,000 4.44 4.47 4.38 10,000
---------------- --------------- ------ --------------- ---------------
Total 1,594,575 $ 2.14 2.95 $ 2.06 1,110,993
================ =============== ====== =============== ===============
</Table>
During 2000 and 1999, the Company granted 403,000 and 40,000,
respectively, options outside of the Plan, for the purchase of
the Company's common stock to directors, consultants and a
provider of public relations services for the Company. Such
options are included in the above table.
At December 31, 2000, there were 716,710 additional shares
available for grant under the Plan. The weighted-average fair
value of stock options granted in 2000 and 1999 was $1.68 and
$1.08, respectively, calculated on the date of grant using the
Black Scholes option-pricing model using the following
assumptions for 2000 and 1999, respectively. Expected dividend
yield of 0% and 0%, risk-free interest rate of 5% and 5.25%,
expected life of option of 4 years and 4 years, and expected
volatility of 92% and 75.2%.
The Company applies APB Opinion No. 25 in accounting for its
Plan and, accordingly, no compensation cost has been
recognized for its employee and director stock options in the
consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the date of grant
for its employee stock options under SFAS No. 123, the
Company's net loss would have been increased to the pro forma
amounts indicated below:
F-11
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
2000 1999
----------- -----------
Reported net loss applicable to common
shareholders $(5,036,182) $(2,424,630)
Pro forma net loss applicable to common
shareholders (5,889,284) (2,828,058)
Pro forma net loss per share applicable to
common shareholders - basic and diluted $ (.63) $ (.37)
=========== ===========
</Table>
(b) Warrants
The Company has a Representative's Warrant outstanding that
was granted to an underwriter. The Representative's Warrant is
exercisable through February 2, 2002 to purchase 160,000
shares of common stock at a price of $2.475 per share. The
Representative's Warrant also includes 80,000 Common Stock
Purchase Warrants exercisable through February 2, 2003 to
purchase 80,000 shares of common stock for a price of $2.40
per share.
In conjunction with the Offering completed in February 1998,
and the exchange of common shares for Units in February 1998,
the Company has an additional 1,077,576 warrants outstanding
and exercisable through February 2, 2003 to purchase 1,077,576
shares of common stock for a price of $2.40 per share.
In connection with the private placement completed in July
1999, the Company has an additional 101,250 warrants
outstanding exercisable through February 2, 2003 to purchase
101,250 shares of common stock for a price of $2.40 per share.
In consideration for services received, the Company issued
15,000 warrants to a provider of corporate legal services. The
warrants are exercisable through February 2, 2003 to purchase
15,000 shares of common stock for a price of $2.40 per share.
In 2000 the Company issued 70,000 common stock purchase
warrants to an investment research firm and a public relations
firm. The warrants are exercisable through February 2, 2003 to
purchase one share of common stock for a price of $2.40 per
share.
(c) Employee Stock Purchase Plan
The board of directors and stockholders have approved an
Employee Stock Purchase Plan (ESPP). As of December 31, 2000
and 1999, no shares of common stock have been issued under the
ESPP and there have been no subscriptions of employees to
participate in the ESPP.
(6) ROYALTY AGREEMENTS
The Company is party to several royalty agreements under which it must
make payments to the original holders of patents on components used in
its products. Such royalties, equal to 1 to 2 percent of the net sales
of the products containing patented components, are generally due upon
sale of the products.
One royalty agreement pertains to the Company's worldwide,
non-exclusive license agreement which continues until January 2007.
Under the terms of the royalty agreement, the Company must pay an
annual royalty of 7 percent based on revenue generated from sales of
the Company's products that use the patent, with a minimum annual
F-12
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payment of $35,000. Beginning with the year 1999, the minimum annual
royalty payment of $35,000 is payable as follows: $17,500 sixty days
after the end of each semiannual period ending June 30th and December
31st.
(7) INCOME TAXES
No provision for federal or state income tax expense has been recorded
due to the Company's losses. Total income tax benefit differs from the
amounts computed by applying the statutory tax rate to loss before
income taxes. The reason for this difference is as follows:
<Table>
Expected tax benefit at the
U.S. statutory rate of 34% $(1,712,302) (649,179)
Valuation allowance 1,660,500 587,500
Other 51,802 61,679
----------- -----------
Actual tax benefit 0 0
</Table>
The Company has net operating loss carryforwards and temporary
differences that give rise to the following deferred tax assets and
liabilities:
<Table>
<Caption>
DECEMBER 31,
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 7,155,000 $ 5,375,500
Inventory capitalization 71,000 150,000
Vacation and sick leave payable 30,000 30,000
Allowance for doubtful accounts -- 7,500
Accrued expenses -- 48,000
Depreciation 7,000 --
----------- -----------
7,263,000 5,610,500
----------- -----------
Less valuation allowance (7,234,000) (5,573,500)
----------- -----------
Net deferred tax asset $ 29,000 37,000
----------- -----------
Deferred tax liabilities:
Amortization $ 29,000 31,000
Depreciation -- 6,000
----------- -----------
Net deferred income taxes $ -- --
=========== ===========
</Table>
The net deferred taxes have been fully offset by a valuation allowance
since the Company cannot currently conclude that it is more likely than
not that the benefits will be realized. The net operating loss
carryforward for income tax purposes of approximately $21,000,000
expires beginning in 2006 through 2018. Ownership changes resulting
from the Company's reorganization in 1995 will limit the use of this
net operating loss under applicable Internal Revenue Service
regulations.
(8) COMMITMENTS
The Company is obligated under a non-cancellable operating lease for
building facilities which is subject to 3 percent annual increases and
expires on November 30, 2002. Rent expense for 2000 and 1999 was
$116,111 and $112,939, respectively. Minimum annual lease commitments
for all building facilities at December 31, 2000 are: $105,195 for
2001; and $98,977 for 2002.
F-13
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) EQUITY TRANSACTIONS
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of
Common Stock and 7,500 Common Stock purchase warrants. Each warrant is
exercisable through February 2, 2003 to purchase one share of Common
Stock at a price of $2.40 per share. In connection with this private
placement, the Company granted 15,000 warrants to two placement agents.
The Company granted an additional 15,000 warrants to one of these
placement agents for other investment banking services, which were
unrelated to the private placement. The latter warrants were valued at
$.406625 each. This fair value was calculated using the Back Scholes
option-pricing model. The significant assumptions include an expected
dividend of zero, a risk free interest rate of 6.375% and an expected
volatility of 75.2%. These 30,000 warrants are exercisable through
February 2, 2003 to purchase one share of Common Stock at a price of
$2.40 per share.
In January 2000, the Company terminated its public and investor
relations agreement with RCG Capital Markets Group, Inc. effective
January 1, 2000. In lieu of payment for three additional months of
service retainer fees, the Company granted options for an additional
25,000 shares of Common Stock at an exercise price equal to $3.25, the
closing price of the Company's Common Stock on February 15, 2000. Due
to early termination of this agreement, 50,000 unvested options were
cancelled. The Company recorded a charge of $44,659, the fair value of
the options granted. The fair value was calculated on the grant date
using the Black Scholes option-pricing model. The significant
assumptions include an expected dividend of zero, a risk free interest
rate of 6.375% and an expected volatility of 75.2%.
Additionally, in January 2000, the Company issued a total of 40,000
Common Stock purchase warrants to an investment research firm and a new
public relations firm. The Company was also committed under the terms
of the agreement with the new public relations firm to issue an
additional 30,000 warrants if representation continued beyond six
months. The warrants are exercisable through February 2, 2003 to
purchase one share of Common Stock for a price of $2.40 per share. Of
the additional 30,000 warrants, 15,000 vested April 1, 2000, after
three months of service, and the remaining 15,000 vested on July 1,
2000, after six months of service. The fair value of these
performance-based options has been measured upon vesting and charged to
operations at such time. The Company recorded charges of $124,321, the
fair value of the options granted. The fair value was calculated on the
grant dates using the Black Scholes option-pricing model. The
significant assumptions include an expected divided of zero, a risk
free interest rate of 6.375% and an expected volatility of 75.2%.
In February 2000, the Company executed a secured convertible promissory
note from a member of the Company's Board of Directors, which was
amended in March 2000. The director advanced $250,000 on March 3, 2000;
$250,000 on March 9, 2000; $200,000 on March 28, 2000; and the
remaining $500,000 on April 26, 2000 under the note. The principal
amount of $1,200,000 was paid in full with and converted into 500,000
shares of Common Stock on August 30, 2000. An SB-2 registration
statement registering the shares issuable upon conversion of the
promissory note was declared effective by the SEC on July 20, 2000. In
connection with the beneficial conversion of this note, the Company
recorded a non-cash charge of $1,200,000 in the quarter ended September
30, 2000.
In February 2000, an underwriter in a previous offering exercised a
portion of its Placement Agent's Warrants to purchase a total of
10.9825 units at a price of $25,000 per unit. Each unit consists of
20,000 shares of Common Stock and class A warrants exercisable for
10,000 shares of Common Stock. The underwriter exercised the underlying
class A warrants simultaneously with the exercise of the Placement
Agent's Warrants. Proceeds to the Company were approximately $467,000.
In March 2000, a previous distributor of the Company exercised its
warrant to purchase 100,000 shares of Common Stock at a price of $2.25
per share. Proceeds to the Company were approximately $225,000.
F-14
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 26, 2000 the Company issued 500,000 shares of its Common Stock
for $2,000,000 in a private placement with Paulson Investment Company,
Inc. of Portland, Oregon. A five percent placement fee was paid to Mark
T. Waller of Bridgeworks Capital, a former member of the Company's
Board of Directors, after the close of the transaction.
In April, May and July 2000, the Company issued a total of 130,000
shares of its Common Stock to Pollet & Richardson as payment for legal
services. The Company recorded charges of 551,405, the fair value of
the stock issued. The fair value was calculated on the measurement
dates using the market price of the Company's common stock on those
dates.
(10) SHORT-TERM BORROWINGS
In December 1999, the Company issued a note payable for $250,000 to a
member of its Board of Directors. The note bears interest at six
percent. During 2000, the Company accrued interest expense of
approximately $9,900 for this related party note. The balance as of
February 15, 2001 is payable in monthly installments beginning on that
date.
(11) CAPITAL RESOURCES
Since inception, the Company has incurred operating losses and other
equity charges which have resulted in an accumulated deficit of
$23,369,233 and operations using net cash of $2,959,301 in 2000.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase
sales. Accordingly, the Company is manufacturing and marketing a
laser-based medical device which leverages the Company's existing base
of patented technology. The Company believes the markets for this
product are broader than that of the scientific instrumentation market
and, as such, offer a greater opportunity to significantly increase
sales. In addition, the Company plans to pursue development and
marketing partners for its products, particularly the Lasette. These
partnerships will enhance the Company's ability to rapidly ramp-up its
marketing and distribution strategy, and possibly offset the products'
development costs.
Although the Company has begun manufacturing and marketing its
laser-based medical device and continues to market its scientific
instrument line, it does not anticipate achieving profitable operations
until possibly December 2001. As a result, the Company's working
capital surplus is expected to erode over the next twelve months.
Nevertheless, the Company expects that its present working capital
surplus, increased sales, and the proceeds from anticipated equity
placements will be sufficient to cover its expected operational
deficits through 2001.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America which contemplate continuation of the Company
as a going concern. There is substantial doubt that the Company will be
able to continue as a going concern. The ultimate continuation of the
Company is dependent on attaining additional financing and profitable
operations.
(12) SUBSEQUENT EVENTS
On January 31, 2001 the Company entered into a loan agreement with
certain members of the board of directors. The aggregate amount of the
loan is $1 million. The loan pays interest quarterly at an annual rate
of 10%. Additionally the participating directors received 150,000
warrants to purchase the Company's stock. The warrants are exercisable
into common stock at a price of $1.125, the market price for the
F-15
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's stock when the deal was signed. During 2000 Big Sky Laser
Technologies, Inc. (BSLT) filed a lawsuit alleging that the Company was
in breach of contract. In January 2001 the Company and BSLT reached a
settlement and the lawsuit was dismissed with prejudice. Under the
settlement agreement the Company paid BSLT $350,000 and BSLT will
complete and ship to the Company 100 units of the Professional Lasette
that BSLT had previously been manufacturing for the Company. The
Company had accrued for the anticipated costs of settling the lawsuit
during the quarter ended September 30, 2000.
(13) OPERATING SEGMENTS
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments
segment produces research instruments for sale to universities,
research institutes, and distributors. The laser-based medical devices
segment produces medical device for sale to clinics, individual
consumers and to distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company
evaluates segment performance based on profit or loss from operations
prior to the consideration of unallocated corporate general and
administration costs. The Company does not have intersegment sales or
transfers.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately
because each business utilizes different technologies and marketing
strategies.
<Table>
<Caption>
DECEMBER 31, 2000
-------------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenues from customers 605,877 386,833 -- 992,710
Research and development
grants 14,353 -- -- 14,353
Profit (loss) from operations 2,506 (2,646,140) (1,284,668) (3,928,302)
Segment assets 285,049 1,366,985 1,483,782 3,135,816
</Table>
<Table>
<Caption>
DECEMBER 31, 1999
-------------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- ----------- -----------
Revenues from customers $ 736,616 558,320 -- 1,294,936
Research and development
grants 122,381 -- -- 122,381
Profit (loss) from operations (3,416) (953,230) (978,099) (1,934,745)
Segment assets 397,050 1,095,976 520,640 2,013,666
</Table>
Segment assets for scientific research instruments and laser-based
medical devices represent accounts receivable, inventory and
specifically identifiable manufacturing equipment. The remaining assets
are not allocated between the segments, as there is no practical method
to allocate those assets between the segments.
F-16
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has no foreign operations. However, total export sales for
the years ended December 31, 2000 and 1999 were approximately $406,000
and $644,000, respectively. The sales were primarily to companies in
Asia, Europe, Australia, Brazil and South Africa. Export sales are
attributed to the country where the product is shipped. The Company had
export sales to one customer located in Japan in fiscal 2000 that
accounted for 16% of its consolidated sales. In fiscal 1999 the Company
recorded sales to two related parties that accounted for 25% and 13% of
consolidated sales.
F-17
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- --------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 41,386 $ 958,144
Restricted cash 85,086 85,086
Accounts receivable, net of allowance for doubtful accounts
of $1,841 and $1,841 in 2001 and 2000, respectively 324,536 378,853
Inventory 1,266,622 1,079,086
Other 42,018 60,850
-------------- --------------
Total current assets 1,759,648 2,562,019
Property and equipment, net 426,736 549,688
Other assets, net 20,486 24,109
-------------- --------------
Total assets $ 2,206,870 $ 3,135,816
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 643,625 $ 350,399
Notes payable 233,863 --
Notes payable - related parties 1,128,287 250,000
Payroll related liabilities 155,215 152,860
Royalties and commissions payable 93,447 79,046
Accrued litigation costs -- 400,000
Other current liabilities 96,957 118,010
-------------- --------------
Total current liabilities 2,351,394 1,350,315
============== ==============
Stockholders' equity:
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero shares issued and outstanding at
September 30, 2001 and December 31, 2000 0 0
Common stock, $.004 par value. Authorized 50,000,000 shares,
9,980,644 and 9,965,644 shares issued and outstanding at
September 30, 2001 and December 31, 2000, respectively 39,923 39,863
Additional paid-in-capital 25,174,548 25,114,871
Accumulated deficit (25,358,995) (23,369,233)
Total stockholders' equity (144,524) 1,785,501
-------------- --------------
$ 2,206,870 $ 3,135,816
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-18
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Product sales $ 402,063 $ 272,633
Research and development grants 88,923 10,029
------------------ ------------------
Total revenues 490,986 282,662
------------------ ------------------
Product cost of goods sold (269,236) (724,410)
SBIR direct expenses (88,923) (10,029)
------------------ ------------------
Total cost of goods sold (358,159) (734,439)
------------------ ------------------
Gross profit (loss) 132,827 (451,777)
------------------ ------------------
Operating expenses:
General and administrative 198,478 255,699
Marketing and sales 308,917 386,092
Research and development 99,714 264,677
Total operating expenses 607,109 906,468
------------------ ------------------
Loss from operations (474,282) (1,358,245)
------------------ ------------------
Other income (expense):
Other income 15,284 24,585
Interest expense (40,976) (1,223,467)
------------------ ------------------
Total other expense (25,692) (1,198,882)
------------------ ------------------
Net loss $ (499,974) $ (2,557,127)
================== ==================
Weighted average common shares outstanding, basic and diluted 9,980,644 9,610,079
================== ==================
Net loss per common share, basic and diluted $ (0.05) $ (0.27)
================== ==================
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-19
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Product sales $ 1,007,453 $ 749,055
Research and development grants 133,823 17,323
------------------ ------------------
Total revenues 1,141,276 766,378
------------------ ------------------
Product cost of goods sold (821,049) (1,249,940)
SBIR direct expenses (133,823) (17,323)
------------------ ------------------
Total cost of goods sold (954,872) (1,267,263)
------------------ ------------------
Gross profit (loss) 186,404 (500,885)
------------------ ------------------
Operating expenses:
General and administrative 699,693 1,027,505
Marketing and sales 1,005,180 771,522
Research and development 414,137 578,244
------------------ ------------------
Total operating expenses 2,119,010 2,377,271
------------------ ------------------
------------------ ------------------
Loss from operations (1,932,606) (2,878,156)
------------------ ------------------
Other income (expense):
Other income 21,709 43,951
Interest expense (78,865) (1,254,620)
------------------ ------------------
Total other expense (57,156) (1,210,669)
------------------ ------------------
Net loss (1,989,762) (4,088,825)
------------------
Weighted average common shares
outstanding, basic and diluted 9,980,203 9,057,133
================== ==================
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.20) $ (0.45)
================== ==================
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-20
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,989,762) $ (4,088,825)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 133,475 84,784
Beneficial conversion charge -- 1,200,000
Loss on sale of asset -- 35,000
Options and warrants issued for services 50,830 261,802
Common stock issued for services 8,907 551,405
Decrease (increase) in accounts receivable 54,317 (59,866)
Increase in inventory (187,536) (175,391)
Decrease (increase) in other current assets 18,832 (36,376)
(Decrease) increase in current liabilities (111,071) 117,076
------------------ ------------------
Net cash used in operating activities (2,022,008) (2,110,391)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of asset -- 232,500
Purchase of fixed assets (6,900) (342,224)
------------------ ------------------
Net cash used in investing activities (6,900) (109,724)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 1,735,502
Proceeds from notes payable and
warrants - related parties 1,140,204 --
Repayments of notes payable - related parties (28,054) --
Proceeds from exercise of stock options -- 225,066
Proceeds from exercise of warrants -- 691,756
Proceeds from issuance of secured convertible
note, net of expenses -- 1,212,480
------------------ ------------------
Net cash provided by financing activities 1,112,150 3,864,804
------------------ ------------------
Net (decrease) increase in cash and cash equivalents: (916,758) 1,644,689
Cash and cash equivalents:
Beginning of period 958,144 358,379
------------------ ------------------
End of period $ 41,386 $ 2,003,068
================== ==================
SUPPLEMENTAL INFORMATION:
Interest paid 4,546 --
------------------
Conversion of secured convertible note $ -- $ 1,200,000
================== ==================
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-21
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
1. Presentation of Unaudited Consolidated Financial Statements
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the Company's financial position, results of
operations and cash flows. The results of operations are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
2. Issuance of Equity Securities
In January 2000, the Company terminated its public and investor
relations agreement with RCG Capital Markets Group, Inc. effective January 1,
2000. In lieu of payment for three additional months of service retainer fees,
the Company granted options for an additional 25,000 shares of Common Stock at
an exercise price equal to $3.25, the closing price of the Company's Common
Stock on February 15, 2000. Due to early termination of this agreement, 50,000
unvested options were canceled. The Company recorded a charge of $44,659, the
fair value of the options granted. The fair value was calculated on the grant
date using the Black Scholes option-pricing model. The significant assumptions
include an expected dividend of zero, a risk free interest rate of 6.375% and an
expected volatility of 75.2%.
Additionally, in January 2000, the Company issued a total of 40,000
Common Stock purchase warrants to an investment research firm and a new public
relations firm. The Company was also committed under the terms of the agreement
with the new public relations firm to issue an additional 30,000 warrants if
representation continued beyond six months. The warrants are exercisable through
February 2, 2003 to purchase one share of Common Stock for a price of $2.40 per
share. Of the additional 30,000 warrants, 15,000 vested April 1, 2000, after
three months of service, and the remaining 15,000 vested on July 1, 2000, after
six months of service. The fair value of these performance-based options has
been measured upon vesting and charged to operations at such time. The Company
recorded charges of $124,321, the fair value of the options granted. The fair
value was calculated on the grant dates using the Black Scholes option-pricing
model. The significant assumptions include an expected dividend of zero, a risk
free interest rate of 6.375% and an expected volatility of 75.2%.
In February 2000, an underwriter in a previous offering exercised a
portion of its Placement Agent's Warrants to purchase a total of 10.9825 units
at a price of $25,000 per unit. Each unit consists of 20,000 shares of Common
Stock and class A warrants exercisable for 10,000 shares of Common Stock. The
underwriter exercised the underlying class A warrants simultaneously with the
exercise of the Private Placement Warrants. Proceeds to the Company were
approximately $467,000.
In March 2000, a previous distributor of the Company exercised its
warrant to purchase 100,000 shares of Common Stock at a price of $2.25 per
share. Proceeds to the Company were approximately $225,000.
On May 26, 2000 the Company issued 500,000 shares of its Common Stock
for $2,000,000 in a private placement with Paulson Investment Company of
Portland, Oregon. A five percent placement fee was paid to Mark T. Waller of
BridgeWorks Capital, a former member of the Company's Board of Directors after
the close of the transaction.
In February, May and July 2000, and in January 2001, the Company issued
a total of 145,000 shares of its Common Stock to Pollet & Richardson as payment
for legal services.
F-22
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
3. Notes Payable
In December 1999, the Company issued a note payable for $250,000 to
Humagen Fertility Diagnostics, Inc. whose president, chief executive officer and
majority shareholder is Dr. Debra Bryant, a former member of the Company's board
of directors. The note bears interest at six percent. In January 2001, the
Company used $45,000 of the proceeds of the loans by the Company's directors and
their affiliates described below as payment against the outstanding balance of
$250,000 plus accrued interest. The Company also paid monthly installments of
$10,000 each from February through April 2001. The remaining balance of the note
is now payable upon demand. During the six-month period ended September 30, 2001
the Company expensed $9,196 of accrued interest on this note.
In February 2000, the Company executed a secured convertible promissory
note from a member of the Company's Board of Directors, which was amended in
March 2000. The director advanced $250,000 on March 3, 2000; $250,000 on March
9, 2000; $200,000 on March 28, 2000; and the remaining $500,000 on April 26,
2000 under the note. The principal amount of $1,200,000 was paid in full with
and converted into 500,000 shares of Common Stock on August 30, 2000. An SB-2
registration statement registering the shares issuable upon conversion of the
promissory note was declared effective by the SEC on July 20, 2000. In
connection with the beneficial conversion of this note, the Company recorded a
non-cash charge of $1,200,000 in the quarter ended September 30, 2000.
On January 31, 2001, certain members of the Company's board of
directors and affiliates of members or former members of its board of directors
agreed to make term loan advances to the Company in an aggregate amount of
$1,000,000. Loans in the amount of $100,000, $400,000 and $500,000 under this
$1,000,0000 commitment were made in February 2001, March 2001 and May 2001,
respectively. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and are due on January 31, 2002.
Additionally, the lenders were issued warrants to purchase an aggregate of
150,000 shares of Common Stock. The warrants are exercisable until January 31,
2004, for Common Stock at a price of $1.125 per share, the market price for the
Common Stock when the loan agreement was signed. The warrants are immediately
exercisable. The Company has allocated $32,540 in proceeds from the loan to the
warrants based on the fair value of the warrants. This amount has been recorded
as a discount on the loans and will be amortized over the life of the loans.
During the six-month period ended September 30, 2001 the Company expensed
$56,795 of accrued interest on this loan agreement.
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, a director of the Company. Mr.
Tisch, funded $190,000 after the signing of the convertible note. The remaining
$310,000 may be requested by the Company, at its option, after August 31, 2001
so long as the Company has not completed a round of debt or equity financing
providing gross proceeds to the Company of at least $310,000. Principal and
accrued interest evidenced by the note are convertible into shares of Common
Stock at any time. The conversion price of the convertible note is $0.5994 per
share of Common Stock or 90% of the average closing price per share of the
Common Stock for 15 trading days ending on the trading day immediately prior to
the date of conversion, whichever is less. However, the conversion price cannot
be less than $0.30 per share. The convertible note bears interest at 10% per
annum and is presently secured by the Company's equipment. Unless sooner
converted, the convertible note is due on August 2, 2002. The Company
anticipates that a non-cash beneficial conversion charge will be expensed as
interest as a result of this transaction. The amount of this charge cannot be
reasonably determined at this time. In connection with the issuance of the
convertible note, Mr. Tisch was issued a warrant to purchase up to 37,500 shares
of the Company's Common Stock, of which 14,250 shares have vested. The value
assigned to the warrants that vested during the quarter ended September 30, 2001
of $4,709 was recorded as a discount to the convertible note and will be
amortized over the term of the convertible note. The remaining shares covered by
the warrant will vest in proportion to the amount funded by Mr. Tisch under the
convertible note. The warrant is exercisable until August 2, 2004, for Common
Stock at a price of $.67 per share. During the period ended September 30, 2001
the Company accrued interest expense of $2,499 in connection with this
convertible note.
F-23
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
4. Earnings Per Share
Basic loss per share is computed on the basis of the weighted average
number of shares of Common Stock outstanding during the quarter. Diluted loss
per share, which is computed on the basis of the weighted average number of
shares of Common Stock and all potentially dilutive shares of Common Stock
outstanding during the quarter, is the same as basic loss per share for the
periods ended September 30, 2001 and 2000, as all potentially dilutive
securities were anti-dilutive.
Options to purchase 2,226,075 and 1,660,242 shares of Common Stock were
outstanding at September 30, 2001 and 2000, respectively. Warrants to
purchase 1,691,326 and 1,503,826 shares of Common Stock were
outstanding at September 30, 2001 and 2000, respectively. These were
not included in the computation of diluted loss per share as the
exercise of the options would have been anti-dilutive because of the
net losses incurred in the periods ended September 30, 2001 and 2000.
5. Operating segments
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments segment
produces research instruments for sale to universities, research institutes, and
distributors. The laser-based medical devices segment produces the Lasette for
home and clinical use for sale to clinics, individual consumers and to
distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-KSB. The Company evaluates segment performance based on profit or
loss from operations prior to the consideration of unallocated corporate general
and administration costs. The Company does not have intersegment sales or
transfers. The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business utilizes different technologies and marketing strategies.
F-24
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2001
----------------------------------------------------------
SCIENTIFIC LASER BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- --------- -----
Revenues from customers $ 714,770 292,683 -- 1,007,453
Research and development
grants 133,823 -- -- 133,823
Profit (loss) from operations 80,944 (1,316,856) (696,694) (1,932,606)
</Table>
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------------------------------------------------
SCIENTIFIC LASER BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------- ------------ ----------- ------------
Revenues from customers $ 424,773 324,282 -- 749,055
Research and development
grants 17,323 -- -- 17.323
Profit (loss) from operations 1,679 (1,378,702) (1,501,133) (2,878,156)
</Table>
<Table>
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30, 2001
------------------------------------------------------------
SCIENTIFIC LASER BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------- ------------ ----------- ------------
Revenues from customers $ 320,057 82,006 -- 402,063
Research and development
grants 88,923 -- -- 88,923
Profit (loss) from operations 53,256 (330,135) (197,403) (474,282)
</Table>
F-25
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------------------------------------------
SEPTEMBER 30, 2000
SCIENTIFIC LASER BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------- ------------ ----------- ------------
Revenues from customers $ 207,303 65,330 -- 272,633
Research and development
grants 10,029 -- -- 10,029
Profit (loss) from operations 86,606 (699,015) (745,836) (1,358,245)
</Table>
6. Capital Resources
Since inception, the Company has incurred operating losses and other
equity charges, which have resulted in an accumulated deficit of $25,358,995 as
of September 30, 2001. During the nine-month period ended September 30, 2001 the
Company's operations used net cash of $2,022,008.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Accordingly, the Company is manufacturing and marketing a series of scientific
instruments and laser-based medical devices. In addition, the Company is
pursuing development and marketing partners for its medical products. These
partnerships will enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.
Although the Company has begun manufacturing and marketing its
laser-based medical devices and continues to market its scientific instrument
line, it does not anticipate achieving profitable operations any earlier than
the first quarter of fiscal 2002. The Company expects that its existing current
working capital, the loan made under its $500,000 convertible note issued in
August 2001 and future product sales will be sufficient to cover its expected
operational deficits through December 2001.
F-26
================================================================================
Cell Robotics International, Inc.
2,642,776 Shares of Common Stock
297,576 Redeemable Common Stock Purchase Warrants
-----------------------------------
P R O S P E C T U S
DECEMBER , 2001
-----------------------------------
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7-109-102 of the Colorado Business Corporation Act, or the CBCA,
provides that a company may indemnify a person who was, is or is threatened to
be made a named defendant or respondant in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (a "proceeding"), because the
person is or was a director against liability incurred in the proceeding if the
person conducted himself or herself in good faith; and the person reasonably
believed, in the case of conduct in an official capacity with the company, that
his or her conduct was in the company's best interests, and in all other cases,
that his or her conduct was at least not opposed to the company's best
interests; and in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. A company may not
indemnify a director in connection with a proceeding by or in the right of the
company in which the director was adjudged liable to the company or in
connection with any other proceeding charging that the director derived an
improper personal benefit, whether or not involving action in an official
capacity, in which proceeding the director was adjudged liable on the basis that
he or she derived an improper personal benefit. Unless limited by its articles
of incorporation, Section 7-109-103 of the CBCA states that a company shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director against reasonable expenses (including attorneys' fees)
incurred in connection with the proceeding. Unless otherwise provided in a
company's articles of incorporation, Section 7-109-107 of the CBCA states that
an officer is entitled to mandatory indemnification under Section 7-109-103 of
the CBCA. Section 7-109-107 also states that unless provided in its articles of
incorporation, a company may indemnify an officer, employee, fiduciary or agent
of the company to the same extent as a director.
The company's Articles of Incorporation provide that the company may and shall
indemnify each director, officer and any employee or agent of the company, his
heirs, executors and administrators, against any and all expenses or liability
reasonably incurred by him in connection with any action, suit or proceeding to
which he may be a party by reason of his being or having been a director,
officer, employee or agent of the company to the full extent required or
permitted by the CBCA, as amended.
Article XIII of the company's Amended and Restated Bylaws states that the
company may indemnify against liability incurred in any proceeding an individual
who was, is or is threatened to be made a named defendant or respondant in any
proceeding because he is or was a director if he conducted himself in good
faith; he reasonably believed, in the case of conduct in his official capacity
with the company, that his conduct was in the company's best interests, or in
all other cases, that his conduct was at least not opposed to the company's best
interests; and in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. The company may not indemnify a
director in connection with a proceeding by or in the right of the company in
which the director was adjudged liable to the company or in connection with any
proceeding charging improper personal benefit to the director, whether or not
involving action in his official capacity, in which he was adjudged liable on
the basis that personal benefit was improperly received by him. The company
shall indemnify a person who is or was a director or officer of the company and
who was wholly successful, on the merits or otherwise, in defense of any
proceeding to which he was a party against reasonable expenses incurred by him
in connection with the proceeding.
Under the sections of the CBCA and the company's Bylaws included in this
prospectus, a "director" includes an individual who is or was a director of a
company or an individual who, while a director of a company, is or was serving
at the company's request as a director, an officer, an agent, an associate, an
employee, a fiduciary, a manger, a member, a partner, a promoter or a trustee
of, or to hold any similar position with, another domestic or foreign
corporation or other person or of an employee benefit plan.
The company may purchase and maintain insurance on behalf of an individual who
is or was a director, officer, employee, fiduciary or agent of the company and
who, while a director, officer, employee, fiduciary or agent of the company, is
or was serving at the request of the company as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or domestic company
or of any partnership, joint venture, trust, other enterprise or employee
benefit plan against any liability asserted against or incurred by him in any
such capacity or arising out of his status as such, whether or not the company
would have the power to indemnify him against such liability under
II-1
the provisions of Article XIII of the company's Bylaws. The company currently
maintains a $1,000,000 insurance policy that covers directors and officers'
liability.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, or the Securities Act, may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the offering, all of which are to be borne by the
company, are as follows:
<Table>
Printing Expenses* $ 5,000
Accounting Fees and Expenses* 8,000
Legal Fees and Expenses* 50,000
Registrar and Transfer Agent Fee* 1,000
Miscellaneous* 1,000
--------
Total* $65,000
</Table>
- ------------------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On September 11, 1998, we sold to one investor 200,000 shares of our common
stock, at a price of $1.50 per share, for gross proceeds of $300,000. The
investor qualified as an "accredited investor" within the meaning of Rule 501(a)
of Regulation D under the Securities Act. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act.
In June 1999, we sold an additional 100,000 shares of our common stock, at a
price of $1.50 per share, for gross proceeds of $150,000. The investor was an
"accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act.
In July 1999, we sold to four investors a total of 9.5 units, each unit
consisting of 35,000 shares of our common stock and warrants to purchase 7,500
shares of our common stock. Each unit was sold at a price of $50,000, resulting
in gross proceeds of $475,000. The investors were persons who qualified as
"accredited investors" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and Rule 506 of Regulation D.
In July 1999, in connection with our sale to four investors of 9.5 units, we
issued warrants to purchase 62,500 shares of our common stock to four persons
for services rendered in connection with the offering. The services were valued
at $.40625 per warrant. The persons receiving the warrants were all qualified
investors in terms of their investment sophistication or "accredited investors"
within the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
and Rule 506 of Regulation D.
In August 1999, we issued to one person warrants to purchase 15,000 shares of
our common stock in consideration of services rendered. We valued the services
at $.40625 per warrant. The warrants were issued to one person who qualified as
an "accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and Rule 506 of Regulation D.
II-2
In January 2000, we terminated our public and investor relations agreement with
RCG Capital Markets Group, Inc. effective January 1, 2000. In lieu of payment
for three additional months of service retainer fees, options for an additional
25,000 shares of our common stock at an exercise price equal to the closing
price of our common stock on February 15, 2000 were granted. The options were
issued directly to the investor relations company, which qualified as an
"accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and Rule 506 of Regulation D.
In January 2000, we issued a total of 40,000 common stock purchase warrants to
an investment research firm and our new public relations firm. The warrants are
exercisable through February 2, 2003 to purchase one share of common stock at a
price of $2.40 per share. The warrants were issued to entities which qualify as
"accredited investors" within the meaning of Rule 501(a) of Regulation D under
the Securities Act. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act and Rule 506 of Regulation D.
In February 2000 and subsequently amended in March 2000, we executed a secured
convertible promissory note in favor of a private investor. The principal amount
of $1,200,000 was converted into 500,000 shares of the company's common stock in
August 2000. The note was issued to one person who qualified as an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the Securities
Act. The securities, which were taken for investment and were subject to
appropriate transfer restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
In May 2000, we entered into an agreement for a $2,000,000 private placement
selling 500,000 shares of our common stock to Paulson Investment Company, Inc.
The shares were issued to Paulson, which qualified as an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
and Rule 506 of Regulation D. A 5% placement fee (or $100,000) was paid to
Bridgeworks Capital, Inc., of which Mark Waller, one of our former directors, is
an officer and majority owner.
In April, May and July of 2000 and January 2001, we issued 145,000 shares of our
common stock to Pollet & Richardson pursuant to a shares-for-debt agreement.
Pollet & Richardson served as our legal counsel. The shares were issued directly
to the law firm and to certain of its employees who qualified as "accredited
investors" within the meaning of Rule 501(a) of Regulation D under the
Securities Act. The securities, which were taken for investment and were subject
to appropriate transfer restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided in Section 4(2) of the
Securities Act and Rule 506 of Regulation D.
In February, March and May 2001, certain members of our board of directors and
affiliates of members or former members of our board of directors made loans to
us in the aggregate principal amount of $1,000,000. In connection with the
issuance of the promissory notes, each investor was issued a warrant in
proportion to the principal amount of the promissory note issued to that
investor. The warrants allow the investors to purchase an aggregate of 150,000
shares of our common stock. The warrants may be exercised until January 31,
2004, at a price equal to $1.125 per share of our common stock. The notes and
the warrants were issued to persons who qualified as "accredited investors"
within the meaning of Rule 501(a) of Regulation D under the Securities Act. The
securities, which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Securities Act
in reliance upon the exemption provided in Section 4(2) of the Securities Act
and Rule 506 of Regulation D under the Securities Act.
In August 2001, we signed a convertible note in the face amount of $500,000
payable to Mr. Oton Tisch, one of our directors. Mr. Tisch, funded $190,000
after the signing of the convertible note. The remaining $310,000 may be
requested by us, at our option, so long as we have not completed a round of debt
or equity financing providing gross proceeds to us of at least $310,000.
Principal and accrued interest evidenced by the note are convertible into shares
of our common stock at any time. The conversion price of the convertible note is
$0.5994 per share of our common stock or 90% of the average closing price per
share of our common stock for 15 trading days ending on the trading day
immediately prior to the date of conversion, whichever is less. However, the
conversion price cannot be less
II-3
than $0.30 per share. The convertible note bears interest at 10% per annum and
is presently secured by our equipment. Unless sooner converted, the convertible
note is due on August 2, 2002. In connection with the issuance of the
convertible note, Mr. Tisch was issued a warrant to purchase up to 37,500 shares
of our common stock, of which 14,250 shares have vested. The remaining shares
covered by the warrant will vest in proportion to the amount funded by Mr. Tisch
under the convertible note. The warrant is exercisable until August 2, 2004, for
common stock at a price of $0.67 per share. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
3.2(1) Amended and Restated Bylaws
3.3(1) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
4.2(2) Representative Common Stock Purchase Warrant
4.3(3) Warrant Agreement between the company and Corporate Stock
Transfer, Inc.
4.4(2) Option Agreement between the company and Ronald K. Lohrding, Ph.D.
4.5(3) Specimen Common Stock Purchase Warrant Certificate
5.1(13) Legal Opinion of Neuman & Drennen, LLC
10.1(4) Agreement and Plan of Reorganization among the company,
Intelligent Financial Corporation, MiCel, Inc., Bridgeworks
Investors I, L.L.C. and Ronald K. Lohrding
10.2(5) Employment Agreement between the company and Ronald K. Lohrding
10.3(4) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding,
Ph.D. to MiCel, Inc.
10.4(4) Stock Pooling and Voting Agreement
10.5(1) Royalty Agreement dated September 11, 1995 between the company,
Cell Robotics, Inc. and Mitsui Engineering & Shipbuilding Co.,
Ltd.
10.6(1) Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
10.7(6) Purchase Agreement between the company and Tecnal Products, Inc.
10.8(1) License Agreement between the company and NTEC
10.9(7) Patent License Agreement between American Telephone and Telegraph
Company and Cell Robotics, Inc.
10.10(7) Amendment to Patent License Agreement between Lucent Technologies,
Inc., successor to American Telephone and Telegraph Company, and
Cell Robotics, Inc.
10.11(8) Development and Distribution Agreement dated September 10, 1999
between Hamilton Thorne Research and the company
10.12(8) Amendment to Development and Distribution Agreement dated May 18,
2000 between Hamilton Thorne Research and the company
10.13(9) Loan Agreement dated January 31, 2001, among the company, Oton
Tisch, Ronald K. Lohrding, Ph.D., Raymond Radosevich, Ph.D.,
HaeMedic LLC and Humagen Fertility Diagnostics, Inc.
10.14(9) Form of Warrant dated January 31, 2001 issued to Oton Tisch,
Ronald K. Lohrding, Ph.D., Raymond Radosevich, Ph.D., HaeMedic LLC
and Humagen Fertility Diagnostics, Inc.
10.15(10) Employment Agreement between the company and Paul Johnson
10.16(11) Loan Agreement dated August 2, 2001 between the company and Oton
Tisch
10.17(11) Promissory Note dated August 2, 2001 executed by the company and
payable to Oton Tisch
10.18(11) Warrant dated August 2, 2001 issued to Oton Tisch
10.19(12) Certificate for Common Stock Options dated August 17, 2001 between
the company and Ronald K. Lohrding
10.20(12) Certificate for Common Stock Options dated June 15, 2001 between
the company and Paul Johnson
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
10.21(12) Certificate for Common Stock Options dated October 31, 2001
between the company and Ronald K. Lohrding
10.22(12) Certificate for Common Stock Options dated October 31, 2001
between the company and Paul Johnson
10.23(12) Amended and Restated Promissory Note dated December 13, 2001
executed by the company and payable to the order of Humagen
Fertility Diagnostics Inc.
10.24(12) Modification Agreement dated December 13, 2001 between the company
and Humagen Fertility Diagnostics Inc.
21.1(1) Subsidiaries
23.1(12) Consent of KPMG LLP
23.2(13) Consent of Neuman & Drennen, LLC (included in Exhibit 5.1)
24.1(12) Power of Attorney (included on signature page)
</Table>
- -------------
(1) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2 which was declared effective by the
SEC on February 14, 1996.
(2) Incorporated by reference from the company's Registration Statement on Form
SB-2, as filed with the SEC on November 24, 1997, SEC File No. 333-40895.
(3) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, as filed with the SEC on January
12, 1998, SEC File No. 333-40895.
(4) Incorporated by reference from the company's Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
(5) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000, as filed with the SEC on August
14, 2000.
(6) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1996, as filed with the SEC on May
20, 1996.
(7) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form S-3, as filed with the SEC on November
19, 1998, SEC File No. 333-55951.
(8) Incorporated by reference from the company's Registration Statement on Form
SB-2, as filed with the SEC on July 6, 2000, SEC File No. 333-40920.
(9) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 2001, as filed with the SEC on May
15, 2001.
(10) Incorporated by reference from the company's Post-Effective Amendment to
Registration Statement on Form SB-2, as filed with the SEC on December 29,
2000, SEC File No. 333-40920.
(11) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2001, as filed with the SEC on August
14, 2001.
(12) Filed herewith.
(13) Previously filed.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the company
pursuant to the foregoing provisions, or otherwise, the company has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the company of expenses incurred or paid by a director,
officer or controlling person of the company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities
II-5
being registered, the company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Albuquerque, State of New Mexico, on the 13th of
December, 2001.
CELL ROBOTICS INTERNATIONAL, INC.
By: /s/ Ronald K. Lohrding, Ph.D.
---------------------------------------------------
Ronald K. Lohrding, Ph.D., Chief Executive Officer,
President and Chairman of the Board
POWER OF ATTORNEY
Each person whose signature to this registration statement appears below hereby
appoints Ronald K. Lohrding, Ph.D. as his attorney-in-fact and agent to sign on
his or her behalf, individually and in the capacities stated below, and to sign
and file (1) any or all amendments and post-effective amendments to this
registration statement and (2) any registration statement relating to the same
offering pursuant to Rule 462(b) under the Securities Act, which amendment or
amendments or registration statement may make any changes and additions that the
attorney-in-fact deems necessary or appropriate. In accordance with the
requirements of the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
<Table>
/s/ Ronald K. Lohrding, Ph.D. December 13, 2001
- -------------------------------------------------------
Ronald K. Lohrding, Ph.D., Chairman of the Board,
President and Chief Executive Officer
/s/ Paul Johnson December 13, 2001
- -------------------------------------------------------
Paul Johnson, Chief Financial Officer, Chief Accounting
Officer and Secretary
/s/ Raymond Radosevich, Ph.D. December 13, 2001
- -------------------------------------------------------
Raymond Radosevich, Ph.D., Director
/s/ Steven A. Crees December 13, 2001
- -------------------------------------------------------
Steven A. Crees, Director
/s/ Oton Tisch December 13, 2001
- -------------------------------------------------------
Oton Tisch, Director
</Table>
II-7
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
3.2(1) Amended and Restated Bylaws
3.3(1) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
4.2(2) Representative Common Stock Purchase Warrant
4.3(3) Warrant Agreement between the company and Corporate Stock
Transfer, Inc.
4.4(2) Option Agreement between the company and Ronald K. Lohrding, Ph.D.
4.5(3) Specimen Common Stock Purchase Warrant Certificate
5.1(13) Legal Opinion of Neuman & Drennen, LLC
10.1(4) Agreement and Plan of Reorganization among the company,
Intelligent Financial Corporation, MiCel, Inc., Bridgeworks
Investors I, L.L.C. and Ronald K. Lohrding
10.2(5) Employment Agreement between the company and Ronald K. Lohrding
10.3(4) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding,
Ph.D. to MiCel, Inc.
10.4(4) Stock Pooling and Voting Agreement
10.5(1) Royalty Agreement dated September 11, 1995 between the company,
Cell Robotics, Inc. and Mitsui Engineering & Shipbuilding Co.,
Ltd.
10.6(1) Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
10.7(6) Purchase Agreement between the company and Tecnal Products, Inc.
10.8(1) License Agreement between the company and NTEC
10.9(7) Patent License Agreement between American Telephone and Telegraph
Company and Cell Robotics, Inc.
10.10(7) Amendment to Patent License Agreement between Lucent Technologies,
Inc., successor to American Telephone and Telegraph Company, and
Cell Robotics, Inc.
10.11(8) Development and Distribution Agreement dated September 10, 1999
between Hamilton Thorne Research and the company
10.12(8) Amendment to Development and Distribution Agreement dated May 18,
2000 between Hamilton Thorne Research and the company
10.13(9) Loan Agreement dated January 31, 2001, among the company, Oton
Tisch, Ronald K. Lohrding, Ph.D., Raymond Radosevich, Ph.D.,
HaeMedic LLC and Humagen Fertility Diagnostics, Inc.
10.14(9) Form of Warrant dated January 31, 2001 issued to Oton Tisch,
Ronald K. Lohrding, Ph.D., Raymond Radosevich, Ph.D., HaeMedic LLC
and Humagen Fertility Diagnostics, Inc.
10.15(10) Employment Agreement between the company and Paul Johnson
10.16(11) Loan Agreement dated August 2, 2001 between the company and Oton
Tisch
10.17(11) Promissory Note dated August 2, 2001 executed by the company and
payable to Oton Tisch
10.18(11) Warrant dated August 2, 2001 issued to Oton Tisch
10.19(12) Certificate for Common Stock Options dated August 17, 2001 between
the company and Ronald K. Lohrding
10.20(12) Certificate for Common Stock Options dated June 15, 2001 between
the company and Paul Johnson
10.21(12) Certificate for Common Stock Options dated October 31, 2001
between the company and Ronald K. Lohrding
10.22(12) Certificate for Common Stock Options dated October 31, 2001
between the company and Paul Johnson
10.23(12) Amended and Restated Promissory Note dated December 13, 2001
executed by the company and payable to the order of Humagen
Fertility Diagnostics Inc.
10.24(12) Modification Agreement dated December 13, 2001 between the company
and Humagen Fertility Diagnostics Inc.
21.1(1) Subsidiaries
</Table>
II-8
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
23.1(12) Consent of KPMG LLP
23.2(13) Consent of Neuman & Drennen, LLC (included in Exhibit 5.1)
24.1(12) Power of Attorney (included on signature page)
</Table>
- -------------
(1) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2 which was declared effective by the
SEC on February 14, 1996.
(2) Incorporated by reference from the company's Registration Statement on Form
SB-2, as filed with the SEC on November 24, 1997, SEC File No. 333-40895.
(3) Incorporated by reference from the company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, as filed with the SEC on January
12, 1998, SEC File No. 333-40895.
(4) Incorporated by reference from the company's Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
(5) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000, as filed with the SEC on August
14, 2000.
(6) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1996, as filed with the SEC on May
20, 1996.
(7) Incorporated by reference from the company's Pre-Effective Amendment No. 2
to Registration Statement on Form S-3, as filed with the SEC on November
19, 1998, SEC File No. 333-55951.
(8) Incorporated by reference from the company's Registration Statement on Form
SB-2, as filed with the SEC on July 6, 2000, SEC File No. 333-40920.
(9) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 2001, as filed with the SEC on May
15, 2001.
(10) Incorporated by reference from the company's Post-Effective Amendment to
Registration Statement on Form SB-2, as filed with the SEC on December 29,
2000, SEC File No. 333-40920.
(11) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 2001, as filed with the SEC on August
14, 2001.
(12) Filed herewith.
(13) Previously filed.
II-9