As filed with the Securities and Exchange Commission on April 18, 2003
REGISTRATION NO. 333-86138
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
POST EFFECTIVE AMENDMENT NO. 4 POST EFFECTIVE AMENDMENT NO. 1
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. 333-40920 REGISTRATION NO. 333-86138
CELL ROBOTICS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<Table>
<Caption>
Colorado 5049-05 84-1153295
(State or other jurisdiction of (Primary Standard Industrial Classification Code Number) IRS Employer Identification Number)
incorporation or organization)
</Table>
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Gary Oppedahl, 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)
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.
333-40920 AND POST EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION NO. 333-86138.
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 APRIL 18, 2003
PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
7,853,074 SHARES OF COMMON STOCK
This offering relates to the resale of an aggregate of 7,853,074 shares of our
common stock by persons who are referred to in this prospectus as selling
securityholders. The shares offered by this prospectus include 1,793,596 shares
issuable by us in the future if warrants and options held by the selling
securityholders are exercised.
We will not receive any proceeds from the resale of these shares by the selling
securityholders. However, we could receive proceeds of up to $1,464,777 if and
when all warrants and options held by the selling securityholders are exercised.
The selling securityholders may sell the shares of common stock from time to
time in public or private transactions occurring on or off the OTC Bulletin
Board, in negotiated transactions or otherwise.
Our common stock is quoted on the OTC Bulletin Board under the trading symbol
"CRII." On April 14, 2003, the closing bid price per share of our common stock
was $0.34.
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 APRIL , 2003.
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................................................ 11
FORWARD-LOOKING STATEMENTS........................................ 13
USE OF PROCEEDS................................................... 14
MARKET PRICE INFORMATION AND DIVIDENDS............................ 14
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS .................................................. 15
Results of Operations -- Year Ended
December 31, 2002 Compared to
the Year Ended December 31, 2001 ............................ 15
Results of Operations -- Year Ended
December 31, 2001 Compared to
the Year Ended December 31, 2000............................. 16
Liquidity and Capital Resources................................... 17
BUSINESS ......................................................... 24
Overview ......................................................... 24
Business Strategy................................................. 24
Products ......................................................... 25
Laser-Based Medical Devices -- The
Lasette...................................................... 25
Laser-Based Medical Devices -- The
UltraLight Laser............................................. 30
Scientific Research Instruments -- The
Cell Robotics Workstation ................................... 31
Continuing Interest in the IVF Workstation........................ 32
Competition....................................................... 33
Intellectual Property............................................. 33
Research and Development.......................................... 34
Government Regulation; Product Approval
Process...................................................... 35
GOVERNMENT REGULATION; PRODUCT
APPROVAL PROCESS............................................. 37
Employees......................................................... 39
Facilities........................................................ 39
DIRECTORS, EXECUTIVE OFFICERS
AND KEY EMPLOYEES............................................ 39
EXECUTIVE COMPENSATION............................................ 40
Summary Compensation Table........................................ 40
Employment Agreements............................................. 40
Stock Incentive Plan.............................................. 40
Option Grants..................................................... 41
Option Exercises and Option Values................................ 41
Board Structure................................................... 42
Director Compensation............................................. 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT .................................................. 42
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS......................................... 43
INDEMNIFICATION................................................... 44
DESCRIPTION OF SECURITIES TO BE
REGISTERED................................................... 45
Common Stock...................................................... 45
Preferred Stock................................................... 46
SELLING SECURITYHOLDERS........................................... 47
PLAN OF DISTRIBUTION.............................................. 49
LEGAL MATTERS..................................................... 50
EXPERTS .......................................................... 50
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE ........................................ 51
WHERE YOU CAN FIND MORE
INFORMATION.................................................. 51
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),
Lasette Plus(TM), Infant Lasette(TM), LaserTweezers(R), LasorScissors(TM),
CellSelector(TM), Smart Stage(TM) and UltraLight(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 a laser-based medical device and a scientific
research instrument. 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. We are also developing a proprietary medical laser
for aesthetic or skin rejuvenation applications, which we call the UltraLight
Laser.
Our primary focus is distributing and selling our laser-based medical device,
which we sometimes refer to in this prospectus as the "Lasette." The Lasette is
marketed to the clinical and diabetes care or home use markets, namely diabetic
consumers, hospitals, clinics and doctors' offices. 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 currently market the Lasette
under the "Lasette Plus" name.
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 all 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.
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 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.
The UltraLight Laser is a proprietary medical laser for aesthetic or skin
rejuvenation applications commonly known as laser skin photo rejuvenation. This
product takes advantage of a small compact laser cavity designed to produce an
affordable aesthetic medical laser that can be used by dermatologists, plastic
surgeons, spas and physicians to rejuvenate and revitalize the skin. The
characteristic shallow penetration of the Ebrium:YAG energy into the skin
also allows precise removal of tissue without heating adjacent tissue and also
permits the treatment of delicate skin on and around the neck, eyes and hands,
as well as darker pigmented skin. We received FDA clearance of the UltraLight
Laser in September 2002. We also completed obtaining domestic and international
manufacturing clearances for this product, such as Underwriters Laboratories,
Canadian Standards Association and CE certifications, in the first quarter of
2003. According to the American Academy of Cosmetic Surgery, over 300,000 people
had some type of aesthetic laser procedure in the year 2000. We believe that
demand for this procedure will continue to expand as "baby boomers" age and
desire to retain a more youthful appearance. We had entered into an oral
agreement with Sandstone Medical Technologies, LLC, a private company located in
Homewood, Alabama relating to manufacturing and marketing of the UltraLight
Laser. However, we are currently in a dispute with Sandstone regarding the
relationship. In connection with this dispute, Sandstone, among other things,
has notified us that it does not intend to continue to use us as its
manufacturer. Due to the early stages of the matter, we are unable to predict
its outcome at this time. We shipped the first 10 evaluation units of the
UltraLight Laser in December 2002. The evaluation units were furnished for
marketing research and demonstration purposes. We expect to begin commercial
shipments of the UltraLight Laser in the second quarter of 2003.
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
The offerings by the selling securityholders under this prospectus consist of
the resale by twelve selling securityholders of 7,853,074 shares of our common
stock. Of these shares, the shares offered by this prospectus that are issuable
by us in the future include 1,793,596 shares of our common stock if and when
warrants and options held by the selling securityholders are exercised. The
selling securityholders are identified in this prospectus under the section
entitled "Selling Securityholders." See also "Description of Securities to be
Registered."
If all of the selling securityholders exercise their warrants and options, then
we will receive proceeds of $1,464,777. We will not receive any proceeds from
the resale of our common stock offered by the selling securityholders.
The exercise prices of these warrants and options range between $0.37 and $3.25
per share. On April 14, 2003, the closing bid price of our common stock was
$0.34. For any warrant or option with an exercise price that exceeds the trading
price of our common stock, it is unlikely that the warrant will be exercised
unless the trading price of our common stock is above its exercise price.
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 warrants or options.
2
SUMMARY FINANCIAL DATA
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001
------------ ------------
Statement of Operations:
Total revenues $ 1,584,359 $ 1,599,044
Operating expenses $ 2,608,220 $ 2,758,080
Net loss applicable to common shareholders $ (3,007,246) $ (2,723,844)
Basic and diluted net loss applicable to common $ (0.25) $ (0.27)
shareholders per common share
Shares used in computing basic and diluted loss per 11,826,692 9,984,989
share
</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 MUST OBTAIN ADDITIONAL FINANCING IN ORDER TO CONTINUE OUR OPERATIONS AND
REPAY EXISTING INDEBTEDNESS. 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. As of December 31, 2002,
our net working capital was $454,520 and our total cash and cash equivalents was
$299,083. We expect to experience operating losses and negative cash flow for
the foreseeable future. Therefore, we do not have sufficient cash to sustain
those operating losses without additional financing. We presently need financing
to repay our current indebtedness, including payment of our notes in the
aggregate principal amount of approximately $145,000 of which approximately
$83,000 is currently due. In addition to debt service requirements, we will
require cash to fund our operations. Based on our current operations, we
estimate that our cash needs will be approximately $150,000 each month for the
foreseeable future and will be a total of approximately $1,350,000 from March 31
through December 31, 2003. Our operating requirements depend upon several
factors, including the rate of market acceptance of our products, particularly
the Lasette, our level of expenditures for manufacturing, marketing and selling
our products, costs associated with our staffing and other factors. We have been
funding our operating requirements with proceeds from small private placements
of our equity securities and indebtedness for borrowed money, particularly with
financings with Mr. Oton Tisch, one of our directors, and sales of our products.
However, these sources of capital have only been adequate to meet our short-term
needs. Although presently there are amounts available, subject to the terms of,
and under the September 2002 amended and restated promissory note with Mr.
Tisch, we need to secure one or more additional financings sufficient to fund
our operations on a long-term basis. Therefore, we intend to continue to seek to
raise equity or debt financing. Although we have had discussions with potential
investors, we have not been able to obtain sufficient long-term financing on
acceptable terms as of the date of this prospectus. No assurance can be given
that we will be able to obtain any additional financing on favorable terms, if
at all. If our operating requirements vary materially from those currently
planned, we may require more financing than currently anticipated. 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. If we cannot obtain additional financing in a timely
manner, we will not be able to continue our operations. In addition, the reports
we received from our independent auditors covering our fiscal years ended
December 31, 2002 and 2001 financial statements contain 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.
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 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 $3,007,246 and
$2,723,844 in 2002 and 2001, respectively. Revenues from the sale of our
products were $1,584,359 and $1,461,447 for the years ended December 31, 2002
and 2001, respectively. We expect to experience operating losses and negative
cash flow for the foreseeable future. We do not have sufficient cash to sustain
continuing operating losses without additional financing. Even if we are able to
obtain additional financing to allow us to continue operations and repay
indebtedness, 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. If we do achieve
profitability, we cannot assure you that we will be able to sustain or increase
profitability in the future.
IT IS DIFFICULT TO PREDICT WHETHER RECENTLY INTRODUCED PRODUCTS, OR PRODUCTS
THAT WE MAY DEVELOP IN THE FUTURE, WILL GAIN MARKET ACCEPTANCE OR PROFITABILITY.
We develop and market innovative technologies, in particular the Personal
Lasette, which was introduced in December 1999, and the Cell Robotics
Workstation. We have also developed the UltraLight Laser, which we expect to
begin commercial shipments in the second quarter of 2003. Demand for and
4
market acceptance of these products, as well as future products that we may
develop, are subject to a high level of uncertainty and risk. The risks
associated with the introduction of innovative technologies such as ours include
the following, among others:
o the possibility that the cost of the product may not be
covered by private insurance;
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
more slowly 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.
We cannot assure you that we will be successful in addressing the risks
described above. For example, currently, the cost of the Lasette does not
qualify as a reimbursable expense under most health insurance programs and we
cannot predict when, if ever, the Lasette may be covered by such third-party
payors. Additionally, total revenues from sales of the Personal Lasette since
its introduction through December 31, 2002 were $1,376,619. We are unable to
estimate whether the demand for the Lasette will achieve market acceptance. 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. OUR FAILURE TO EXPAND OUR DISTRIBUTION CHANNELS WOULD
ALSO INHIBIT OUR ABILITY TO GROW. 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 through distributors and directly
to customers. Our Cell Robotics Workstation is currently marketed and sold
through direct sales, dealers, representatives and distributors. Meiwa Shoji
Company Ltd., our exclusive distributor of the Cell Robotics Workstation in
Japan, accounted for 18% and 33% of our product sales in 2002 and 2001,
respectively. However, since January 2002, Meiwa Shoji has no obligation to
further promote or purchase the Cell Robotics Workstation. Its appointment as
distributor can be terminated by either party on 90 days' notice. C.A.
Continental, Inc., our former exclusive United States based distributor of the
Lasette in China, also accounted for 18% of our product sales in 2001. We
terminated our relationship with C.A. Continental in June 2002 as a result of
certain defaults by C.A. Continental under our agreement. For 2002, California
Caltech, Inc., our exclusive United States based distributor of the Lasette in
China since July 2002, accounted for approximately 23% of our product sales. As
of the date of this prospectus, no other single customer or distributor accounts
for more than ten percent of our sales. We plan to rely on a network of
distributors for sales of the UltraLight Laser; however, to date we have not
entered into distribution relationships. Although we intend to pursue marketing
and distribution relationships for our products, particularly the Lasette for
clinical use and the UltraLight Laser, 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 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
5
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.
WE HAVE AN ORAL AGREEMENT WITH SANDSTONE MEDICAL RELATING TO MANUFACTURING AND
MARKETING THE ULTRALIGHT LASER, WHICH IS CURRENTLY IN DISPUTE. AS A RESULT OF
THE ORAL NATURE OF THE AGREEMENT, WE MAY BE UNABLE TO ENFORCE THE AGREEMENT ON
TERMS THAT WE BELIEVED TO EXIST, WHICH COULD ADVERSELY AFFECT THE MANUFACTURE,
MARKETING AND SALE OF THE ULTRALIGHT LASER. IF WE BECOME INVOLVED IN COSTLY AND
TIME-CONSUMING LITIGATION, THEN IT MAY SUBSTANTIALLY INCREASE OUR COSTS AND
ADVERSELY AFFECT OUR BUSINESS. We have an oral agreement with Sandstone Medical
Technologies, LLC relating to manufacturing and marketing the UltraLight Laser.
However, we are currently in a dispute with Sandstone Medical Technologies, LLC
regarding the relationship. In connection with this dispute, Sandstone has
notified us that it does not intend to continue to use us as its manufacturer.
Additionally, Sandstone cancelled a purchase order for the UltraLight Laser in
the amount $1.2 million. As a result of the oral nature of the agreement, we may
be unable to enforce the agreement on terms that we believed to exist. We
believe that we have complied with the terms of the agreement and intend to
pursue our rights to the UltraLight Laser. We are examining and evaluating our
options and potential courses of action regarding this newly developed product.
However, due to the early stages of the matter, we are unable to predict its
outcome of at this time. If we become involved in costly and time-consuming
litigation, management attention consumed by and legal costs associated with any
litigation could have a negative effect on our operating results. Additionally,
an unfavorable outcome in any litigation may adversely affect our ability to
manufacture, market and sell the UltraLight Laser.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO HIRE AND RETAIN KEY
PERSONNEL AND OTHER ADVISORS. 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. Our key employees and
advisors include, among others, Gary Oppedahl, Paul Johnson and Oton Tisch. Mr.
Oppedahl is our Chief Executive Officer, President and a director and Mr.
Johnson is our Chief Operating Officer, Chief Financial Officer, Secretary and a
director. Mr. Tisch is the Chairman of the Board and assists the company
concerning our international marketing and sales efforts through a consulting
relationship. 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 advisors, or are unable to
hire and retain additional qualified personnel in the future, our business,
financial condition and operating results could be adversely affected. Our key
employees, including Mr. Oppedahl and Mr. Johnson, may voluntarily terminate
their employment with us at any time.
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. We also expect to begin commercial shipments of the
UltraLight Laser in the second quarter of 2003 now that certain manufacturing
clearances have been obtained. 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.
CLAIMS BY OTHERS THAT OUR PRODUCTS INFRINGE THEIR PATENTS OR OTHER INTELLECTUAL
PROPERTY RIGHTS COULD PREVENT US FROM MANUFACTURING AND SELLING SOME OF OUR
PRODUCTS OR REQUIRE US TO INCUR SUBSTANTIAL COSTS FROM LITIGATION OR DEVELOPMENT
OF NON-INFRINGING TECHNOLOGY. Our industry has been characterized by frequent
litigation regarding patent and other intellectual property rights. Patent
applications are maintained in secrecy in the United States until such patents
are issued and are maintained in secrecy for a period of time outside the United
States. Accordingly, we can conduct only limited searches to determine whether
our technology infringes any patents or patent applications of others. Any
claims of patent infringement would be time-consuming, and could:
o result in costly litigation;
6
o divert our technical and management personnel;
o cause product shipment delays;
o require us to develop non-infringing technology; or
o require us to enter into royalty or licensing agreements.
An adverse ruling in any infringement proceeding could subject us to significant
liability or require us to seek licenses or similar arrangements from third
parties. Although patent and intellectual property disputes in the medical and
research device industry have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
often require the payment of ongoing royalties, which could hurt our gross
margins. In addition, we cannot assure you that the necessary licenses would be
available to us on satisfactory terms, or that we could redesign our products or
processes to avoid infringement, if necessary. Accordingly, an adverse
determination in a judicial or administrative proceeding, or the failure to
obtain necessary licenses, could prevent us from manufacturing and selling some
of our products, which could materially adversely affect our business, results
of operations and financial condition.
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 proprietary information. Misappropriations of our intellectual property
could adversely affect our business, results of operations and financial
condition.
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.
7
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 are in the process of developing two new products, the UltraLight Laser and
the Infant Lasette. Both products require FDA clearance. Further, we will be
required to obtain certain regulatory clearances for the UltraLight Laser,
including safety testing for electrical emissions and power regulation testing
as required by Underwriters Laboratories and Canadian Standards Association and
various regulatory body notifications, such as with the International Standards
Organization, or ISO, and in connection with the European Community's CE
certification. We received FDA clearance for the UltraLight Laser in September
2002 and we obtained the other required regulatory clearances in March 2003. On
September 30, 2002, we commenced our clinical trials of the Infant Lasette.
After completing the requisite tests in the clinical trials, we will submit the
Infant Lasette for FDA clearance. We anticipate that we will be able to make our
submission to the FDA in the second quarter of 2003. We further anticipate that
the FDA clearance will take at least three months following this submission.
However, there can be no assurances that we will obtain all necessary clearances
in a timely manner, if at all. Our failure to obtain the necessary regulatory
clearances will prevent us from marketing and selling the UltraLight Laser and
the Infant Lasette.
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 our products and our ongoing research
and development activities. While the Lasette and the UltraLight Laser have
received all necessary FDA clearances and the Lasette has received the European
Community's CE Mark, their 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
the UltraLight Laser, which, among other things, will review our compliance with
a variety of regulatory requirements. However, we have not been notified as to
when an audit may be conducted. In order to manufacture and sell the Lasette
under the CE Mark, we must also pass annual ISO maintenance audits, as well as
comprehensive ISO audits every three years. We are currently ISO compliant. Our
last ISO audit was completed in January 2003. OSHA also regulates our
manufacturing activities. The UltraLight Laser and other products also require
manufacturing clearances, such as Underwriters Laboratories and CE
certifications. While we have historically been in compliance with all FDA, CE
Mark, ISO, OSHA and other requirements, there can be no assurance that we will
continue to do so in the future. Our failure to meet FDA, CE Mark, ISO, OSHA or
other requirements could bar us from further marketing the Lasette and the
UltraLight Laser in the United States and in other markets, which would have a
material adverse affect on our business. Additionally, if the FDA finds through
an FDA audit or otherwise that we have failed to comply with the FDA regulatory
requirements, the agency could institute a wide variety of actions, including a
public warning letter or other stronger remedies, including monetary fines,
injunctions, recall or seizure of our products, operating restrictions, shutdown
of production, withdrawal of previously granted approvals or criminal
prosecution.
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 and the UltraLight
Laser 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. 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 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 additional 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
8
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. CURRENTLY, THE COST OF THE LASETTE IS NOT COVERED BY MOST HEALTH
INSURANCE PROGRAMS, INCLUDING MEDICARE AND MEDICAID. OUR GROWTH AND BUSINESS
STRATEGY WILL BE ADVERSELY AFFECTED IF WE FAIL TO OBTAIN ADEQUATE THIRD PARTY
REIMBURSEMENT FOR THE LASETTE FOR HOME USE. Successful commercialization of the
Lasette will depend in large part on whether patients who purchase the Lasette
will be reimbursed for the expense by third-party payors. Third party payors
include private insurance plans and Medicare and other federal healthcare
programs. The United States government and third-party payors 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 payors, such as government and private insurance
plans. Third-party payors 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. In January 2002, the Center for Medicare
and Medicaid Services, or CMS, published the allowable for our Lasette.
Generally, Medicare reimburses 80% of the published allowable. In March 2002, we
were notified by CMS that they have not established a medical criteria for our
Lasette and as a result CMS will only reimburse approximately $17 of the price
of the Lasette, a minimal portion of its cost. Whether we can obtain a higher
reimbursement rate for the Lasette will depend on the establishment of a
favorable medical policy for the Lasette, which is largely outside our control.
Although we are currently working with CMS to provide input into CMS's
establishment of an appropriate medical policy so that a higher reimbursement
rate may be set, we can provide no assurance as to whether a medical policy
favorable to us will be established by CMS, when, if ever, an adequate
reimbursement rate for the Lasette will be set or the eventual amount of
reimbursement. Our failure to obtain adequate third-party coverage of the
Lasette, including sufficient Medicare coverage, will limit our ability to
successfully target the Lasette for home use to those persons that cannot
purchase the Lasette without such assistance, which would adversely affect the
growth of our business.
WE DEPEND ON A SOLE SUPPLIER FOR THE CRYSTALS USED IN THE LASETTE'S AND THE
ULTRALIGHT LASER'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 and the UltraLight
Laser is made from crystals that are produced and processed from New
Technologies Engineering Center, a single supplier in Russia. 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 of 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,
2002, the price we have negotiated for the purchase of rods from our Russian
supplier has been approximately $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
9
research institutions and others. Many of these companies and institutions are
developing products that are being used or 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 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.
Some competitors of the Lasette 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 our 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, 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, competitors
of the Lasette 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 that compete
against the Lasette or UltraLight Laser 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 the UltraLight Laser
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. Additionally, we can make no assurances that customers will
be willing to pay more for the Lasette 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 $0.18 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 sold or 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 24% and 47% of our products sales in the
years ending 2002 and 2001, respectively. 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 and the
UltraLight Laser 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 unlawful counterfeiting of our products;
10
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.
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.
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 also currently maintain $10,000,000 of
umbrella insurance. 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 54% and 68% of our total product sales in the years ending
December 31, 2002 and 2001, 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 YOUR 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 second quarter of 2003, 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.
11
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, the price paid for these securities and the amount of securities traded
are volatile. For example, between January 2001 and December 2002, the daily
trading volume in our common stock has ranged from approximately 200 to 977,600
shares. During the three month period ending March 31, 2003, the average daily
trading volume of our common stock was approximately 68,000 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.
THOSE SHARES OF OUR COMMON STOCK THAT CANNOT CURRENTLY BE TRADED WITHOUT
RESTRICTION MAY BECOME ELIGIBLE FOR TRADING IN THE FUTURE. As of April 16, 2003,
19,401,629 shares of our common stock were issued and outstanding. Of this
amount, approximately 7,300,000 shares are "restricted securities" and are not
currently traded. However, these restricted securities will be available for
trading in the future, so long as all the requirements of Rule 144, promulgated
under the Securities Act of 1933, are met. No prediction can be made as to the
effect, if any, that the availability of these shares for sale, or the sale of
these shares, will have on the market prices for our common stock prevailing
from time-to-time. If the number of shares offered for sale is greater than the
number of shares sought to be purchased, then the price of our common stock
would decline. The market price of our securities could be adversely affected by
future sales of these securities.
THERE ARE A LARGE NUMBER OF SHARES OF OUR COMMON STOCK UNDERLYING OUR WARRANTS
AND OPTIONS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES
MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK. The issuance of shares of
common stock upon the exercise of our outstanding options and warrants will
result in dilution to the interests of our shareholders and you as an investor
in the offerings, and may have an adverse effect on the trading price and market
for our common stock. As of April 14, 2003, we had options and warrants
outstanding which may be exercised to acquire 5,112,181 shares of our common
stock at various times. The future sale of these shares may adversely affect the
market price of our common stock. Shares issued upon exercise of our outstanding
warrants and options will also cause immediate and substantial dilution to our
existing shareholders. In addition, as long as these warrants and options remain
outstanding, our ability to obtain additional capital through the sale of our
securities might be adversely affected.
12
OUR OUTSTANDING DEBT COULD BE CONVERTED TO EQUITY THAT COULD BE AVAILABLE FOR
FUTURE SALE. ADDITIONALLY, WE COULD ISSUE EQUITY SECURITIES IN PAYMENT OF FEES
OWED UNDER OUR CONSULTING ARRANGEMENTS. THE ISSUANCE OF THESE SHARES WILL RESULT
IN FURTHER DILUTION TO OUR SHAREHOLDERS. At December 31, 2002, the aggregate
principal amount of our borrowed indebtedness is approximately $145,000, of
which approximately $83,000 is currently due. As of December 31, 2002, we owed
Mr. Oton Tisch, our Chairman of the Board, approximately $60,000 of principal
under an outstanding note. Additionally, Mr. Tisch may advance us additional
sums in the future under our September 17, 2002 note, of which an aggregate
principal amount of $1,422,700 presently remains available. We have in the past
and in the future may issue equity securities in payment of consulting fees,
including our consulting arrangement with Obras Electromecanicas TKV. Mr. Tisch
is the sole owner and Chief Executive Officer and President of TKV. Mr. Tisch
beneficially owned 5,968,026 shares, or 30.6%, of our common stock as of April
14, 2003. In the past, Mr. Tisch has agreed to convert a substantial portion of
our debt to equity and accept equity securities in payment for consulting
services. While the terms of Mr. Tisch's current notes and consulting agreement
do not expressly permit the conversion of debt to equity or the payment of
equity securities for consulting fees, the company and Mr. Tisch may later agree
to issue additional equity securities in order to repay amounts owed. We cannot
estimate the number of shares of our common stock that may be issued if all or
part of any obligations owed to our debt holders or consultants are repaid
through the issuance of equity. However, depending on the amount of the
outstanding obligations and the related conversion rate, shares issued in
repayment of these obligations could cause immediate and substantial dilution to
our existing shareholders. In addition, since Mr. Tisch is not subject to any
limitations pertaining to his ownership, the number of shares could be
significant and further increase Mr. Tisch's ownership of the company. The
future sale of these shares may also adversely affect the market price of our
common stock.
ONE OF OUR DIRECTORS IS A RESIDENT OF VENEZUELA, AND SHAREHOLDERS MAY HAVE
DIFFICULTY ENFORCING A JUDGMENT AGAINST SUCH INDIVIDUAL OUTSIDE OF VENEZUELA.
One of our directors and the company's largest shareholder, Mr. Oton Tisch, is a
resident of Venezuela. It may not be possible for you to effect service of
process upon Mr. Tisch outside of Venezuela, or to enforce judgments obtained
against him in courts outside of Venezuela.
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.
13
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
If all of the selling securityholders exercise their warrants and options in
full, then we will receive additional gross proceeds of $1,464,777. We will not
receive any proceeds from the resale of our common stock offered by the selling
securityholders.
The exercise prices of these warrants range between $0.37 and $3.25 per share.
On April 14, 2003, the closing bid price of our common stock was $0.34. For any
warrant with an exercise price that exceeds the trading price of our common
stock, it is unlikely that the warrant or option will be exercised unless the
trading price of our common stock is above its exercise price. 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
warrants or options.
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 may receive
from the exercise of the warrants and options will be used to repay debt.
MARKET PRICE INFORMATION AND DIVIDENDS
Our common stock is traded over-the-counter and quoted on the OTC Bulletin Board
on a limited and sporadic basis under the symbol "CRII". The reported high and
low bid prices for our common stock and the low bid and high ask prices for our
common stock, as reported by the OTC Bulletin Board, are shown below for our two
prior fiscal years through April 14, 2003. 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
---------- ----------
2001
First Quarter $ 0.453 $ 1.313
Second Quarter $ 0.281 $ 0.830
Third Quarter $ 0.210 $ 0.760
Fourth Quarter $ 0.190 $ 0.500
</Table>
14
<Table>
<Caption>
BID
-----------------------
LOW HIGH
---------- ----------
2002
First Quarter $ 0.230 $ 1.440
Second Quarter $ 0.470 $ 1.350
Third Quarter $ 0.360 $ 1.240
Fourth Quarter $ 0.370 $ 0.710
</Table>
<Table>
<Caption>
BID
-----------------------
LOW HIGH
---------- ----------
2003
First Quarter $ 0.17 $ 0.50
Through April 14, 2003 $ 0.23 $ 0.36
</Table>
As of April 14, 2003, there were approximately 198 holders of record of our
common stock.
DIVIDENDS
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2001
Sales of products for the year ended December 31, 2002 increased $122,912, or
8%, to $1,584,359 from $1,461,447 for the year ended December 31, 2001. The
increase can primarily be attributed to the December 2002 sales of UltraLight
Laser evaluation units to our North-American distributor of the UltraLight Laser
product. The evaluation units were sold to our distributor to assist in their
marketing research and demonstration efforts.
Research and development grant revenue was $137,597 for the year ended December
31, 2001 compared to no revenues during 2002. We generated no revenues from
research and development grants during 2002 because our final research grant
expired in September 2001.
Our gross margin on product sales increased to 15% for the year ended December
31, 2002 from 7% for the year ended December 31, 2001. The primary reason for
the increase was that during the fourth quarter of 2001 we recorded charges to
cost of goods sold of approximately $173,000 to write-off the value of inventory
associated with the Professional Lasette, a discontinued product. There were no
similar charges to cost of goods sold in 2002.
General and administrative operating expenses increased $217,683 from $936,000
for the year ended December 31, 2001 to $1,153,683 for the year ended December
31, 2002. The increase was primarily due to non-cash charges of approximately
$240,000 associated with stock and stock options provided to consultants for
general business advisory services. Marketing and sales operating expenses
decreased $266,025 from $1,211,726 during the year ended December 31, 2001 to
$945,701 during 2002. The decrease is primarily due to the elimination of four
positions in September 2001. No expenses associated with those positions were
incurred in 2002. Research and development operating expenses decreased $101,518
from $610,354 for the year ended December 31, 2001 to $508,836 for the year
ended December 31, 2002. The reduction in research and development operating
expenses was accomplished by our purchasing fewer engineering components and
parts in 2002 when compared with 2001.
Interest income decreased during the year ended December 31, 2002 to $17 from
$11,979 during the year ended December 31, 2001. The decrease was due to our
having little excess cash balances available to invest in 2002.
15
Interest expense increased during the year ended December 31, 2002 compared to
the period year because of increased borrowings in 2002 over those in 2001. Most
of the increased borrowing is attributable to advances made under the August 2,
2001 convertible note and advances made under the March 29, 2002 promissory
note. Both notes were payable to Mr. Oton Tisch, one of our directors. The
August 2, 2001 note was converted into shares of our common stock on July 29,
2002. See "Liquidity and Capital Resources" for further discussion of the March
29, 2002 note.
Loss on extinguishment of debt totaled $546,677 for the year ended December 31,
2002. There were no similar charges in 2001. Of this loss, $494,691 represents
non-cash charges relating to the repayment of indebtedness in connection with
our November 12, 2002 stock purchase agreement with Oton Tisch. Pursuant to that
stock purchase agreement, we issued to Mr. Tisch 2,309,255 shares of our common
stock and a warrant to purchase 771,551 shares of our common stock in repayment
in full of aggregate principal indebtedness of $1,237,300, plus accrued
interest. The remaining $51,986 of this loss represents non-cash charges
relating to the payment of consulting services provided by Obras
Electromecanicas TKV in connection with our December 12, 2002 stock purchase
agreement. Pursuant to that stock purchase agreement, we issued to Mr. Tisch
371,711 shares of our common stock and a warrant to purchase 92,928 shares of
our common stock in repayment in full of $167,270 of consulting services. Mr.
Tisch is the sole owner and Chief Executive Officer and President of TKV.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2000
Product sales for the year ended December 31, 2001 increased $468,737, or 47%,
to $1,461,447 from $992,710 in the comparable period of 2000. The increase in
sales resulted mainly from our scientific research instruments products. The
sales of scientific instrumentation products increased $381,121 during the year
ended December 31, 2001 to $986,998 from $605,877 when compared to the same
period of 2000. The increase was due to our placing a greater emphasis on our
scientific instrumentation products in 2001 than we did in 2000. Additionally,
at the end of September 2001 we released the LS300 Pro Workstation, which
contributed approximately $288,000 to the increase. Sales of our laser-based
medical products increased $87,616 to $474,449 for the year ended December 31,
2001 from $386,833 for the year ended December 31, 2000. Revenue generated from
research and development grants increased $123,244 to $137,597 during the year
ended December 31, 2001 from $14,353 for the year ended December 31, 2000. This
increase is attributed to more work being completed on a specific grant by our
personnel in 2001 compared to the work completed in 2000.
Our gross margin from sales of products increased from a negative margin of 53%
during the year ended December 31, 2000 to a positive margin of 7% for the year
ended December 31, 2001. The negative gross margin experienced in 2000 was
primarily due to three factors. First, and most importantly, the negative gross
margin is attributed to an accrual of $400,000 that was made in anticipation of
the settlement of a lawsuit with Big Sky Laser Technologies, Inc., or BSLT. This
lawsuit was settled in the first quarter of 2001. Second, we accrued
approximately $64,000 in cost of sales during 2000 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. Third, a lack of efficiencies in the production of our laser-based
medical products also contributed to the negative gross margin in 2000. These
inefficiencies were primarily due to low volume. As sales increased during 2001
our gross margin returned to a positive level. During 2001 we recorded charges
to cost of goods sold of approximately $173,000 to write-off the value of
inventory associated with the Professional Lasette, a discontinued product. This
charge reduced our gross margin for the year ended December 31, 2001 to 7%.
Operating expenses decreased $646,086, or 19%, from $3,404,166 during 2000 to
$2,758,080 during 2001. The decrease occurred in nearly all areas of our
operations. Because our cash resources were limited, we implemented measures to
reduce expenditures during the year ended December 31, 2001. The decrease in
general and administrative expenses resulted primarily from decreases in fees
paid for legal services. Legal fees decreased by approximately $321,000 for the
year ended December 31, 2001 when compared with the same period in 2000.
Marketing and sales expenses decreased slightly primarily because of the use of
less advertising as one of the steps we implemented to reduce expenditures
during 2001 in response to our limited cash resources. The decrease in research
and development expenses occurred because we decided to devote fewer resources
toward research and development during the year ended December 31, 2001
considering our decreasing available cash balance.
16
Interest income decreased during the year ended December 31, 2001 from the
amount in the same period of 2000 primarily due to our decreasing cash balance
during 2001. In the first half of 2000 we completed two large private placements
that provided us aggregate gross proceeds of approximately $3.2 million. The
interest income earned in 2000 resulted from investments of the cash proceeds
from these placements. As the cash balance decreased during 2000 and 2001 we
earned less in interest income. Interest expense decreased in 2001 from 2000
because of the beneficial conversion charge of $1.2 million to interest expense
associated with the conversion of our $1.2 million convertible note in August
2000 into 500,000 shares of common stock. A similar charge was not incurred in
2001. Excluding the $1.2 million charge in 2000, our interest expense increased
by $67,036 in 2001 compared to interest expense in 2000. The reason for the
increase in 2001 was because of interest expense associated with higher
outstanding balances of borrowed indebtedness in 2001 verses 2000. These higher
debt balances were primarily attributed to the $1 million board loan signed in
January 2001 and the $500,000 convertible note signed in August 2001. Other
income, net decreased in 2001 when compared with the amount in 2000. During 2000
we recorded a one-time benefit from the sale of our IVF workstation technology.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the years ended December 31, 2002 and 2001 was
$1,998,860 and $2,389,669, respectively. The primary reason for the decrease in
cash used in operations during the year ended December 31, 2002, as compared to
the same period in the prior year, was that we had fewer cash resources. We have
also taken steps to limit or reduce our personnel and other costs through
personnel reductions, limitation of travel expenditures and other methods to
achieve other administrative cost reductions.
Net cash provided by financing activities for the year ended December 31, 2002
and 2001 was $2,303,777 and $1,358,989, respectively. The increase in net cash
provided by financing activities resulted primarily from loan proceeds received
from related parties and from the proceeds received from the issuance of common
stock either in private placement transactions or as a result of stock options
being exercised.
Total assets increased to $1,982,620 at December 31, 2002 from $1,659,738 at
December 31, 2001, an increase of $322,882, or 19%. This change in total assets
is primarily attributed to the following:
o Our current assets increased $393,704, or 31%, as of December
31, 2002 compared to our current assets as of December 31,
2001. This increase was primarily the result of an increase in
receivables and cash balances, as described below.
o Cash increased $293,450, from $5,633 at December 31, 2001 to
$299,083 at December 31, 2002. The increase in cash was
primarily attributed to cash received in connection with
private placement transactions completed in December 2002..
o Accounts receivable increased $213,154 from $287,482 at
December 31, 2001 to $500,636 at December 31, 2002 and other
receivables increased to $260,000 at December 31, 2002 from
zero at December 31, 2001. The increase in accounts receivable
was primarily attributed to increased sales in the fourth
quarter of 2002 when compared with the fourth quarter of 2001.
The other receivables balance represented amounts due by an
investor in connection with a December 2002 private placement
transaction. The balance of the other receivables was
collected in January and February of 2003.
o Inventory decreased by $372,137 or 41%, to $539,284 at
December 31, 2002 from $911,421 at December 31, 2001. The
decrease was primarily due to the lack of financial resources
to purchase components for the manufacture of our products.
Our current ratio at December 31, 2002 was 1.38 compared to 0.5 at December 31,
2001. Our total current liabilities decreased $1,296,686 from $2,489,415 at
December 31, 2001 to $1,192,729 at December 31, 2002. Our working capital
increased to $454,520 at December 31, 2002 from a deficit of $1,235,870 at
December 31, 2001. The increase in working capital was primarily due to cash
received in connection with private placement transactions completed in December
2002, as well as reduction of our notes payable to related parties that were
classified as current liabilities as of December 31, 2001. Our notes payable to
related parties decreased $1,428,587 from
17
$1,608,989 at December 31, 2001 to $180,402 at December 31, 2002. The decrease
is mainly attributed to the repayment of $900,000 of principal, plus accrued
interest, owed to Mr. Oton Tisch under our January 2001 loan agreement in
connection with our November 12, 2002 stock purchase agreement with Mr. Tisch.
Additionally, on July 29, 2002, we converted the outstanding principal and
interest of the August 2, 2001 note in favor Mr. Oton Tisch by issuing to Mr.
Tisch 684,685 shares of our common stock. The amount converted under our August
2, 2001 note was $380,000, plus accrued interest.
In October 2001, we were notified by the Center for Medicare and Medicaid
Services, or CMS, that a Healthcare Common Procedure Coding System, or HCPCS,
code had been assigned to our Lasette. In January 2002, CMS published the
allowable for our Lasette that was associated with the newly issued HCPCS code.
Generally, Medicare reimburses 80% of the published allowable. In March 2002, we
were notified by CMS that they have not established a medical criteria for our
Lasette and as a result CMS will only reimburse approximately $17 for the price
of the Lasette, a minimal portion of its cost. Whether we can obtain a higher
reimbursement rate for the Lasette will depend on the establishment of a
favorable medical policy for the Lasette, which is largely outside our control.
We are currently working with CMS to provide input into CMS's establishment of
an appropriate medical policy so that a higher reimbursement rate may be set.
CMS is now conducting a review of the medical reimbursement of the Lasette.
Therefore, we believe that progress is taking place in our continuing efforts to
achieve a timely resolution of this matter. However, we can provide no assurance
as to whether a medical policy favorable to us will be established by CMS, or
when, if ever, an adequate reimbursement rate for the Lasette will be set or the
eventual amount of reimbursement.
Our ability to improve cash flow and ultimately achieve profitability will
depend on our ability to significantly increase sales. Accordingly, we are
manufacturing and marketing the Lasette, a sophisticated laser-based medical
device, that leverages our existing base of technology. We also expect to begin
commercial shipments of the UltraLight Laser in the second quarter of 2003. We
believe the markets for these products are broader than that of the scientific
research instruments market and, as such, offer a greater opportunity to
significantly increased sales. In addition, we are pursuing development and
marketing partners for some of our new medical products. If obtained, we believe
these partnerships may enhance our ability to rapidly ramp-up our marketing and
distribution strategy, and possibly offset the products' development costs.
Although we have begun manufacturing and marketing the Lasette, we expect to
begin commercial shipments of the UltraLight Laser in 2003 and we continue to
market our scientific research instrument line, we do not anticipate achieving
profitable operations until after 2003. As a result, as described in more detail
below, we expect that additional operating funds will be required under our
September 17, 2002 amended and restated promissory note or under alternative
financing sources and that our accumulated deficit will increase in the
foreseeable future.
COMMITMENTS - As of December 31, 2002, our outstanding indebtedness for borrowed
money included the following:
o In January 2001, certain members of our board of directors and
affiliates of members or former members of our board of
directors agreed to make term loan advances to us in an
aggregate amount of $1,000,000 pursuant to the terms of a loan
agreement with us. The loans are evidenced by unsecured
promissory notes, bear interest at the rate of ten percent per
annum and were due on January 31, 2002. On November 13, 2002
pursuant to a stock purchase agreement between the company and
Mr. Oton Tisch dated November 12, 2002, we issued 2,309,255
shares of our common stock to Mr. Tisch at a price per share
of $0.45 in repayment in full of $900,000 of principal and
$139,165 of accrued interest owing to Mr. Tisch under the loan
agreement. As of December 31, 2002, the remaining principal
balance of loans outstanding under the loan agreement was
approximately $86,000, of which $77,000 can be demanded. The
remaining principal balance of approximately $9,000 and
accrued interest was paid in full in March 2003. 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.
o On March 29, 2002, we signed a promissory note in the face
amount of $2,000,000 payable to one of our directors, Mr. Oton
Tisch. The promissory note was amended and restated on
September 17, 2002. Under this promissory note, Mr. Tisch may
make one or more advances to us at times and in amounts,
18
as determined by Mr. Tisch in his discretion, up to an
aggregate principal sum of $1,488,500 (the "Loan A Facility").
Additionally, Mr. Tisch must make requested advances under
this note up to an aggregate principal sum of $511,500 so long
as he remains satisfied in his reasonable credit judgment with
our capital raising activities (the "Loan B Facility").
Therefore, Mr. Tisch has no obligation or commitment to make
any loans under the Loan A Facility and must make advances
under the Loan B Facility only to the extent he is satisfied
with our capital raising activities in his reasonable credit
judgment. This note bears interest at 8% per annum and is
presently secured by all our assets. Mr. Tisch has funded a
total principal amount of $577,300 under this note as of
December 31, 2002. On November 13, 2002 pursuant to a stock
purchase agreement between the company and Mr. Tisch dated
November 12, 2002, we issued 776,949 shares of our common
stock to Mr. Tisch at a price per share of $0.45 in repayment
in full of $337,300 of principal and $12,327 of accrued
interest owing to Mr. Tisch under the promissory note.
Additionally, on November 19, 2002, we repaid, in cash,
$180,000 owing under the note. As of December 31, 2002, the
remaining principal balance outstanding under the note was
approximately $60,000, all of which was outstanding under the
Loan B Facility. No amounts borrowed under the Loan A Facility
or the Loan B Facility may be reborrowed after being repaid by
us. As of December 31, 2002, the remaining amount available at
Mr. Tisch's sole discretion under the Loan A Facility is
$1,000,000. As of December 31, 2002, the remaining amount
available under the Loan B Facility is $422,700. All principal
and interest outstanding under the note are due on April 1,
2004.
o A private investor that is not affiliated with the company has
advanced us the principal sum of $27,000. The outstanding
principal balance of $27,000 is payable by us upon demand.
CAPITAL SOURCES - Our operating cash flows continue to be provided by ongoing
sales of the Lasette and the Cell Robotics Workstation. During 2002, sales of
our products generated revenues of approximately $1,584,000. In July 2002, we
received a commitment from California Caltech, Inc., our distributor that sells
the Lasette in China, to order additional Lasettes. This commitment provides for
sales of an additional 750 Lasettes and 1.5 million clinical disposables through
April 2003, of which 620 units and 350,000 disposables have been purchased as of
December 31, 2002. The distributor has also ordered an additional 2,000
Lasettes, and has committed to order approximately 15 million corresponding
disposables by May 2004. For the year ended December 31, 2002, the company has
recognized revenue of approximately $360,000 from the sale of the Lasette and
related disposables to California Caltech. Although the distributor has
committed to purchase the above Lasettes and related disposables, we have no
control over the timing or the amount of any order within the relevant periods
discussed above. Further, the risks associated with these international
activities includes, but are not limited to, the compliance by our distributor
with its commitments. Although we are not aware of any reason that the
distributor will not fulfill its commitment, we cannot assure you that it will
remain in compliance with its agreement with us.
We are currently developing a modified version of the Lasette, called the Infant
Lasette, designed specifically for neonatal/pediatric heelstick applications. On
September 30, 2002, we commenced our clinical trials of the Infant Lasette.
After completing the requisite tests in the clinical trial, we will submit the
Infant Lasette for FDA clearance. We anticipate that we will be able to make our
submission to the FDA in the second quarter of 2003. We further anticipate that
the FDA clearance will take at least three months following this submission.
However, FDA clearance will be delayed if the FDA requests additional
information based on the initial or subsequent submissions. Although there can
be no assurances, we expect that we will be ready to sell the Infant Lasette in
the third quarter of 2003. Additionally, we received FDA clearance of the
UltraLight Laser in September 2002.
We had back orders of approximately $2.8 million for the Lasette and the
UltraLight Laser as of December 31, 2002, compared to no back orders for the
Lasette and UltraLight as of December 31, 2001. There were no back orders for
the UltraLight Laser as of December 31, 2001 because we began development of
that product during 2002. Over half of the expected revenues from these open
back orders were attributed to the UltraLight Laser. Of the total amount of back
orders related to the UltraLight Laser, $1.2 million was from Sandstone Medical
Technologies, LLC. Sandstone recently cancelled the purchase order for the
UltraLight Laser in the amount $1.2 million. Sandstone has also notified us that
it does not intend to continue to use us as its manufacturer. Additionally, in
the first quarter of 2003, we received total purchase orders of approximately
$816,000 for the Lasette and its associated disposable shields and the
UltraLight Laser.
19
As a result of Sandstone's cancellation of the purchase order and the additional
purchase orders received in the first quarter of 2003, our open back orders as
of March 28, 2003 total approximately $2.4 million. We expect that our open back
orders will also produce additional revenues based on disposable shields
associated with these products. Approximately $516,000 of the purchase orders
for the Lasette is required to be delivered in 2003. Although our goal is to
ship the remaining Lasette units covered by our open purchase orders during
2003, all units are not required to be delivered until May 2004. All open
purchaser orders covering the UltraLight Laser are to customers outside of North
America. We shipped the first 10 evaluation units of the UltraLight Laser in
December 2002. The evaluation units were furnished for marketing research and
demonstration purposes. We expect to begin commercial shipments of the
UltraLight Laser in the second quarter of 2003. The UltraLight Laser units
covered by the open purchase orders are required to be delivered in 2003 and
2004.
As discussed above, on September 17, 2002, we entered into an amended and
restated promissory note payable to Mr. Tisch. Under this promissory note, Mr.
Tisch may, in his discretion, make one or more advances to us under the Loan A
Facility. Additionally, Mr. Tisch must make requested advances under this note
under the Loan B Facility so long as he remains satisfied, in his reasonable
credit judgment, with our capital raising activities. As of December 31, 2002,
the remaining amount available at Mr. Tisch's sole discretion under the Loan A
Facility is $1,000,000. As of December 31, 2002, the remaining amount available
under the Loan B Facility is $422,700.
In addition to the above sources, we have and will continue to actively pursue
negotiated transactions to raise capital through the issuance of debt, equity
and convertible debt instruments, or through the exchange of existing
instruments through transactions that could provide us with additional capital.
ADEQUACY OF CAPITAL - 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
grants accounted for revenues of $137,597 in 2001. No research and development
grant revenue was received in 2002. We have not been able to generate sufficient
cash from operations and, as a consequence, we must seek additional financing to
fund ongoing operations.
As of December 31, 2002, our net working capital was $454,520 and our total cash
and cash equivalents was $299,083. We expect to experience operating losses and
negative cash flow for the foreseeable future. Therefore, we do not have
sufficient cash to sustain those operating losses without additional financing.
We presently need financing to repay our current indebtedness, including payment
of our notes in the aggregate principal amount of approximately $145,000 of
which approximately $83,000 is currently due. In addition to debt service
requirements, we will require cash to fund our operations. Based on our current
operations, we estimate that our cash needs will be approximately $150,000 each
month for the foreseeable future and will be a total of approximately $1,350,000
from March 31 through December 31, 2003. Our operating requirements depend upon
several factors, including the rate of market acceptance of our products,
particularly the Lasette, our level of expenditures for manufacturing, marketing
and selling our products, costs associated with our staffing and other factors.
We have been funding our operating requirements with proceeds from small private
placements of our equity securities and indebtedness for borrowed money,
particularly with financings with Mr. Oton Tisch, one of our directors, and
sales of our products. However, these sources of capital have only been adequate
to meet our short-term needs. Although presently there are amounts available,
subject to the terms of, and under the September 2002 amended and restated
promissory note with Mr. Tisch, we need to secure one or more additional
financings sufficient to fund our operations on a long-term basis. Therefore, we
intend to continue to seek to raise equity or debt financing. Although we have
had discussions with potential investors, we have not been able to obtain
sufficient long-term financing on acceptable terms as of the date of this
prospectus. No assurance can be given that we will be able to obtain any
additional financing on favorable terms, if at all. If our operating
requirements vary materially from those currently planned, we may require more
financing than currently anticipated. 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. If we
cannot obtain additional financing in a timely manner, we will not be able to
continue our operations. In addition, the reports we received from our
independent auditors covering our fiscal years ended December 31, 2002 and 2001
financial statements contain 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.
20
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 $3,007,246 and $2,723,844 in 2002 and 2001,
respectively. Revenues from the sale of our products were $1,584,359 and
$1,461,447 for the years ended December 31, 2002 and 2001, respectively. We
expect to experience operating losses and negative cash flow for the foreseeable
future. We do not have sufficient cash to sustain continuing operating losses
without additional financing. Even if we are able to obtain additional financing
to allow us to continue operations and repay indebtedness, 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. If we do achieve profitability, we cannot assure you that we will be able
to sustain or increase profitability in the future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
High-quality financial statements require rigorous application of high-quality
accounting policies. The policies discussed below are considered by management
to be critical to an understanding of our financial statements because their
application places the most significant demands on management's judgment, with
financial reporting results relying on estimation about the effect of matters
that are inherently uncertain. Specific risks for these critical accounting
policies are described in the following paragraphs. For all of these policies,
management cautions that future events rarely develop exactly as forecast, and
the best estimates routinely require adjustment.
REVENUE RECOGNITION - Sales to qualified distributors are recognized when the
products are shipped from the plant and ownership is transferred to the
customer. In certain instances where we are required to install our products at
a customer location, the revenue is deferred until the installation is complete.
We provide an allowance for returns based on historical experience.
LOSS CONTINGENCIES - Loss contingencies are recorded as liabilities when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. Disclosure is required when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision.
Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple forecasts that often depend on
judgments about potential actions by third parties such as regulators.
IMPAIRMENT - We review our inventory and property and equipment for potential
impairment. Any losses noted are written-off in the period that the impairment
occurs.
WARRANTIES - We warrant our products against defects in materials and
workmanship for one year. The warranty reserve is reviewed periodically and
adjusted based upon our historical warranty costs and our estimate of future
costs. We record a liability for an estimate of costs that we expect to incur
under our basic limited warranty when product revenue is recognized. Factors
affecting our warranty liability include the number of units sold and historical
and anticipated rates of claims and costs per claim. We periodically assess the
adequacy of our warranty liability based on changes in these factors.
ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due from
distributors of medical devices or of research instruments. Credit is extended
based on evaluation of a customers' financial condition and, generally,
collateral is not required. Accounts receivable are due within 30 to 90 days and
are stated at amounts due from customers net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual payment terms are
considered past due. We determine our allowance by considering a number of
factors, including the length of time trade accounts receivable are past due,
our previous loss history, the customer's current ability to pay its obligation
to us, and the condition of the general economy and the industry as a whole. We
write-off accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the allowance for
doubtful accounts.
21
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This statement requires entities to record a liability
for the estimated retirement and removal costs of assets used in their business.
The liability should be recorded at its fair value, with a corresponding asset
that should be amortized over the remaining useful life of the long-lived asset
to which the liability relates. Period expenses will also be recognized for
changes in the original value of the liability as a result of the passage of
time and revisions in the undiscounted cash flows required to satisfy the
obligation. The provisions of SFAS 143 are effective for fiscal years beginning
after June 15, 2002. We do not expect adoption of the standard to have any
material impact on our earnings and financial position.
In April 2002, the FASB issued Statement 145, Rescission of FASB Statements 4,
44, and 64, Amendment of FASB Statement 13, and Technical Corrections (SFAS
145). Among other provisions, SFAS 145 rescinds FASB Statement 4, Reporting
Gains and Losses from Extinguishment of Debt. Accordingly, gains or losses from
extinguishment of debt should not be reported as extraordinary items unless the
extinguishment qualifies as an extraordinary item under the criteria of
Accounting Principles Board Opinion 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB
30). Gains or losses from extinguishment of debt, which do not meet the criteria
of APB 30, should be reclassified to income from continuing operations in all
prior periods presented. The provisions of SFAS 145 will be effective for fiscal
years beginning after May 15, 2002. We do not expect adoption of the standard to
have any material impact on our earnings and financial position.
In June 2002, the FASB issued Statement 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires entities to recognize
costs associated with exit or disposal activities when liabilities are incurred
rather than when the entity commits to an exit or disposal plan, as currently
required. Examples of costs covered by this guidance include one-time employee
termination benefits, costs to terminate contracts other than capital leases,
costs to consolidate facilities or relocate employees, and certain other exit or
disposal activities. This statement is effective for fiscal years beginning
after December 31, 2002, but early adoption is encouraged. We have elected to
early adopt this statement for the year ended December 31, 2002.
In December 2002, the FASB issued Statement 148 (SFAS 148), Accounting for
Stock-Based Compensation -- Transition and Disclosure: an amendment of FASB
Statement 123 (SFAS 123), to provide alternative transition methods for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in annual financial statements
about the method of accounting for stock-based employee compensation and the pro
forma effect on reported results of applying the fair value based method for
entities that use the intrinsic value method of accounting. The pro forma effect
disclosures are also required to be prominently disclosed in interim period
financial statements. This statement is effective for financial statements for
fiscal years ending after December 15, 2002 and is effective for financial
reports containing condensed financial statements for interim periods beginning
after December 15, 2002, with earlier application permitted. We do not plan a
change to the fair value based method of accounting for stock-based employee
compensation and have included the disclosures required by of SFAS 148 in the
accompanying financial statements.
In November 2002, FASB Interpretation 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45), was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. A company previously did not record a
liability when guaranteeing obligations unless it became probable that the
company would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees we issue or modify subsequent to December 31, 2002, but has
certain disclosure requirements effective for interim and annual periods ending
after December 15, 2002. We have historically not issued guarantees and do not
anticipate FIN 45 will have a material effect on our 2003 financial statements.
Disclosures required by FIN 45 are included in the accompanying financial
statements.
In January 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation
of Variable Interest Entities. FIN 46 clarifies the application of Accounting
Research Bulletin 51, Consolidated Financial Statements, for certain entities
that do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties
or in which equity investors do not have the characteristics of a controlling
financial interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required
22
to be consolidated by their primary beneficiary. The primary beneficiary of a
variable interest entity is determined to be the party that absorbs a majority
of the entity's expected losses, receives a majority of its expected returns, or
both. FIN 46 applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. We do not anticipate the adoption of the provisions of FIN 46 will have
a material effect upon our 2003 financial statements.
23
BUSINESS
OVERVIEW
We manufacture, market and sell a laser-based medical device and a scientific
research instrument. We have also developed a proprietary medical laser for
aesthetic or skin rejuvenation applications, which we call the UltraLight Laser.
Our key targets include the clinical and diabetes care markets for the Lasette,
dermatologists, plastic surgeons, spas and physicians for the UltraLight Laser
and the scientific research market for the Cell Robotics Workstation. We were
incorporated in Colorado on September 28, 1988, under the name Bonus, Ltd. In
September 1991, we changed our name to 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 plan to advertise in clinical and
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, and to a limited extent to one national distributor in
the United States. We intend to pursue additional
non-exclusive distribution agreements for our Lasette for
clinical use with national and regional distributors, and
non-exclusive or exclusive distribution agreements with
international 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 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:
24
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 primary difference between the Lasette used in the 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. 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 currently market the Lasette under the "Lasette Plus" name. The
suggested retail price of the Lasette is presently $995.
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 suggested retail price of the disposable cassette for the Lasette for
home use is presently $15.
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. The suggested retail price of the disposable shield for the Lasette
for clinical use is presently $0.39.
We have encountered some design and quality problems with the Lasette since we
introduced it on a limited basis in December 1999. However, 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 17 million people have some form or
variation of diabetes. However, only 11.1 million people in the United States
have been diagnosed with diabetes.
We market the Lasette for clinical use to businesses performing capillary blood
sampling. 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
25
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.
Cross-contamination is also a concern outside of the United States. Because of
this concern, we believe that countries outside the United States represent
important markets for the Lasette. We have consequently focused increasing
efforts in expanding our distribution channels into foreign markets,
particularly in China, South Korea and other Asian countries.
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.
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 attractive 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 more than 10% of the population. The Lasette draws blood in
a way that eliminates the effects of needle phobia, minimizes pain and
eliminates the long-term finger soreness.
RAW MATERIALS. We rely on third parties to produce and manufacture the
components for the Lasette. 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 ("New Technologies"). 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, there can be no assurances
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
26
suppliers will be available if needed, we believe the prices of 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, 2003, the
price we have negotiated for the purchase of rods from our Russian supplier has
been approximately $85 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. There can be no assurances that will be able to purchase rods from
New Technologies at prices that will result in cost savings to the company in
the future. We obtain the remaining materials used to manufacture the Lasette
from various suppliers. We believe alternate sources of supply will be available
for these materials if needed.
MANUFACTURING. We are currently manufacturing the Lasette at our Albuquerque,
New Mexico facility. We have instituted the record keeping, quality control,
production procedures and other requirements 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 have advertised the Lasette for home use and 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. We also
advertise through direct mailings, tradeshows and print and Internet media. The
Lasette for home use is sold through distributors and directly to customers. The
Lasette for clinical use is distributed through several regional distributors
within and outside the United States. Beginning in November 2001 and continuing
until June 2002, our former exclusive United States based distributor of the
Lasette in China was C.A. Continental, Inc. We terminated our relationship with
C.A. Continental in June 2002 as a result of certain defaults by C.A.
Continental under our agreement. We entered into a new distribution agreement
with California Caltech, Inc. in July 2002, which grants exclusive distribution
rights for the Lasette in China. The initial term of the distribution agreement
with California Caltech is for three years, but can be extended for additional
periods of two years if both parties agree to do so. C.A. Continental, Inc.
accounted for 18% of our product sales in 2001. California Caltech, Inc.
accounted for 23% of our product sales in 2002.
We believe that we will accomplish marketing and distribution of this Lasette
product line through a collection of regional, national and international
distributors of diabetic supplies or through manufacturers' representatives. We
are currently holding discussions with regional, national and international
distributors and intend to pursue additional non-exclusive regional and national
distribution relationships, and non-exclusive or exclusive international
distribution relationships.
COMPETITION. We are not aware of any commercially available 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.
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
approximately $0.05 per unit and the price of safety lancets is between $0.18
and $0.52 per unit. Although
27
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. Each stainless steel
lancet or safety lancet has indirect costs associated with it, 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, including the GlucoWatch(R) by Cygnus,
Inc. and the continuous glucose monitoring system, or CGMS, by MiniMed Inc.
Cygnus' GlucoWatch(R) has 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 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);
28
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. To date, we have not had any recalls
of our products by the FDA or any other comparable agency.
REIMBURSEMENT. In the United States, as well as in foreign countries,
government-funded or private insurance programs, commonly known as third-party
payors, pay a significant portion of the cost of a patient's medical expenses. A
uniform policy of reimbursement does not exist among all these payors.
Therefore, reimbursement can be quite different from payor to payor. We believe
that reimbursement is an important factor in the success of medical devices.
Consequently, we plan to continue to seek reimbursement for the Lasette.
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 is not reimbursed by most private insurance
programs. We plan to continue our efforts to seek consumer reimbursement for the
Lasette by private payors. We intend to conduct clinical studies to determine
the short-term and long term clinical utility of using the Lasette. However,
because of limited cash resources, we cannot be certain as to when, if ever, we
will be able to implement these clinical studies. If and when we are able to
obtain these clinical trials, we will seek to use their results to demonstrate
the economic benefits of the Lasette to third-party payors, which we believe
will support our efforts to secure reimbursement.
In October 2001, we were notified by the Center for Medicare and Medicaid
Services, or CMS, that a Healthcare Common Procedure Coding System, or HCPCS,
code had been assigned to our Lasette. In January 2002, CMS published the
allowable for our Lasette that was associated with the newly issued HCPCS code.
Generally, Medicare reimburses 80% of the published allowable. In March 2002, we
were notified by CMS that they have not established a medical criteria for our
Lasette and as a result CMS will only reimburse approximately $17 for the price
of the Lasette, a minimal portion of its cost. Whether we can obtain a higher
reimbursement rate for the Lasette will depend on the establishment of a
favorable medical policy for the Lasette, which is largely outside our control.
We are currently working with CMS to provide input into CMS's establishment of
an appropriate medical policy so that a higher reimbursement rate may be set.
CMS is now conducting a review of the medical reimbursement of the Lasette.
Therefore, we believe that progress is taking place in our continuing efforts to
achieve a timely resolution of this matter. However, we can provide no assurance
as to whether a medical policy favorable to us will be established by CMS, or
when, if ever, an adequate reimbursement rate for the Lasette will be set or the
eventual amount of reimbursement.
ROYALTY ARRANGEMENTS. In January 2002, we signed an exclusive license agreement
with Becton Dickinson and Company regarding a patent licensed by Mr. Tankovich
to Becton Dickinson. The license is valid until the patent expires, which we
estimate to be in 2012 based upon the patent's original filing date. We are
required to pay Becton Dickinson a royalty of 2.5% on all sales of the Lasette
and its related accessories. Under the license, the payment of royalties for
sales during the first two years of the agreement is deferred until November
2004. Royalties earned during the third year of the agreement through the
remainder of the term will be payable on a quarterly basis. Beginning in
November 2004, we must also pay Becton Dickinson a minimum annual royalty, less
any earned
29
royalties that have been accrued and paid or paid to Becton Dickinson during the
previous 12 months. The aggregate minimum royalty through November 2004 is
$10,000 (less earned royalties), which is payable in November 2004. Thereafter,
the minimum royalty is $5,000 (less earned royalties) payable in November of
each year. If we do not pay the minimum annual royalty when due, Becton
Dickinson may convert the agreement into a non-exclusive license. Under the
agreement, until November 2006 Becton Dickinson has a right of first refusal on
any offer we receive from a third party to exclusively market and sell the
Lasette and its related accessories. Becton Dickinson has also given us an
exclusive right and option to enter into license agreements with Becton
Dickinson relating to its current laser lancet patent portfolio and future laser
technology. Our option expires in November 2004. Additionally, as part of the
license we issued warrants to Becton Dickinson to purchase 225,000 shares of our
common stock. These warrants have an exercise price of $0.37 per share and
expire in November 2006. In connection with the license, Becton Dickinson
released us from any alleged infringement under Mr. Tankovich's patent. See
"Business -- Intellectual Property" for further discussion regarding our
intellectual property. As December 31, 2002, we have accrued approximately
$16,400 of royalties under this arrangement.
In addition to our license agreement with Becton Dickinson, we also have an oral
arrangement with New Technology Engineering Center providing for a royalty of 1%
on all sales of the Lasette until total royalties of $2 million have been paid.
As of December 31,2002, we have accrued approximately $25,000 of royalties under
this arrangement.
LASER-BASED MEDICAL DEVICES -- THE ULTRALIGHT LASER
DESCRIPTION. The UltraLight Laser is a proprietary medical laser for aesthetic
or skin rejuvenation applications commonly known as laser skin photo
rejuvenation. This product takes advantage of a small compact laser cavity
designed to produce an affordable aesthetic medical laser that can be used by
dermatologists, plastic surgeons, spas and physicians to rejuvenate and
revitalize the skin. The UltraLight Laser provides laser skin photo rejuvenation
with an Ebrium:YAG laser, which emits a long pulse 2.94 microns wavelength. The
characteristic shallow penetration of the Ebrium:YAG energy into the skin also
allows precise removal of tissue without heating adjacent tissue and also
permits the treatment of delicate skin on and around the neck, eyes and hands,
as well as darker pigmented skin. The two most common lasers used in skin
rejuvenation treatment are Ebrium:YAG lasers, such as used with the UltraLight
Laser, and carbon dioxide lasers. We believe that the Ebrium:YAG laser used in
the UltraLight will generally offer minimal pain, easier post-operative care and
quicker recovery time compared to carbon dioxide lasers. We had entered into an
oral agreement with Sandstone Medical Technologies, LLC, a private company
located in Homewood, Alabama relating to manufacturing and marketing of the
UltraLight Laser. See "Business -- Research and Development" for further
discussion regarding the relationship with Sandstone. However, we are currently
in a dispute with Sandstone regarding the relationship. In connection with this
dispute, Sandstone has notified us that it does not intend to continue to use us
as its manufacturer. Additionally, Sandstone cancelled a purchase order for the
UltraLight Laser in the amount $1.2 million. As a result of the oral nature of
the agreement, we may be unable to enforce the agreement on terms that we
believed to exist. We believe that we have complied with the terms of the
agreement and intend to vigorously pursue our rights. However, due to the early
stages of the matter, we are unable to predict its outcome at this time. If we
become involved in costly and time-consuming litigation, management attention
consumed by and legal costs associated with any litigation could have a negative
effect on our operating results. Additionally, an unfavorable outcome in any
litigation may adversely affect our ability to manufacture, market and sell the
UltraLight Laser. We shipped the first 10 evaluation units of the UltraLight
Laser in December 2002. The evaluation units were furnished for marketing
research and demonstration purposes. We expect to begin commercial shipments of
the UltraLight Laser in the second quarter of 2003. We anticipate that the
suggested retail price of the UltraLight Laser to end users will be
approximately $22,000.
MARKET. Our principal target markets will include dermatologists, plastic
surgeons, spas and physicians. According to the American Academy of Cosmetic
Surgery, over 300,000 people had some type of aesthetic laser procedure in the
year 2000. We believe that demand for this procedure will continue to expand as
"baby boomers" age and desire to retain a more youthful appearance.
RAW MATERIALS AND MANUFACTURING. Although our oral agreement with Sandstone is
currently in dispute and we are evaluating our options, we plan to manufacture
the UltraLight Laser at our Albuquerque, New Mexico facility. We believe our
manufacturing capacity at our existing facility is adequate to meet customer
demands for the UltraLight Laser for the foreseeable future. We will rely on
third parties to produce and manufacture the components for the
30
UltraLight Laser. The Erbium:YAG laser rod we use in the UltraLight Laser is the
same as used in the Lasette. As with the Lasette, we expect to continue to
purchase the supply of our rods for the UltraLight Laser from New Technologies
Engineering Center. We obtain the remaining materials used to manufacture the
UltraLight Laser from various suppliers. We believe alternate sources of supply
will be available for these remaining materials if needed.
MARKETING AND DISTRIBUTION. Under our oral agreement with Sandstone, which is
now in dispute, Sandstone was to exclusively market and sell the product in
North America, while we were to have the rights to market and sell the product
in other international markets. Our current plans continue to rely on a network
of distributors for sales of the UltraLight Laser in international markets;
however, to date we have not entered into distribution relationships covering
territories outside North America. Although we intend to pursue marketing and
distribution relationships for the UltraLight Laser, 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. The market for aesthetic elective products and treatments is highly
competitive and technological developments are expected to continue at a rapid
pace. In general, we believe that we compete on the basis of price, product
features and product quality. There are a variety of equipment and treatment
techniques used for skin revitalization. We believe that our direct competitors
consist of those products and treatments that provide laser-based skin photo
rejuvenation treatments, particularly those products that use the Ebrium:YAG
laser. The UltraLight Laser will also indirectly compete with manufacturers and
providers of non-invasive, partially invasive and other invasive skin
rejuvenation products and treatments, such as chemical peels, dermabrasion,
microdermabrasion, drugs, lotions and creams.
REGULATORY STATUS. We received FDA clearance of the UltraLight Laser in
September 2002. In the first quarter of 2003 we completed the process of
obtaining the necessary domestic and international manufacturing clearances for
this product. These clearances include Underwriters Laboratories, Canadian
Standards Association and CE certifications.
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.
31
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 in 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 have accounted for substantially all of our sales
of the Cell Robotics Workstation. We intend to identify scientists that have
specific research applications particularly well suited to the company's
scientific research instrument.
RAW MATERIALS AND 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. If needed, we believe alternate sources of
supply will be available for these parts.
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 have expanded domestic and
international non-exclusive distribution channels for the Cell Robotics
Workstation to include distributors in 17 countries. We also currently have an
agreement with Meiwa Shoji Company Ltd. granting exclusive distribution rights
for the Cell Robotics Workstation in Japan. Meiwa Shoji accounted for 18% and
33% of our product sales in 2002 and 2001, respectively. Since January 2002,
Meiwa Shoji has no obligation to further promote or purchase the Cell Robotics
Workstation under the agreement. Its appointment as distributor can be
terminated by either party on 90 days' notice.
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 and
all of its modules in September 1997. Although the Cell Robotics Workstation is
subject to FDA safety regulations, 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.
32
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.
COMPETITION
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 our products. The principal factor
affecting our competitive position is the suitability of our instruments for,
and their performance in, a particular application. For the UltraLight Laser, we
believe that we will also compete on the basis of price, product features and
product quality. 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 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, 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 medical technology company,
obtained a 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.
33
In January 2002, we signed an exclusive license agreement with Becton Dickinson
regarding the Tankovich Patent. The license is valid until the patent expires,
which we estimate to be in 2012 based upon the patent's original filing date. We
are required to pay Becton Dickinson a royalty of 2.5% on all sales of the
Lasette and its related accessories. In connection with the license, Becton
Dickinson released us from any alleged infringement under the Tankovich Patent.
See "Business -- Laser Based Medical Devices - The Lasette -- Royalty
Arrangements" for further discussion regarding our license agreement with Becton
Dickinson.
ULTRALIGHT LASER. The UltraLight Laser uses our Ebrium:YAG core laser
technology. We rely primarily on trade secret laws and confidentiality
procedures and other intellectual property protection methods to protect our
proprietary technology relating to the UltraLight Laser.
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
$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, 2002 and 2001, we spent $508,836 and
$610,354, respectively, on internal research and development programs. As of
December 31, 2002, four 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 received by the end of 2001.
We plan to introduce a modified version of the Lasette designed specifically for
neonatal/pediatric heelstick applications. The new "Infant Lasette" will be
based upon the current Lasette model for clinical use, but specifically designed
to draw capillary blood from the heels of infants, replacing the current and
often painful use of costly lancets and scalpels. The "Infant Lasette" is
expected to be designed to easily accommodate an infant's heel and a specially
designed single-use disposable lens shield. We expect the Lasette disposables
will be competitively priced with current disposable heelstick devices. Each
year, there are approximately 130 million births worldwide. In most developed
countries, newborn infants are subjected to routine capillary blood tests with
samples drawn via "heelstick" with safety needles and scalpels. According to the
CDC, in the United States there are over 4 million births annually, and each
infant is mandated to have a routine battery of blood chemistries performed at
birth. In the U.S., pre-mature infants account for approximately 11% of all
births while low birthweight babies are an additional 7.8% of births. Pre-mature
infants can be subjected to multiple heelsticks per day. The current national
average length of stay is 15 days for neo-natal infants in intensive care. These
repeated heelsticks may be harmful to the
34
premature infants' heels causing, in some cases, the use of an infant's fingers
to obtain the blood sample. In our opinion, FDA approval of the new "Infant
Lasette" should require a clinical trial of less than 100 infants and the
filling of a 510(k). This opinion is based on our review of various models which
indicate that a sample of less than 100 infants will be adequate to prove,
statistically, that the blood chemistry of an infant is not changed as a result
of drawing the blood with a laser as opposed to the traditional needle or steel
lancet.
On September 30, 2002, we commenced our clinical trials of the Infant Lasette.
The commencement of the clinical trials was delayed approximately three months
because we were required to change the contractor performing the clinical trials
due to the contractors' non-performance. After completing the requisite tests in
the clinical trials, we will submit the Infant Lasette for FDA clearance. We
anticipate that we will be able to make our submission to the FDA in the second
quarter of 2003. The FDA submission for the Infant Lasette will be similar to
the submission that was approved by the FDA for the original Lasette. We have
written the submission and we are only waiting for the clinical trials results
to confirm that there is no change to the blood chemistry of an infant because
of the laser apparatus of the Infant Lasette. We anticipate that the FDA
clearance will take at least three months following our FDA submission. However,
FDA clearance will be delayed if the FDA requests additional information based
on the initial or subsequent submissions. Although there can be no assurances,
we expect that we will be ready to sell the Infant Lasette in the third quarter
of 2003.
We used our core laser technology to develop a proprietary medical laser for
aesthetic or skin rejuvenation applications, which we call the UltraLight Laser.
We have entered into an oral agreement with Sandstone Medical Technologies, LLC,
a private company located in Homewood, Alabama, relating to manufacturing and
marketing the UltraLight Laser. However, we are currently in a dispute with
Sandstone regarding the relationship. Under the agreement, the costs associated
with the FDA submittals and other regulatory requirements were to be paid by
Sandstone. Sandstone was to exclusively market and sell the product in North
America, while we were to have rights to manufacture and sell the product in
other international markets. We were also granted a right of first refusal to be
the OEM manufacturer of the product. We received FDA clearance of the UltraLight
Laser in September 2002.
In connection with our dispute with Sandstone, Sandstone has notified us that it
does not intend to continue to use us as its manufacturer. Additionally,
Sandstone cancelled a purchase order for the UltraLight Laser in the amount $1.2
million. As a result of the oral nature of the agreement, we may be unable to
enforce the agreement on terms that we believed to exist. We believe that we
have complied with the terms of the agreement and intend to pursue our rights to
the UltraLight Laser. However, due to the early stages of the matter, we are
unable to predict its outcome at this time. If we become involved in costly and
time-consuming litigation, management attention consumed by and legal costs
associated with any litigation could have a negative effect on our operating
results. Additionally, an unfavorable outcome in any litigation may adversely
affect our ability to manufacture, market and sell the UltraLight Laser. We
shipped the first 10 evaluation units of the UltraLight Laser in December 2002.
The evaluation units were furnished for marketing research and demonstration
purposes. We expect to begin commercial shipments of the UltraLight Laser in the
second quarter of 2003 now that the manufacturing clearances have been obtained.
We anticipate that the suggested retail price of the UltraLight Laser to end
users will be approximately $22,000.
GOVERNMENT REGULATION; PRODUCT APPROVAL PROCESS
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, 2002 and 2001, we spent $508,836 and
$610,354, respectively, on internal research and development programs. As of
December 31, 2002, four 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
35
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 received by the end of 2001.
We plan to introduce a modified version of the Lasette designed specifically for
neonatal/pediatric heelstick applications. The new "Infant Lasette" will be
based upon the current Lasette model for clinical use, but specifically designed
to draw capillary blood from the heels of infants, replacing the current and
often painful use of costly lancets and scalpels. The "Infant Lasette" is
expected to be designed to easily accommodate an infant's heel and a specially
designed single-use disposable lens shield. We expect the Lasette disposables
will be competitively priced with current disposable heelstick devices. Each
year, there are approximately 130 million births worldwide. In most developed
countries, newborn infants are subjected to routine capillary blood tests with
samples drawn via "heelstick" with safety needles and scalpels. According to the
CDC, in the United States there are over 4 million births annually, and each
infant is mandated to have a routine battery of blood chemistries performed at
birth. In the U.S., pre-mature infants account for approximately 11% of all
births while low birthweight babies are an additional 7.8% of births. Pre-mature
infants can be subjected to multiple heelsticks per day. The current national
average length of stay is 15 days for neo-natal infants in intensive care. These
repeated heelsticks may be harmful to the premature infants' heels causing, in
some cases, the use of an infant's fingers to obtain the blood sample. In our
opinion, FDA approval of the new "Infant Lasette" should require a clinical
trial of less than 100 infants and the filling of a 510(k). This opinion is
based on our review of various models which indicate that a sample of less than
100 infants will be adequate to prove, statistically, that the blood chemistry
of an infant is not changed as a result of drawing the blood with a laser as
opposed to the traditional needle or steel lancet.
On September 30, 2002, we commenced our clinical trials of the Infant Lasette.
The commencement of the clinical trials was delayed approximately three months
because we were required to change the contractor performing the clinical trials
due to the contractors' non-performance. After completing the requisite tests in
the clinical trials, we will submit the Infant Lasette for FDA clearance. We
anticipate that we will be able to make our submission to the FDA in the second
quarter of 2003. The FDA submission for the Infant Lasette will be similar to
the submission that was approved by the FDA for the original Lasette. We have
written the submission and we are only waiting for the clinical trials results
to confirm that there is no change to the blood chemistry of an infant because
of the laser apparatus of the Infant Lasette. We anticipate that the FDA
clearance will take at least three months following our FDA submission. However,
FDA clearance will be delayed if the FDA requests additional information based
on the initial or subsequent submissions. Although there can be no assurances,
we expect that we will be ready to sell the Infant Lasette in the third quarter
of 2003.
We used our core laser technology to develop a proprietary medical laser for
aesthetic or skin rejuvenation applications, which we call the UltraLight Laser.
We have entered into an oral agreement with Sandstone Medical Technologies, LLC,
a private company located in Homewood, Alabama, relating to manufacturing and
marketing the UltraLight Laser. However, we are currently in a dispute with
Sandstone regarding the relationship. Under the agreement, the costs associated
with the FDA submittals and other regulatory requirements were to be paid by
Sandstone. Sandstone was to exclusively market and sell the product in North
America, while we were to have rights to manufacture and sell the product in
other international markets. We were also granted a right of first refusal to be
the OEM manufacturer of the product. We received FDA clearance of the UltraLight
Laser in September 2002.
In connection with our dispute with Sandstone, Sandstone has notified us that it
does not intend to continue to use us as its manufacturer. Additionally,
Sandstone cancelled a purchase order for the UltraLight Laser in the amount $1.2
million. As a result of the oral nature of the agreement, we may be unable to
enforce the agreement on terms that we believed to exist. We believe that we
have complied with the terms of the agreement and intend to pursue our rights to
the UltraLight Laser. However, due to the early stages of the matter, we are
unable to predict its outcome at this time. If we become involved in costly and
time-consuming litigation, management attention consumed by and legal costs
associated with any litigation could have a negative effect on our operating
results. Additionally, an unfavorable outcome in any litigation may adversely
affect our ability to manufacture, market and sell the UltraLight Laser. We
shipped the first 10 evaluation units of the UltraLight Laser in December 2002.
The evaluation units were furnished for marketing research and demonstration
purposes. We expect to begin commercial shipments of the UltraLight Laser in the
second quarter of 2003 now that the manufacturing clearances
36
have been obtained. We anticipate that the suggested retail price of the
UltraLight Laser to end users will be approximately $22,000.
GOVERNMENT REGULATION; PRODUCT APPROVAL PROCESS
United States government agencies and comparable agencies in countries outside
the United States regulate the testing, manufacture, labeling, distribution,
marketing and advertising of our products and our ongoing research and
development activities. We have successfully obtained many of the regulatory
clearances necessary to market and sell our products in our current markets. We
may require additional clearances if we enter new markets, improve existing
products or develop new products, such as the Infant Lasette and the UltraLight
Laser. We are also in the process of obtaining the requisite regulatory
clearances to market and sell the Infant Lasette.
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.
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. While the Lasette has received all necessary FDA clearances,
has received the European Community's CE Mark and currently meets ISO and EN
requirements, 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. We must register and seek FDA approval for each
manufacturing establishment. These establishments must be certified to meet ISO
9001 and EN 46001 requirements. We must maintain our current FDA clearances by
periodic audits. In order to manufacture and sell the Lasette under the CE Mark,
we must also pass annual ISO maintenance audits, as well as comprehensive ISO
audits every three years. Our last ISO audit was completed in January 2003.
There can be no assurance that we will obtain, maintain or receive additional
necessary clearances.
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. Currently, we meet these 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 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.
37
We received FDA clearance of the UltraLight Laser in September 2002. In the
first quarter of 2003 we completed the process of obtaining the necessary
domestic and international manufacturing clearances for this product. These
clearances include Underwriters Laboratories, Canadian Standards Association and
CE certifications.
We are in the process of developing a new product, the Infant Lasette. This
product requires FDA clearance. On September 30, 2002, we commenced our clinical
trials of the Infant Lasette. After completing the requisite tests in the
clinical trials, we will submit the Infant Lasette for FDA clearance. We
anticipate that we will be able to make our submission to the FDA in the second
quarter of 2003. We further anticipate that the FDA clearance will take at least
three months following this submission. Although there can be no assurances, we
expect that we will be ready to sell the Infant Lasette in the third quarter of
2003. There can be no assurances that we will obtain all necessary clearances in
a timely manner, if at all. Our failure to obtain the necessary regulatory
clearances will prevent us from marketing and selling the Infant Lasette.
EMPLOYEES
As of March 25, 2003, we had 25 permanent full-time employees, 3 temporary
full-time employees and 2 part-time employees. Of these employees, 4 were
principally engaged in product development, 12 in manufacturing, including
quality control, 10 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 18,000 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 currently $8,998, subject to an annual
increase of approximately three percent. On April 1, 2003, we amended our lease
to add approximately 6,000 square feet to our Albuquerque facility. The addition
of this space represented an approximate 50% increase of the space of this
facility and was acquired to accommodate expected growth of the company.
Beginning in May 2003, we anticipate our monthly rental payments on the facility
will be approximately $13,500 per month. Our lease terminates in November 2007.
We have an option to terminate the lease as of November 30, 2005 if we pay the
landlord a cancellation fee of $18,500 plus accrued rent through termination. 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.
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
- ---- --- --------
Gary Oppedahl 43 President, Chief Executive Officer and Director
Paul Johnson 39 Chief Financial Officer, Chief Operating Officer, Secretary and Director
Richard Zigweid 54 Vice President of Manufacturing
Steve Aiken 47 Vice President of Research and Development
Dr. Larry Keenan 55 Product Manager, Cell Robotics Workstation
Oton Tisch 72 Chairman of the Board of Directors
Eutimio Sena 54 Vice Chairman of the Board of Directors
Dr. David Mueller 63 Director
Dr. Toby Simon 58 Director
</Table>
GARY OPPEDAHL was appointed as our President and Chief Executive Officer on July
15, 2002. He was also appointed as an interim director for the company on July
15, 2002. From 1999 to July 2002, he served as Senior Vice President of Business
Development, Product Realization and Marketing at Novalux, Inc., an innovator in
the design and manufacturer of optoelectronics, specifically extended cavity
surface emitting lasers, for use in long-haul
38
fiber optic telecommunication networks, in Silicon Valley, California. From 1996
to 1999, Mr. Oppedahl was Vice President of Operations for MODE, Inc., a
manufacturer of vertical cavity surface emitting lasers for commercial use in
optical data communication applications. He has a degree in Electrical
Engineering from Chapman College.
PAUL JOHNSON was appointed as our Chief Financial Officer in July 2000,
Secretary in November 2000 and Chief Operating Officer in June 2001. He was also
appointed as an interim director of the company in March 2002. 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.
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. In August 2002, Mr.
Tisch was appointed as Chairman of the Board of Directors. 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.
EUTIMIO SENA was appointed to our board of directors on August 29, 2002 and
serves as Vice Chairman of the Board of Directors. Mr. Sena has over 20 years
management experience, particularly in emerging technologies and market
launches. From 1992 to present, he has served as the Vice President/General
Manager of OCM, Inc., launching OCM's mergers, acquisitions and restructures.
Mr. Sena also served as Division Vice President/Multimedia integrated Systems,
Division Vice President/Strategic Accounts/Government, and Corporate
Director/Strategic Business Planning with Fujitsu America, Inc. from 1984 to
1992. Mr. Sena holds a BS in Computer Information Systems from the University of
Colorado and a BA/MBA in Management Information Systems from the University of
New Mexico.
DR. DAVID MUELLER was appointed to the Board of Directors on September 27, 2002.
Dr. Mueller has a strong technical and medical background and has over 20 years
of experience in technology transfer and venture capital and leading and
follow-up financing of venture-backed companies. During his career, Dr. Mueller
managed product development groups for biomedical companies, including
Medtronic, Inc., Beckman Instruments, Inc. and Tracor, Inc. He also worked at
the Texas Instruments Central Research Lab, Aerojet General Corporation and the
Texas A&M University Nuclear Science Center. In 1984, he was appointed General
Manager of BCM Technologies, Inc., a for-profit, technology transfer arm of
Baylor College of Medicine. In 1988, Dr. Mueller was one of the founders of the
AM Fund and is currently a Managing General Partner of the AM Fund. From 1999 to
present, Dr. Mueller was also a Venture Partner at Vanguard Ventures and served
as interim CEO/COO/Advisor for six of Vanguard's portfolio companies following
seed or first round funding. He was also co-founder and Ex-Director for the
Texas Technology Transfer Association. Dr. Mueller received his BS from Texas
A&M University, where he also earned his Ph.D. in Chemistry.
39
DR. TOBY SIMON was appointed to the Board of Directors on December 9, 2002. Dr.
Simon has over 32 years of experience in the medical field, specifically
internal medicine, hematology and managing blood banks. Since 2001, he has
served as Chief Medical Officer/Chief Operating Officer at TriCore Reference
Laboratories, Albuquerque, New Mexico. TriCore is a medical laboratory that
provides comprehensive laboratory testing services at University and
Presbyterian Hospitals and other hospitals throughout New Mexico, with some
specialized testing throughout the country. Since June 2001, he has also been
the Clinical Professor of Pathology at the University of New Mexico School of
Medicine. From March 1997 to May 2001, Dr. Simon served as Vice President of
Medical and Scientific Affairs for Serologicals Corporation. Dr. Simon's career
has also included serving as President and Chief Executive Officer of Blood
Systems, Inc. He is currently on the Transfusion Medicine/Blood Banking Test
Committee of the American Board of Pathology and the editorial board of the
journal, Transfusion. He is the past Chairman of the Medical Director's
Committee of the American Blood Resources Association (ABRA) and has recently
finished his term as industry representative on the FDA Blood Products Advisory
Committee. Dr. Simon earned his MD from Washington University, St. Louis,
Missouri, and completed his internship and residency at Temple University
Hospital, Philadelphia, Pennsylvania.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the summary information of compensation paid to
our Chief Executive Officer, our only highly compensated executive officer in
fiscal years 2000 through 2002.
<Table>
<Caption>
ANNUAL COMPENSATION
------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ---------------------------------------------------------- ------ ------------ ------------
Gary Oppedahl, President and Chief Executive Officer(1) 2002 $ 60,782 $ 956
Ronald K. Lohrding, Chief Executive Officer, President 2002 $ 97,932(2) $1,587
and Chairman of the Board(1) 2001 $104,814 $2,377
2000 $119,799 $2,625
</Table>
- ----------
(1) Ronald K. Lohrding resigned as our Chief Executive Officer and
President on July 15, 2002. Gary Oppedahl was appointed the
new President and Chief Executive Officer on that date. On
August 2, 2002, Oton Tisch was appointed as Chairman of the
Board. In connection with his retirement, Dr. Lohrding
resigned as a director of the company in September 2002.
(2) Includes $29,656 paid to Dr. Lohrding under his employment
agreement after his resignation on July 15, 2002 for services
provided as a part-time employee.
EMPLOYMENT AGREEMENTS
On June 28, 2000, we entered into an employment agreement with Paul Johnson, our
Chief Operating Officer, Chief Financial Officer and Secretary. Mr. Johnson also
currently serves as Director. Under the employment agreement, if there is a
change in control under Mr. Johnson's employment agreement 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 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. The Stock Incentive Plan terminated in August 2002.
40
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.
At December 31, 2002, we had options outstanding to purchase a total of 705,235
shares of our common stock under the Stock Incentive Plan consisting of ISOs and
NSOs to purchase 560,265 shares and 144,970 shares, respectively. The ISOs are
exercisable at prices ranging from $0.57 to $4.47 per share. The NSOs are
exercisable at prices ranging from $0.47 to $4.38 per share. All options were
issued with exercise prices at or above market value on the date of grant.
At December 31, 2002, we had also granted options to purchase a total of
2,425,634 shares of our common stock outside of the Stock Incentive Plan. The
options are exercisable at prices ranging from $0.37 to $3.25 per share. All
options were issued with exercise prices at or above market value on the date of
grant.
OPTION GRANTS
The following table sets forth certain information concerning individual grants
of stock options made during the last completed fiscal year to each of the named
executive officers all of which were issued with exercise prices at or above
market value on the date of grant:
<Table>
<Caption>
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE
- -------------------- ------------- ------------------- ---------------- ---------------
Gary Oppedahl(1) 500,000 20% $1.25 07/15/07
</Table>
- ----------
(1) The option will become exercisable in the following manner:
(i) 200,000 shares of our common stock subject to the option
is immediately exercisable; (ii) 150,000 shares of common
stock subject to the option will vest after we report positive
net income for two consecutive fiscal quarters, as reflected
in our quarterly reports on Form 10-QSB, or any equivalent or
successor form (after giving effect to any amendments
thereto), filed with the Securities and Exchange Commission
and (iii) 150,000 shares of common stock subject to the option
will vest after we report positive net income for a full
fiscal year, as reflected in our annual report on Form 10-KSB,
or any equivalent or successor form (after giving effect to
any amendments thereto), filed with the Securities and
Exchange Commission. However, the option will vest and become
fully exercisable immediately prior to the time of a change in
control, as defined in the option, and the Mr. Oppedahl will
have the right to exercise the option from and after the date
of the change in control.
OPTION EXERCISES AND OPTION VALUES
The following tables sets forth certain information concerning the exercise of
options during the last completed fiscal year by each of the named executive
officers and the fiscal year-end value of such named executive officers'
unexercised options on an aggregated basis:
<Table>
<Caption>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS AT FY- OPTIONS AT FY-
END (#) END ($)(2)
SHARES ------------------ ------------------
ACQUIRED ON VALUE REALIZED(1) EXERCISABLE/ EXERCISEABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------- ------------------ ------------------ ------------------ ------------------
Gary Oppedahl -0- -0- 200,000/300,000 $0/$0
Ronald K. Lohrding -0- -0- 741,228/0 $0/$0
</Table>
41
- ----------
(1) Value realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market
value of Common Stock on the date the options are exercised.
(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 2002 was
$0.37.
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 April 14, 2003, 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
- ---------------------------------------------------- ------------ ------------
Oton Tisch(1) 5,968,026(2) 29.1%
Dr. Ronald K. Lohrding(1) 1,044,978(3) 5.2%
Eutimio Sena(1) 683,938(4) 3.5%
Dr. Toby Simon(1) 34,000(5) *
Dr. David Mueller(1) -- *
Gary Oppedahl(1) 206,000(6) 1.1%
Paul Johnson(1) 267,600(5) 1.4%
All officers and directors as a group (6 persons) 7,159,565(7) 33.9%
</Table>
- ----------
* Represents ownership interests of less than one percent.
(1) The business address is c/o Cell Robotics International, Inc., 2715
Broadbent Parkway N.E., Albuquerque, New Mexico 87107. Mr. Tisch's
principal residence is in Caracas, Venezuela.
(2) We issued Mr. Tisch a warrant immediately exercisable for 55,949 shares
of common stock in a May 2002 private placement of our securities. Also
includes 935,051 shares issuable upon exercise of warrants issued to
Mr. Tisch that are immediately exercisable in connection with loans
made by him to us under the January 2001, the August 2001 promissory
notes and the conversion of certain of his outstanding loans to the
company in November 2002. Further, includes stock options covering
5,000 shares issued to Mr. Tisch for serving as a director that are
immediately exercisable. In December 2002, we issued to Mr. Tisch
warrants to purchase an aggregate of 92,928 shares of our common stock
in payment of fees, plus reimbursement of out-of-pocket expenses,
incurred under our consulting agreement with Obras Electromecanicas
TKV. Mr. Tisch is the sole owner and Chief Executive Officer and
President of TKV.
(3) Includes 741,228 shares subject to options exercisable within 60 days
of April 14, 2003 and 3,750 shares underlying immediately exercisable
warrants.
42
(4) Includes 135,788 shares underlying immediately exercisable warrants.
(5) Represents shares subject to options exercisable within 60 days of
April 14, 2003.
(6) Includes 200,000 shares subject to options exercisable within 60 days
of April 14, 2003.
(7) Includes 484,267 shares subject to options exercisable within 60 days
of April 14, 2003 and 1,083,928 shares underlying immediately
exercisable warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 2000, we entered into an employment agreement with Dr. Lohrding. Prior
to his resignation on July 15, 2002, Dr. Lohrding served as our President and
Chief Executive Officer under the contract. Until the agreement expires on June
30, 2003, Dr. Lohrding will continue to serve as an employee providing
consulting and advisory services to the company. As such, Dr. Lohrding agreed
that he will devote no less than one-half of his time to the company's business.
Dr. Lohrding currently is paid an annual fee of $65,206 under the 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 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.
In January 2001, certain members of our board of directors and affiliates of
members or former members of our board of directors agreed to make term loan
advances to us in an aggregate amount of $1,000,000 pursuant to the terms of a
loan agreement with us. The loans are evidenced by unsecured promissory notes,
bear interest at the rate of ten percent per annum and were due on January 31,
2002. On November 13, 2002 pursuant to a stock purchase agreement between the
company and Mr. Oton Tisch dated November 12, 2002, we issued 2,309,255 shares
of our common stock to Mr. Tisch at a price per share of $0.45 in repayment in
full of $900,000 of principal and $139,165 of accrued interest owing to Mr.
Tisch under the loan agreement. As of December 31, 2002, the remaining principal
balance outstanding under the loan agreement was approximately $87,000, all of
which is owed to former members of our board of directors. These remaining loans
can be demanded at any time. 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.
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 in August 2001. Additional funds of
$150,000 and $40,000 were provided by Mr. Tisch in December 2001 and January
2002. On July 29, 2002, we issued 684,685 shares of our common stock to convert
all principal and interest owed of $410,400 under the August 2, 2001 convertible
note to equity. The conversion price of the convertible note was $0.5994 per
share of our common stock. As of July 29, 2002, no amounts remained outstanding
under the convertible note. In connection with the issuance of the convertible
note, Mr. Tisch was issued a warrant to purchase up to 28,500 shares of our
common stock. The warrant is exercisable until August 2, 2004, for common stock
at a price of $0.67 per share.
We entered into an International Sales and Marketing Contract with Obras
Electromecanicas TKV in August 2001. Mr. Oton Tisch, one of our directors, is
the President, Chief Executive Officer and the owner of TKV. Under the contract,
TKV will perform international sales and marketing services for the Lasette and
related accessories and the Cell Robotics Workstation in Mexico and various
countries in Asia, Latin America, Central America, the Caribbean and Europe
(these are referred to as the "territory" in the contract). During each year of
the contract, TKV will
43
receive 5% of the net value of Lasette and related accessories exports to the
territory for the first $1,000,000 sold, 3.5% for the second $1,000,000 sold,
2.5% for the third $1,000,000 sold and 2% for the balance. TKV will not be
separately compensated for services provided for the Cell Robotics Workstation
unless TKV is involved in certain issues, in which case TKV will receive 3% of
the sale value. Through December 31, 2002, TKV has earned $203,020 under the
contract. In August 2002 and December 2002, we issued to Mr. Tisch an aggregate
of 421,711 shares of our common stock and warrants to purchase an aggregate of
92,928 shares of our common stock in payment in full of these fees, plus
reimbursement of out-of-pocket expenses. This warrant has an exercise price of
$0.60 per share and expires on December 7, 2007. The contract expires on August
1, 2003.
On March 29, 2002, we signed a promissory note in the face amount of $2,000,000
payable to one of our directors, Mr. Oton Tisch. The promissory note was amended
and restated on September 17, 2002. Under this promissory note, Mr. Tisch may
make one or more advances to us at times and in amounts, as determined by Mr.
Tisch in his discretion, of up to an aggregate principal sum of $1,488,500 (the
"Loan A Facility"). Additionally, Mr. Tisch must make requested advances under
this note up to an aggregate principal sum of $511,500 so long as he remains
satisfied in his reasonable credit judgment with our capital raising activities
(the "Loan B Facility"). Therefore, Mr. Tisch has no obligation or commitment to
make any loans under the Loan A Facility and must make advances under the Loan B
Facility only to the extent he is satisfied with our capital raising activities
in his reasonable credit judgment. This note bears interest at 8% per annum and
is presently secured by all our assets. Mr. Tisch has funded a total principal
amount of $577,300 under this note as of as of December 31, 2002. On November
13, 2002, pursuant to a stock purchase agreement between the company and Mr.
Tisch dated November 12, 2002, we issued 776,949 shares of our common stock to
Mr. Tisch at a price per share of $0.45 in repayment in full of $337,300 of
principal and $12,327 of accrued interest owed to Mr. Tisch under the promissory
note. Additionally, on November 19, 2002, we repaid, in cash, $180,000 owed
under the note. As of December 31, 2002, the remaining principal balance
outstanding under the note was $60,000, all of which was outstanding under the
Loan B Facility. No amounts borrowed under the Loan A Facility or the Loan B
Facility may be reborrowed after being repaid by us. As of December 31, 2002,
the remaining amount available at Mr. Tisch's sole discretion under the Loan A
Facility is $1,000,000. As of December 31, 2002, the remaining amount available
under the Loan B Facility is $422,700. All principal and interest outstanding
under the note are due on April 1, 2004.
On May 16, 2002, we issued 186,498 shares of our common stock in a private
placement with Mr. Oton Tisch, a director of the company. The gross proceeds
from the offering were $100,000. In connection with this private placement, Mr.
Tisch was issued warrants to purchase 55,949 shares of our common stock at a
price of $0.87 per share. The warrants expire on May 17, 2007.
Mr. Eutimio Sena has provided consulting services to the company relating to our
marketing and sales strategies. On August 2, 2002, we issued 5,000 shares of our
common stock to Mr. Sena, a director of the company, in payment of fees owed for
these services. We also owe Mr. Sena $39,600 for fees owed for consulting
services as of December 31, 2002, which may be paid by us in cash or shares of
our common stock.
On November 13, 2002, in connection with the conversion of the outstanding
principal and interest owed to Mr. Tisch under the January 2001 loan agreement
and the promissory note in the face amount of $2,000,000, as described above, we
issued Mr. Tisch a warrant to purchase 771,551 shares of our common stock. The
warrant has an exercise price of $0.7125 per share and expires on November 13,
2007.
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:
44
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, 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,
45
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.
46
SELLING SECURITYHOLDERS
The following table sets forth the names of the selling securityholders who may
sell their common stock 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 April 14, 2003, to the
best of our knowledge, regarding the ownership of our common stock by the
selling securityholders and as adjusted to give effect to the sale of all the
common stock offered by the selling securityholder pursuant to this prospectus.
<Table>
<Caption>
NUMBER OF
SHARES PERCENTAGE
NUMBER OF SHARES BENEFICIALLY BENEFICIAL
SELLING BENEFICIALLY OWNED COMMON STOCK OWNED AFTER OWNERSHIP AFTER
SECURITYHOLDER BEFORE OFFERING(1) BEING OFFERED THE OFFERING THE OFFERING
- ---------------------------------------- ------------------ ---------------- ---------------- ----------------
Oton M. Tisch 5,968,026(2) 5,448,387(3) 519,639 2.5%
William S. Hayman 509,050(4) 509,050(4) -- *
Ronald K. Lohrding 1,044,978(5) 303,750(6) 741,228 3.7%
Raymond Radosevich 23,000(7) 3,000(8) 20,000 *
Haemedic LLC 26,500(9) 1,500(10) 25,000 *
Humagen Fertility Diagnostics, Inc. 11,750(11) 6,750(12) 5,000 *
Clark Aamodt 162,224 121,224(13) 41,000 *
Leof Strand 322,582(14) 221,080(15) 101,502 *
Becton, Dickinson and Company 225,000(16) 225,000(16) -- *
Frederick A. Voight 750,000(17) 750,000(17) -- *
Paul Bardacke 383,333(18) 163,333(19) 220,000 1.1%
RCG Capital Markets Group, Inc. 100,000(20) 100,000(20) -- *
TOTAL 7,853,074
</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 April 14, 2003.
(2) Mr. Tisch serves on our board of directors and has served as a
consultant to the company. 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. We also issued Mr. Tisch 186,498
shares of common stock and a warrant exercisable for 55,949 shares of
common stock in a May 2002 private placement of our securities. Also
includes 935,051 shares issuable upon exercise of warrants issued to
Mr. Tisch in connection with loans made by him to us under the January
2001, the August 2001 promissory notes and the conversion of certain of
his outstanding loans to the company in November 2002. Further,
includes stock options covering 5,000 shares issued to Mr. Tisch for
serving as a director. Additionally, includes 684,685 shares of our
common stock issued upon conversion of the outstanding balance of the
August 2001 convertible promissory note. Further, Mr. Tisch received
3,086,204 shares in connection with the conversion of certain of his
outstanding loans to the company in November 2002. In August 2002 and
December 2002, we issued to Mr. Tisch an aggregate of 421,711 shares of
our common stock and warrants to purchase an aggregate of 92,928 shares
of our common stock in payment in full of fees, plus reimbursement of
out-of-pocket expenses, incurred under our consulting agreement with
Obras Electromecanicas TKV. Mr. Tisch is the sole owner and Chief
Executive Officer and President of TKV.
(3) Includes 500,000 shares of our common stock issued upon conversion of a
secured convertible promissory note in the principal amount of
$1,200,000. Also includes 684,685 shares of our common stock issued
upon conversion of the outstanding balance of the August 2001
convertible promissory note and 3,086,204 shares in connection with the
conversion of certain of his outstanding loans to the company in
November 2002. Also includes 935,051 shares issuable upon exercise of
warrants issued to Mr. Tisch in connection with loans made by him to us
under the January 2001, the August 2001 promissory notes and the
conversion of certain of his outstanding loans to the company in
November 2002. Additionally, includes 55,949 shares of common stock
issuable upon exercise of a warrant and 186,498 shares of common stock,
which were obtained by Mr. Tisch in a May 2002 private placement of our
securities.
47
(4) Includes 424,208 shares of our common stock issued to Mr. Hayman in
connection with our January 2002 private placement. Also includes
84,842 shares issuable upon exercise of a warrant issued to Mr. Hayman
in connection with our January 2002 private placement.
(5) Dr. Lohrding served as our Chief Executive Officer and President until
his resignation on July 15, 2002. Dr. Lohrding also served as a member
of our board of directors until his resignation in September 2002. The
amount includes 741,228 shares of our common stock issuable upon
exercise of stock options and 3,750 shares issuable upon exercise of a
warrant issued to Dr. Lohrding in connection with a loan made by him to
us under the January 2001 promissory note.
(6) Includes 3,750 shares of our common stock issuable upon exercise of a
warrant issued to Dr. Lohrding in connection with a loan made by him to
us under the January 2001 promissory note.
(7) Mr. Radosevich is a former member of our board of directors. The amount
includes 20,000 shares of our common stock issuable upon exercise of
stock options and 3,000 shares issuable upon exercise of a warrant
issued to Mr. Radosevich in connection with a loan made by him to us
under the January 2001 promissory note.
(8) Represents 3,000 shares of our common stock issuable upon exercise of a
warrant issued to Mr. Radosevich in connection with a loan made by him
to us under the January 2001 promissory note.
(9) The president and majority shareholder of Haemedic LLC is Mr. Steven
Crees, a former director of the company. The amount includes 25,000
shares of our common stock issuable to Mr. Crees upon exercise of stock
options and 1,500 shares issuable upon exercise of a warrant issued to
Haemedic LLC in connection with a loan made under the January 2001
promissory note.
(10) Represents 1,500 shares of our common stock issuable upon exercise of a
warrant issued to Haemedic LLC in connection with a loan made to us
under the January 2001 promissory note.
(11) The president and majority shareholder of Humagen Fertility
Diagnostics, Inc. is Ms. Debra Bryant who was a former member of our
board of directors. The amount includes 5,000 shares of our common
stock owned by Humagen Fertility Diagnostics, Inc. The amount also
includes 6,750 shares issuable upon exercise of a warrant issued to
Humagen Fertility Diagnostics, Inc. in connection with a loan made to
us under the January 2001 promissory note.
(12) Represents 6,750 shares of our common stock issuable upon exercise of a
warrant issued to Humagen Fertility Diagnostics, Inc. in connection
with a loan made to us under the January 2001 promissory note.
(13) Represents 27,975 shares of common stock issuable upon exercise of a
warrant and 93,249 shares of common stock, which were obtained by Mr.
Aamodt in a May 2002 private placement of our securities.
(14) Mr. Strand has served as a consultant to the company since August 2002.
We issued Mr. Strand 158,523 shares of common stock and a warrant
exercisable for 47,557 shares of common stock in a May 2002 private
placement of our securities. Also includes 8,333 shares issued as a
success fee in connection with a January 2002 private placement of our
securities.
(15) Includes 47,557 shares of common stock issuable upon exercise of a
warrant exercisable and 158,523 shares of common stock, which were
obtained by Mr. Strand in a May 2002 private placement of our
securities.
(16) Represents shares issuable upon exercise of a warrant. Becton,
Dickinson and Company is a exclusive licensor of the company.
(17) Includes 500,000 shares of our common stock issued to Mr. Voight in
connection with a private placement. Also includes 250,000 shares
issuable upon exercise of a warrant issued to Mr. Voight in connection
with a private placement.
(18) Mr. Bardacke is an attorney who has provided legal services to us.
Includes 111,111 shares of our common stock issued to Mr. Bardacke in
connection with our December 2002 private placement. Also includes
52,222 shares issuable upon exercise of warrants issued to Mr. Bardacke
in connection with our December 2002 private placement. Mr. Bardacke
also acquired 40,000 shares of our common stock in a private offering.
(19) Includes 111,111 shares of our common stock issued to Mr. Bardacke in
connection with our December 2002 private placement. Also includes
52,222 shares issuable upon exercise of warrants issued to Mr. Bardacke
in connection with our December 2002 private placement.
(20) 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.
We will pay all expenses to register the common stock. 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.
48
PLAN OF DISTRIBUTION
We are registering the common stock covered by this prospectus on behalf of the
selling securityholders. As used herein, "selling securityholders" include
donees and pledgees selling shares received from a named selling securityholder
after the date of this prospectus. We will bear all costs, expenses and fees in
connection with the registration of the common stock offered hereby. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
shares of common stock will be borne by the selling securityholders. Sales of
shares of common stock may be effected by selling securityholders from time to
time in one or more of the following transactions, or in other kinds of
transactions:
o a block trade in which the selling securityholder's broker or
dealer will attempt to sell the shares as agent, but may
position and resell all or a portion of the block as a
principal to facilitate the transaction,
o a broker or dealer may purchase the common stock as a
principal and then resell the common stock for its own account
pursuant to this prospectus,
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers,
o transactions on any national securities exchange or U.S.
inter-dealer system of a registered national securities
association on which our common stock may be listed or quoted
at the time of sale,
o in the over-the-counter market,
o in privately negotiated transactions,
o through put or call options transactions relating to the
common stock,
o through short sales of shares of common stock, or
o a combination of such methods of sale.
Sales of shares of common stock may be effected by selling securityholders at
market prices prevailing at the time of sale or at negotiated prices. To our
knowledge, none of the selling securityholders have entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of shares of common stock offered by
this prospectus.
The selling securityholders may effect such transactions by selling shares of
common stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the selling securityholders
and/or the purchasers of shares of common stock for whom such broker-dealers may
act as agents or to whom they sell as principal, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
The selling securityholders and any broker-dealers that act in connection with
the sale of shares of common stock might be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act and any commissions received
by such broker-dealers and any profit on the resale of the common stock sold by
them while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. The selling securityholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the common stock against certain liabilities, including
liabilities arising under the Securities Act.
Because selling securityholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the selling securityholders will
be subject to the prospectus delivery requirements of the Securities
49
Act. We have informed the selling securityholders that the anti-manipulative
provisions of Regulation M promulgated under the Securities Exchange Act of
1934, as amended, may apply to their sales in the market.
Selling securityholders also may resell all or a portion of the common stock in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon our being notified by a selling securityholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
common stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing:
o the name of each such selling securityholder and of the
participating broker-dealer(s),
o the number of shares involved,
o the price at which such shares were sold,
o the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigation
to verify the information set out or incorporated by reference
in this prospectus, and
o other facts material to the transaction.
In addition, upon our being notified by a selling securityholder that a donee or
pledgee of a selling securityholder intends to sell more than 500 shares of
common stock, a supplement to this prospectus will be filed.
LEGAL MATTERS
The legality of the common stock offered under this prospectus was passed on for
us by Neuman & Drennen, LLC.
EXPERTS
We have included in the registration statement and this prospectus our audited
consolidated financial statements as of December 31, 2002 and for year then
ended along with Grant Thornton LLP's audit report on these consolidated
financial statements. Grant Thornton LLP issued the report as independent
certified public accountants and as experts in auditing and accounting.
Reference is made to the report, which includes an explanatory paragraph
regarding the uncertainty about our ability to continue as a going concern as
discussed in note 2 to our consolidated financial statements.
Our consolidated financial statements as of December 31, 2001, and for the year
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, 2001 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.
50
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On January 17, 2003, the Audit Committee of the Board of Directors of the
company unanimously approved the dismissal of KPMG LLP and the appointment of
Grant Thornton LLP as the independent accountant for the company and subsidiary.
The company engaged Grant Thornton LLP on January 17, 2003.
In connection with the audits of the two fiscal years ended December 31, 2001,
and the subsequent interim period through January 17, 2003, there were no
disagreements with KPMG LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference in connection with their opinion to the subject matter of the
disagreement.
The audit report of KPMG LLP on the consolidated financial statements of the
company and subsidiary as of and for the year ended December 31, 2001, did not
contain any adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principles except as
follows:
KPMG LLP's report on the consolidated financial statements of the
company and subsidiary as of and for the year ended December 31, 2001,
contained a separate paragraph stating "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 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty."
A letter from KPMG LLP is attached as Exhibit 16.1.
During our two most recent fiscal years, and through January 17, 2003, we have
not consulted with Grant Thornton LLP regarding any of the matters specified in
Item 304(a)(2) of Regulation S-K.
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 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.
51
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
<Table>
Report of Independent Certified Public Accountants (2002)..........................................................F-2
Independent Auditors' Report (2001)................................................................................F-3
Consolidated Balance Sheets -- December 31, 2002 and 2001..........................................................F-4
Consolidated Statements of Operations -- Years ended December 31, 2002 and 2001....................................F-5
Consolidated Statements of Stockholders' Equity (Deficit) - Years ended December 31, 2002 and 2001.................F-6
Consolidated Statements of Cash Flows -- Years ended December 31, 2002 and 2001....................................F-7
Notes to Consolidated Financial Statements.........................................................................F-8
</Table>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cell Robotics International, Inc.
We have audited the accompanying consolidated balance sheet of Cell Robotics
International, Inc. and subsidiary as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 audit.
We conducted our audit 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 audit provides 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, 2002, and the results of
their operations and their cash flows for the year 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 2 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 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Grant Thornton LLP
Albuquerque, New Mexico
March 25, 2003
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cell Robotics International, Inc.
We have audited the accompanying consolidated balance sheet of Cell Robotics
International, Inc. and subsidiary as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year 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 audit.
We conducted our audit 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 audit provides 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, 2001, and the results of
their operations and their cash flows for the year 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 2 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 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Albuquerque, New Mexico
February 22, 2002
F-3
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 299,083 $ 5,633
Accounts receivable, net of allowance for
doubtful accounts of $4,991 in 2002 and
$4,991 in 2001 500,636 287,482
Other receivables 260,000
Inventory 539,284 911,421
Other current assets 48,246 49,009
------------ ------------
Total current assets 1,647,249 1,253,545
Property and equipment, net 274,589 386,914
Other assets, net 60,782 19,279
------------ ------------
Total assets $ 1,982,620 $ 1,659,738
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 619,679 $ 579,021
Notes payable - related parties 180,402 1,608,989
Payroll related liabilities 169,123 145,952
Royalties payable 152,400 110,846
Other current liabilities 71,125 44,607
------------ ------------
Total current liabilities 1,192,729 2,489,415
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero shares
issued and outstanding at December 31, 2001
and 2000 -- --
Common stock, $.004 par value. Authorized
50,000,000 shares, 18,406,025 and 9,956,137
shares issued and outstanding at December 31,
2002 and 2001, respectively 73,624 39,825
Additional paid-in capital 29,816,590 25,223,575
Accumulated deficit (29,100,323) (26,093,077)
------------ ------------
Total stockholders' equity (deficit) 789,891 (829,677)
------------ ------------
Total liabilities and stockholders' equity $ 1,982,620 $ 1,659,738
============ ============
</Table>
See accompanying notes to consolidated financial statements.
F-4
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
Product sales $ 1,584,359 $ 1,461,447
SBIR research and development grants -- 137,597
------------ ------------
Total revenues 1,584,359 1,599,044
------------ ------------
Product cost of goods sold 1,340,440 1,360,646
SBIR direct expenses -- 137,597
------------ ------------
Total cost of goods sold 1,340,440 1,498,243
------------ ------------
Gross profit 243,919 100,801
------------ ------------
Operating expenses:
General and administrative 1,153,683 936,000
Marketing & sales 945,701 1,211,726
Research and development 508,836 610,354
------------ ------------
Total operating expenses 2,608,220 2,758,080
------------ ------------
Loss from operations (2,364,301) (2,657,279)
------------ ------------
Other income (expense):
Interest income 17 11,979
Interest expense (153,643) (125,489)
Other, net 57,358 46,945
Loss on extinguishment of debt (546,677) --
------------ ------------
Total other expense (642,945) (66,565)
------------ ------------
Net loss $ (3,007,246) $ (2,723,844)
============ ============
Weighted average common shares
outstanding, basic and diluted 11,826,692 9,984,989
============ ============
Net loss per common share, basic and diluted $ (0.25) $ (0.27)
============ ============
</Table>
See accompanying notes to consolidated financial statements.
F-5
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
Preferred Stock Common Stock
----------------------- ------------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- ---------- ---------- ---------- ---------- ------------
Balance at January 1, 2001 -- $ -- 9,965,644 $ 39,863 25,114,871 (23,369,233)
Shares issued for services -- -- 52,375 210 23,697 --
Stock cancellation -- -- (61,882) (248) 248 --
Options & warrants issued for services -- -- -- -- 84,759 --
Net loss -- -- -- -- -- (2,723,844)
---------- ---------- ---------- ---------- ---------- ------------
Balance at December 31, 2001 -- -- 9,956,137 39,825 25,223,575 (26,093,077)
Stock issued for services -- -- 257,442 1,030 135,393 --
Issuance of stock at $0.71 in a private
placement, less costs of offering -- -- 432,541 1,730 258,432 --
Exercise of stock options -- -- 1,817,924 7,272 688,918 --
Conversion of convertible debt -- -- 684,685 2,738 427,544 --
Issuance of stock at $0.53 in a private
placement, less costs of offering -- -- 438,270 1,753 174,970 --
Issuance of stock at $0.45 in a private
placement, less costs of offering -- -- 111,111 444 37,891 --
Issuance of stock at $0.40 in a private
placement, less costs of offering -- -- 1,250,000 5,000 434,439 --
Payment of debt with equity issuance -- -- 3,457,915 13,832 1,794,139 --
Warrants issued in payment of debt
with equity transactions -- -- -- -- 294,768 --
Warrants issued in private placement
transactions -- -- -- -- 155,054 --
Options & warrants issued
for services -- -- -- -- 191,467 --
Net loss -- -- -- -- -- (3,007,246)
---------- ---------- ---------- ---------- ---------- ------------
Balance at December 31, 2002 -- $ -- 18,406,025 $ 73,624 29,816,590 (29,100,323)
========== ========== ========== ========== ========== ============
</Table>
See accompanying notes to consolidated financial statements.
F-6
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (3,007,246) (2,723,844)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 144,072 174,521
Beneficial conversion charge 271,791 --
Provision for bad debts -- 3,150
Options and warrants issued for services 486,235 84,759
Common stock issued for services 303,693 23,907
Changes in operating assets and liabilities:
(Increase) decrease in receivables (473,154) 88,221
Decrease in inventory 372,137 167,665
(Increase) decrease in other assets (61,020) 11,841
Increase in accounts payable
and payroll related liabilities 10,583 221,714
Increase (decrease) in other current
liabilities, accrued litigation costs
and royalties payable 121,318 (441,603)
------------ ------------
Net cash used in operating activities (1,831,591) (2,389,669)
------------ ------------
Cash flows from investing activities:
Net cash used in investing activities -
Purchase of property and equipment (11,467) (6,917)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 1,069,712 --
Proceeds from exercise of options 696,190 --
Proceeds from loan - related parties 586,933 1,358,989
Repayments of notes payable - related party (216,327) --
------------ ------------
Net cash provided by financing activities 2,136,508 1,358,989
------------ ------------
Net increase (decrease) in cash and cash equivalents: 293,450 (1,037,597)
Cash and cash equivalents:
Beginning of year 5,633 1,043,230
------------ ------------
End of year $ 299,083 $ 5,633
============ ============
Supplemental information:
Non-cash - Conversion of debt to equity $ 410,400 $ --
Non-cash - Payment of debt with equity $ 1,556,062 $ --
Interest paid $ 162,579 $ 4,546
============ ============
</Table>
See accompanying notes to consolidated financial statements.
F-7
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(1) BUSINESS AND ACTIVITIES
Cell Robotics International, Inc. and its wholly owned subsidiary, Cell
Robotics, Inc. (the "Company"), have developed and are manufacturing
and marketing a sophisticated laser-based medical device with
applications in the blood sample and collection markets. The Company
has also developed a proprietary medical laser, called the UltraLight,
for aesthetic or skin rejuvenation applications commonly known as laser
skin photo rejuvenation. In addition, the Company develops, produces
and markets a scientific research instrument line that increases 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, distributors and mail-order businesses that serve
patients with diabetes as well as the physician community, and medical
clinics.
(2) CAPITAL RESOURCES
Since inception, the Company has incurred operating losses and other
equity charges which have resulted in an accumulated deficit of
$29,100,323 at December 31, 2002 and operations using net cash of
$1,831,591 in 2002.
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 the
Lasette, a sophisticated laser-based medical device, that leverages the
Company's existing base of technology. The Company also expects to
begin commercial shipments of the UltraLight Laser in the second
quarter of 2003. The Company believes the markets for these products
are broader than that of the scientific research instruments market
and, as such, offer a greater opportunity to significantly increased
sales. In addition, the Company is pursuing development and marketing
partners for some of its new medical products. If obtained, the Company
believes these partnerships may 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 the Lasette,
the Company expects to begin commercial shipments of the UltraLight
Laser in 2003 and the Company continues to market its scientific
research instrument line, it does not anticipate achieving profitable
operations until after 2003. As a result, the Company expects that
additional operating funds will be required under its September 2002
promissory note or under alternative financing sources and that its
accumulated deficit will increase in the foreseeable future.
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 obtaining additional financing and attaining
profitable operations.
(3) 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, Cell Robotics, Inc. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
(b) Financial Statement Estimates
F-8
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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.
(d) Accounts Receivable
The majority of the Company's accounts receivable are due from
distributors of medical devices or of research instruments.
Credit is extended based on evaluation of a customers'
financial condition and, generally, collateral is not
required. Accounts receivable are due within 30 to 90 days and
are stated at amounts due from customers net of an allowance
for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. The Company
determines its allowance by considering a number of factors,
including the length of time trade accounts receivable are
past due, the Company's previous loss history, the customer's
current ability to pay its obligation to the Company, and the
condition of the general economy and the industry as a whole.
The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful
accounts.
(e) Inventory
Inventory is recorded at the lower of cost, determined by the
first-in, first-out method, or market. Obsolete inventory is
written-off in the period that the impairment occurs.
Inventory at December 31 consists of the following:
<Table>
<Caption>
2002 2001
---------- ----------
Finished goods $ 8,901 $ 98,611
Parts and components 436,181 729,378
Sub-assemblies 94,202 83,432
---------- ----------
$ 539,284 $ 911,421
========== ==========
</Table>
(f) 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.
Routine maintenance and repairs are charged to expense as
incurred. Annually the Company reviews property and equipment
for potential impairment. Any losses noted are written-off in
the period that the impairment occurs.
(g) 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
F-9
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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 2002 and 2001, as all
potentially dilutive securities were anti-dilutive.
Options to purchase 3,130,869 and 2,923,626 shares of common
stock were outstanding at December 31, 2002 and 2001,
respectively. Additionally, warrants to purchase 3,299,350 and
1,691,326 shares of common stock were outstanding at December
31, 2002 and 2001, 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.
(h) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, payroll related liabilities,
royalties payable, accrued liabilities and notes payable in
the consolidated financial statements approximate fair value
because of the short-term maturity of these instruments.
(i) 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.
(j) 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 customers
site, the recognition of revenue relating to the installation
is deferred until the installation is completed. Appropriate
allowances are made for returns.
(k) 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.
(l) 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.
The Company records a liability for an estimate of costs that
it expects to incur under its basic limited warranty when
product revenue is recognized. Factors affecting the Company's
warrant liability include the number of units sold and
historical and anticipated rates of claims and costs per
claim. The Company periodically assesses the adequacy of its
warranty liability based on changes in these factors.
(m) 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
F-16
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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 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 applies APB Opinion No. 25 in accounting for its
Stock Incentive Plans 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:
<Table>
<Caption>
2002 2001
------------ ------------
Reported net loss applicable to common
shareholders $ (3,007,246) $ (2,723,844)
Pro forma net loss applicable to common
shareholders (3,241,954) (3,189,844)
Pro forma net loss per share applicable to
common shareholders - basic and diluted $ (.27) $ (.32)
============ ============
</Table>
The Company also issues stock, stock options or stock warrants
to non-employees for services. The fair value of the stock,
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 issuances are discussed in Note 10 and issuances of
options or warrants are included in the disclosures in Note 6.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<Table>
<Caption>
2002 2001
------------ ------------
Furniture and fixtures $ 6,762 $ 14,791
Computers 224,606 393,458
Equipment 707,675 975,527
Leasehold improvements 43,447 48,961
------------ ------------
982,490 1,432,737
Accumulated depreciation (707,901) (1,045,823)
------------ ------------
Property and equipment, net $ 274,589 $ 386,914
============ ============
</Table>
F-11
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(5) OTHER ASSETS
Other assets consist of the following at December 31:
<Table>
<Caption>
2002 2001
------------ ------------
Patents 48,246 48,246
License agreement 61,783 --
Non-compete agreements -- 8,116
------------ ------------
110,029 56,362
Accumulated amortization (49,247) (37,083)
------------ ------------
Other assets, net $ 60,782 $ 19,279
============ ============
</Table>
(6) STOCK OPTIONS AND WARRANTS
(a) Stock Options
The Company's shareholders have adopted a Stock Incentive Plan
(the "Incentive 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
Incentive Plan. Generally, stock options granted under the
Incentive Plan have five-year terms and become fully
exercisable after three or four years from the date of grant.
The Incentive Plan expired in August 2002. Therefore the
672,765 options available for grant on the date the Incentive
Plan also expired.
In September 2002 the Company's Board of Directors adopted the
2002 Stock Purchase Plan (the "2002 Plan"). An aggregate of
2,000,000 were reserved for issuance under the 2002 Plan as of
December 31, 2002. In March 2003, the Company's Board of
Directors adopted an amendment to the 2002 Plan increasing the
shares available for issuance by 1,000,000. Participants in
the 2002 Plan may be granted shares of common stock or options
to purchase shares of common stock.
Following is a summary of activity in the Company's options
for employees, directors, outside consultants, and technical
advisors:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
2002 2001
----------------- -----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE NUMBER PRICE NUMBER
---------- ---------- ---------- ----------
Outstanding at beginning of year $ 1.37 2,923,626 $ 2.14 1,594,575
Granted $ 0.61 2,517,000 $ 0.58 1,538,225
Exercised $ 0.38 (1,817,924) $ -- --
Forfeited $ 2.09 (491,833) $ 1.42 (209,174)
Outstanding at end of year $ 1.23 3,130,869 $ 1.37 2,923,626
---------- ---------- ---------- ----------
Exercisable at end of year $ 1.22 2,555,539 $ 1.30 2,284,874
</Table>
F-12
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
The following summarizes certain information regarding outstanding stock options
at December 31, 2002:
<Table>
<Caption>
TOTAL EXERCISABLE
------------------------------------------ ---------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICE RANGE NUMBER PRICE LIFE (YEARS) PRICE NUMBER
- ------------------ ------------ ------------ ------------ ------------ ------------
0.37 to 0.50 853,127 $ 0.38 3.81 $ 0.38 846,127
0.57 to 0.84 660,000 0.72 3.37 0.75 538,335
1.25 to 1.78 1,091,075 1.44 3.16 1.55 687,743
2.00 to 2.81 470,000 2.64 2.45 2.63 433,334
3.25 to 4.47 56,667 3.90 1.69 3.82 50,000
------------ ------------ ------------ ------------ ------------
Total 3,130,869 $ 1.23 3.25 $ 1.22 2,555,539
============ ============ ============ ============ ============
</Table>
During 2002 and 2001, the Company granted 702,000 and
1,238,225, respectively, options outside of the Incentive Plan
and the 2002 Plan, for the purchase of the Company's common
stock to employees, directors, consultants and a provider of
public relations services for the Company. Such options are
included in the above tables.
At December 31, 2001, there were 677,765 additional shares
available for grant under the Incentive Plan. The Incentive
Plan was terminated in August 2002, therefore, no shares were
available for issuance at December 31, 2002. At December 31,
2002, there were 2,558 shares available for grant under the
2002 Plan. The 2002 Plan was adopted in September 2002,
therefore, there were no shares were available for issuance
under the 2002 Plan at December 31, 2001. The weighted-average
fair value of stock options granted in 2002 and 2001 was $0.21
and $0.31, respectively, calculated on the date of grant using
the Black Scholes option-pricing model using the following
assumptions for 2002 and 2001, respectively. Expected dividend
yield of 0% and 0%, risk-free interest rate of 3% and 2.5%,
expected life of option of 4 years and 4 years, and expected
volatility of 114% and 97%.
(b) Warrants
The Company granted a Representative's Warrant to an
underwriter. The Representative's Warrant was exercisable
through February 2, 2003 to purchase 160,000 shares of common
stock at a price of $2.475 per share. Upon exercise of the
Representative's Warrant, the holder would receive warrants to
purchase 80,000 shares of common stock for a price of $2.40
per share that are exercisable through February 2, 2003. The
Representative's Warrant expired unexercised on February 2,
2003.
In conjunction with an offering completed in February 1998 and
the exchange of common stock for Units in February 1998, the
Company issued warrants to purchase an aggregate of 1,077,576
shares of common stock. The warrants were exercisable through
February 2, 2003 for a price of $2.40 per share. The warrants
expired unexercised on February 2, 2003.
In connection with the private placement completed in July
1999, the Company issued warrants that were exercisable
through February 2, 2003. The warrants entitled the holder to
purchase 101,250 shares of common stock for a price of $2.40
per share. The warrants expired unexercised on February 2,
2003.
F-13
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
In consideration for services received, the Company issued
warrants to a provider of corporate legal services. The
warrants were exercisable through February 2, 2003 to purchase
15,000 shares of common stock for a price of $2.40 per share.
The warrants expired unexercised on February 2, 2003.
In 2000, the Company issued warrants to an investment research
firm and a public relations firm. The warrants were
exercisable through February 3, 2003 to purchase 70,000 shares
of common stock for a price of $2.40 per share. The warrants
expired unexercised on February 3, 2003.
In January 2001 the Company issued warrants to five of its
directors. The warrants were issued in connection with the $1
million board loan between the directors and the Company. See
note 11. The warrants are exercisable through January 31, 2004
to purchase an aggregate of 150,000 shares of common stock for
a price of $1.125 per share.
In August 2001 the Company issued warrants to a director to
purchase 37,500 shares of common stock, of which 28,500 are
exercisable. The warrants were issued in connection with the
$500,000 convertible loan between the director and the
Company. The warrants are exercisable through August 2, 2004
to purchase 28,500 shares of common stock for a price of $0.67
per share.
In connection with a license agreement between Becton
Dickinson and Company, the Company issued warrants to purchase
225,000 shares of common stock. The warrants are exercisable
through November 7, 2006 for a price of $0.37 per share.
In connection with a January 2002 private placement, the
Company issued to a private investor warrants to purchase
84,842 shares of common stock. The warrants are exercisable
through January 25, 2007 for a price of $0.90 per share.
In connection with a May 2002 private placement, the Company
issued to three private investors, one of whom included Mr.
Oton Tisch, a director of the Company, warrants to purchase an
aggregate of 131,481 shares of common stock. The warrants are
exercisable through May 17, 2007 for a price of $0.87 per
share.
In connection with a November 2002 private placement, the
Company issued to Mr. Oton Tisch, a director of the Company,
warrants to purchase 771,551 shares of common stock. The
warrants are exercisable through November 13, 2007 for a price
of $0.7125 per share.
In connection with a November 2002 private placement, the
Company issued to a private investor warrants to purchase
250,000 shares of common stock. The warrants are exercisable
through November 29, 2007 for a price of $0.70 per share.
In connection with a December 2002 private placement, the
Company issued to a private investor warrants to purchase
52,222 shares of common stock. The warrants are exercisable
through December 2, 2007. Of the 52,222 warrants granted,
22,222 shares of common stock are exercisable for a price of
$0.70 per share and the remaining 30,000 shares are
exercisable for a price of $2.40 per share.
In December 2002 the Company issued to Mr. Oton Tisch warrants
to purchase 92,928 shares of common stock in payment of
consulting services provided by Obras Electromecanicas TKV.
The warrants are exercisable through December 6, 2007 for a
price of $0.60 per share. Mr. Tisch, a director of the
Company, is the sole owner and Chief Executive Officer and
President of TKV.
F-14
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(7) 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. In January 2002 the Company signed an exclusive
licensing arrangement with Becton Dickinson and Company regarding the
Tankovich Patent. The license is valid until the patent expires in
2012. The Company is required to pay Becton Dickinson a royalty of 2.5%
on all sales of the Lasette and its related accessories and issued
225,000 warrants. Under the license, the payment of royalties for sales
during the first two years of the agreement is deferred until November
2004. Royalties earned during the third year of the agreement and
through the remainder of the term will be payable on a quarterly basis.
In connection with the license, Becton Dickinson released the Company
from any alleged infringement under the Tankovich Patent.
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
payment of $35,000. The minimum annual royalty payment of $35,000 is
payable as follows: $17,500 sixty days after the end of each semiannual
period ending the last day of June and December. As of December 31,
2002 and 2001 the Company had accrued royalties of $152,400 and
$110,846, respectively.
(8) INCOME TAXES
No provision for federal or state income tax expense has been recorded
due to the Company's losses. Total income tax benefit differs from the
amounts computed by applying the statutory tax rate to loss before
income taxes. The reason for this difference is as follows:
<Table>
<Caption>
DECEMBER 31,
2002 2001
------------ ------------
Expected tax benefit at the
U.S. statutory rate of 34% ($ 1,022,464) (926,107)
Valuation allowance 1,022,464 926,107
------------ ------------
Actual tax benefit -- --
============ ============
</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,
2002 2001
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 9,869,000 8,253,000
Inventory capitalization 82,000 184,000
Vacation and sick leave payable 49,000 43,000
Allowance for doubtful accounts 2,000 15,000
Capital loss carryforward -- 15,000
Warranty and return reserves 20,000 --
------------ ------------
10,022,000 8,510,000
Less valuation allowance (9,893,000) (8,418,000)
------------ ------------
Net deferred tax asset 129,000 92,000
------------ ------------
Deferred tax liabilities:
Amortization 42,000 39,000
Federal impact of state NOL carryforward -- 6,000
Depreciation 87,000 47,000
------------ ------------
Net deferred income taxes $ -- --
============ ============
</Table>
F-15
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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 $25,400,000
expires beginning in 2006 through 2022. Internal Revenue Code Section
382 places a limitation on the amount of taxable income that can be
offset by carryforwards after a change in control (generally greater
than a 50% change in ownership). As a result of these provisions,
utilization of the NOL and tax credit carryforwards may be limited.
(9) COMMITMENTS
The Company is obligated under a non-cancellable operating lease for
building facilities which is subject to annual increases of
approximately 3% and expires on November 30, 2007. The Company has an
option to terminate the lease as of November 30, 2005 if it pays the
landlord a cancellation fee of $18,500 plus accrued rent through
termination. Rent expense for 2002 and 2001 was $120,808 and $120,676,
respectively. The minimum annual lease commitments for all building
facilities at December 31, 2002 is $108,278 for 2003, $111,918 for
2004, $115,557 for 2005, $119,197 for 2006 and $112,321 for 2007.
The Company has a sales and export contract with Obras Electromecanicas
TKV. Mr. Oton Tisch, one of the Company's directors, is the sole owner
and Chief Executive Officer and President of TKV. The contract requires
the Company to pay TKV a commission on sales that TKV or its
representatives negotiate. The commission rate, calculated annually, is
5% on the first $1,000,000 in sales, 3.5% on the next $1,000,000, 2.5%
on the next $1,000,000 and 2% on any additional sales. During 2002, the
Company accrued approximately $53,000 in commissions to TKV. As of
December 31, 2002, the Company had accrued $39,600 for consulting
services to Mr. Eutimio Sena, a director of the Company.
(10) EQUITY TRANSACTIONS
In October 2001 the Company issued a total of 52,375 shares of its
common stock as payment for services. The Company recorded charges of
$23,907, 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.
On January 25, 2002, the Company issued 424,208 shares of its common
stock in a private placement with William Hayman, a private investor,
which resulted in gross proceeds to the Company of $300,000.
Additionally, Mr. Hayman was issued warrants to purchase 84,842 shares
of common stock at a price of $0.90 per share. The warrants expire on
January 25, 2007. The Company also issued 8,333 shares of its common
stock to Leof Strand, a finder, in payment of a success fee in
connection with this transaction.
On May 16, 2002, the Company issued 438,270 shares of its common stock
in a private placement with three private investors, one of whom
included Mr. Oton Tisch, a director of the Company. The gross proceeds
to the Company were $235,000. Additionally, the three investors were
issued warrants to purchase a total of 131,481 shares of common stock
at an exercise price of $0.87 per share. The warrants expire on May 17,
2007.
On July 29, 2002, the Company converted the outstanding principal and
interest of the August 2, 2001 note by issuing to Mr. Oton Tisch
684,685 shares of the Company's common stock upon conversion of the
note. The conversion price of the convertible note was $0.5994 per
share of the Company's common stock in
F-16
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
accordance with the terms of the agreement. The convertible note
provided for Mr. Tisch to advance up to $500,000 to the Company at
times and in amounts determined by Mr. Tisch. Mr. Tisch made advances
totaling $380,000 under this convertible note. The advances made under
the convertible note accrued interest at a rate of 10% per annum and
the convertible note had a stated maturity date of August 2, 2002.
On August 2, 2002, the Company issued 70,000 shares of its common stock
to three consultants for services rendered, of which 50,000 shares were
issued to Obras Electromecanicas TKV and 5,000 shares were issued to
Mr. Eutimio Sena, a director of the company. Mr. Oton Tisch, one of the
Company's directors, is the sole owner and Chief Executive Officer and
President of TKV. The Company recorded a charge of $50,050 when these
shares were issued.
In September and October, 2002, the Company issued and aggregate of
187,442 shares of its common stock to two consultants for services
rendered.
On November 13, 2002 pursuant to a stock purchase agreement between the
Company and one director, Mr. Oton Tisch, dated November 12, 2002, the
Company issued 2,309,255 shares of common stock to Mr. Tisch at a price
per share of $0.45 in repayment in full of $900,000 of principal and
$139,165 of accrued interest owing to Mr. Tisch under the Company's
January 31, 2001 loan agreement with him. On that same date pursuant to
such stock purchase agreement, the Company also issued 776,949 shares
of its common stock to Mr. Tisch at a price per share of $0.45 in
repayment in full of $337,300 of principal and $12,327 of accrued
interest owing to Mr. Tisch under the Company's September 17, 2002
amended and restated promissory note in the face amount of $2,000,000.
Additionally, on November 13, 2002 pursuant to such stock purchase
agreement, in connection with the conversion of the outstanding
principal and interest owing to Mr. Tisch under the January 2001 loan
agreement and the September 17, 2002 promissory note, as described
above, the Company issued Mr. Tisch a warrant to purchase 771,551
shares of its common stock. The warrant has an exercise price of
$0.7125 per share and expires on November 13, 2007. In connection with
the stock purchase agreement and the repayment of the amounts owed to
Mr. Tisch under the January 2001 loan agreement and the September 17,
2002 promissory note, the Company recorded non-cash charges totaling
$494,691 for the year ended December, 31, 2002.
On November 22, 2002, the Company issued 1,250,000 shares of its common
stock in a private placement with Frederick A. Voight, a private
investor. Gross proceeds to the Company were $500,000. Additionally,
Mr. Voight was issued a warrant to purchase 250,000 shares of the
Company's common stock at an exercise price of $0.70 per share. The
warrant expires on November 22, 2007.
On December 2, 2002, the Company issued 111,111 shares of its common
stock in a private placement with Paul Bardacke, a private investor.
The gross proceeds to the Company were $50,000. Additionally, Mr.
Bardacke was issued warrants to purchase 22,222 and 30,000 shares,
respectively, of common stock. The warrant to purchase 22,222 shares
has an exercise price of $0.70 per share while the warrant for 30,000
shares has an exercise price of $2.40 per share. Both of the warrants
expire on December 2, 2007.
On December 12, 2002, the Company issued 371,711 shares of its common
stock, pursuant to a stock purchase agreement, to Mr. Oton Tisch, to
pay for services rendered by Obras Electromecanicas TKV in the capacity
as a consultant. Additionally, in connection with the stock purchase
arrangement Mr. Tisch was issued a warrant to purchase 92,928 shares of
common stock at an exercise price of $0.60 per share in consideration
for consulting services. The value of the consulting services of
$167,270 was recorded as a charge against the Company's earnings. The
warrant expires on December 7, 2007. Mr. Oton Tisch, a director of the
Company, is the sole owner and Chief Executive Officer and President of
TKV. In addition to the above charges, in connection with the stock
purchase agreement and the payment of amounts due for services
rendered, the Company recorded non-cash charges totaling $51,986 for
the year ended December, 31, 2002.
F-17
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(11) 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 was paid in monthly installments of $50,000, each during January
2002, February 2002 and March 2002. A final payment of $43,828 was made
in April 2002. During the year ended December 31, 2002 the Company
expensed approximately $29,000 of interest on this note.
In January 2001, certain members of the Company's board of directors or
affiliates of members or former members of the Company's board of
directors agreed to make term loan advances to the Company in an
aggregate amount of $1,000,000 pursuant to the terms of a loan
agreement. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and were due on January
31, 2002. On November 13, 2002 pursuant to a stock purchase agreement
between the Company and Mr. Oton Tisch dated November 12, 2002, the
Company issued 2,309,255 shares of its common stock to Mr. Tisch at a
price per share of $0.45 in repayment in full of $900,000 of principal
and $139,165 of accrued interest owing to Mr. Tisch under the loan
agreement. As of December 31, 2002, the remaining principal balance of
loans outstanding under the loan agreement was approximately $86,000,
of which $77,000 can be demanded at any time and approximately $9,000
is payable in equal installments of $2,500 each month with all
principal and interest due March 2003.
On March 29, 2002, the Company signed a promissory note in the face
amount of $2,000,000 payable to a director, Mr. Oton Tisch. The
promissory note was amended and restated on September 17, 2002. Under
this promissory note, Mr. Tisch may make one or more advances to the
Company at times and in amounts, as determined by Mr. Tisch in his
discretion, up to an aggregate principal sum of $1,488,500 (the "Loan A
Facility"). Additionally, Mr. Tisch must make requested advances under
this note up to an aggregate principal sum of $511,500 so long as he
remains satisfied in his reasonable credit judgment with the Company's
capital raising activities (the "Loan B Facility"). Therefore, Mr.
Tisch has no obligation or commitment to make any loans under the Loan
A Facility and must make advances under the Loan B Facility only to the
extent he is satisfied with the Company's capital raising activities in
his reasonable credit judgment. This note bears interest at 8% per
annum and is presently secured by all of the Company's assets. Mr.
Tisch has funded a total principal amount of $577,300 under this note
as of December 31, 2002. On November 13, 2002 pursuant to a stock
purchase agreement between the Company and Mr. Tisch dated November 12,
2002, the Company issued 776,949 shares of its common stock to Mr.
Tisch at a price per share of $0.45 in repayment in full of $337,300 of
principal and $12,327 of accrued interest owing to Mr. Tisch under the
promissory note. Additionally, on November 19, 2002, the Company
repaid, in cash, $180,000 owing under the note. As of December 31,
2002, the remaining principal balance outstanding under the note was
approximately $60,000, all of which was outstanding under the Loan B
Facility. No amounts borrowed under the Loan A Facility or the Loan B
Facility may be reborrowed after being repaid by the Company. As of
December 31, 2002, the remaining amount available at Mr. Tisch's sole
discretion under the Loan A Facility is $1,000,000. As of December 31,
2002, the remaining amount available under the Loan B Facility is
$422,700. All principal and interest outstanding under the note are due
on April 1, 2004.
A private investor that is not affiliated with the Company has advanced
the Company the principal sum of $27,000. The outstanding principal
balance of $27,000 is payable by the Company upon demand.
F-18
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
(12) SUBSEQUENT EVENTS
On February 24, 2003, the Company entered into a stock purchase
agreement with Valentin Bagarella, a private investor. In connection
with this agreement, the Company issued 250,000 shares of its common
stock and received, in gross proceeds, $100,000. Additionally Mr.
Bagarella was issued warrants to purchase 50,000 shares of the
Company's common stock at a price of $0.575 per share. The warrants
expire on February 25, 2008.
(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 devices 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
administrative 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, 2002
-----------------
Scientific Laser-Based
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 850,281 734,078 -- 1,584,359
Loss from operations (121,996) (1,091,575) (1,150,730) (2,364,301)
Segment assets 238,505 532,898 1,211,217 1,982,620
</Table>
<Table>
<Caption>
DECEMBER 31, 2001
-----------------
Scientific Laser-Based
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 986,998 474,449 -- 1,461,447
Research and development
grants 137,597 -- -- 137,597
Profit (loss) from operations (1,767) (1,723,152) (932,360) (2,657,279)
Segment assets 167,647 496,274 995,817 1,659,738
</Table>
F-19
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
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.
The Company has no foreign operations. However, total export sales for
the years ended December 31, 2002 and 2001 were approximately $386,000
and $691,000, respectively. The sales were primarily to companies in
Asia, Europe and Australia. Export sales are attributed to the country
where the product is shipped. The Company had sales to two customers,
the first of which is located in Japan, in fiscal 2002 that accounted
for 18% and 23%, respectively, of its consolidated product sales. The
Company had sales to two customers, the first of which is located in
Japan, in fiscal 2001 that accounted for 33% and 18%, respectively, of
its consolidated product sales.
(14) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS 143). This statement requires
entities to record a liability for the estimated retirement and removal
costs of assets used in their business. The liability should be
recorded at its fair value, with a corresponding asset that should be
amortized over the remaining useful life of the long-lived asset to
which the liability relates. Period expenses will also be recognized
for changes in the original value of the liability as a result of the
passage of time and revisions in the undiscounted cash flows required
to satisfy the obligation. The provisions of SFAS 143 are effective for
fiscal years beginning after June 15, 2002. The Company does not expect
adoption of the standard to have any material impact on the Company's
earnings and financial position.
In April 2002, the FASB issued Statement 145, Rescission of FASB
Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical
Corrections (SFAS 145). Among other provisions, SFAS 145 rescinds FASB
Statement 4, Reporting Gains and Losses from Extinguishment of Debt.
Accordingly, gains or losses from extinguishment of debt should not be
reported as extraordinary items unless the extinguishment qualifies as
an extraordinary item under the criteria of Accounting Principles Board
Opinion 30, Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (APB 30). Gains or
losses from extinguishment of debt, which do not meet the criteria of
APB 30, should be reclassified to income from continuing operations in
all prior periods presented. The provisions of SFAS 145 will be
effective for fiscal years beginning after May 15, 2002. The Company
does not expect adoption of the standard to have any material impact on
the Company's earnings and financial position.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires
entities to recognize costs associated with exit or disposal activities
when liabilities are incurred rather than when the entity commits to an
exit or disposal plan, as currently required. Examples of costs covered
by this guidance include one-time employee termination benefits, costs
to terminate contracts other than capital leases, costs to consolidate
facilities or relocate employees, and certain other exit or disposal
activities. This statement is effective for fiscal years beginning
after December 31, 2002, but early adoption is encouraged. The Company
has elected to early adopt this statement for the year ended December
31, 2002.
In December 2002, the FASB issued Statement 148 (SFAS 148), Accounting
for Stock-Based Compensation -- Transition and Disclosure: an amendment
of FASB Statement 123 (SFAS 123), to provide alternative transition
methods for a voluntary change to the fair value based method of
F-20
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
accounting for stock-based employee compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require prominent
disclosures in annual financial statements about the method of
accounting for stock-based employee compensation and the pro forma
effect on reported results of applying the fair value based method for
entities that use the intrinsic value method of accounting. The pro
forma effect disclosures are also required to be prominently disclosed
in interim period financial statements. This statement is effective for
financial statements for fiscal years ending after December 15, 2002
and is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002, with
earlier application permitted. The Company does not plan a change to
the fair value based method of accounting for stock-based employee
compensation and has included the disclosure requirements of SFAS 148
in the accompanying financial statements.
In November 2002, FASB Interpretation 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45), was issued. FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the
measurement provisions of the interpretation, to record a liability for
the fair value of the obligation undertaken in issuing the guarantee. A
company previously did not record a liability when guaranteeing
obligations unless it became probable that the company would have to
perform under the guarantee. FIN 45 applies prospectively to guarantees
the Company issues or modifies subsequent to December 31, 2002, but has
certain disclosure requirements effective for interim and annual
periods ending after December 15, 2002. The Company has historically
not issued guarantees and does not anticipate FIN 45 will have a
material effect on its 2003 financial statements. Disclosures required
by FIN 45 are included in the accompanying financial statements.
In January 2003, the FASB issued FASB Interpretation 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 clarifies the
application of Accounting Research Bulletin 51, Consolidated Financial
Statements, for certain entities that do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial
interest ("variable interest entities"). Variable interest entities
within the scope of FIN 46 will be required to be consolidated by their
primary beneficiary. The primary beneficiary of a variable interest
entity is determined to be the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected returns,
or both. FIN 46 applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after June 15, 2003,
to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company is in
the process of determining what impact, if any, the adoption of the
provisions of FIN 46 will have upon its financial condition or results
of operations.
F-21
================================================================================
Cell Robotics International, Inc.
7,853,074 Shares of Common Stock
-----------------------------------
P R O S P E C T U S
APRIL , 2003
-----------------------------------
================================================================================
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.
II-1
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 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* $ 3,500
Accounting Fees and Expenses* 5,000
Legal Fees and Expenses* 3,500
Miscellaneous* 1,000
--------
Total* $ 13,000
</Table>
- ------------------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
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 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
II-2
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. Principal and accrued interest
evidenced by the note are convertible into shares of our common stock at any
time. On July 29, 2002, we paid the outstanding principal and interest of our
August 2001 note by issuing to Mr. Tisch 684,685 shares of our common stock upon
conversion of the note. The conversion price of the convertible note was $0.5994
per share of our common stock. 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. The shares covered by the warrant 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 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.
On January 25, 2002, we issued 424,208 shares of our common stock in a private
placement with William Hayman, a private investor, which resulted in gross
proceeds to us of $300,000. Additionally, Mr. Hayman was issued warrants to
purchase 84,842 shares of our common stock at a price of $0.90 per share. The
warrants expire on January 25, 2007. 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. We
also issued 8,333 shares of our common stock to Leof Strand, a finder, in
payment of a success fee in connection with this transaction. The common stock
issued in payment of the success fee, which was taken for investment and was
subject to appropriate transfer restrictions, was issued without registration
under the Securities Act in reliance upon the exemption provided in Section 4(2)
of the Securities Act.
II-3
On March 29, 2002, we signed a promissory note in the face amount of $2,000,000
payable to one of our directors, Mr. Oton Tisch. This promissory note was
amended and restated on September 17, 2002. This note bears interest at 8% per
annum and is presently secured by all our assets. All principal and interest
outstanding under the note is due on April 1, 2004. The security, which was
taken for investment and was subject to appropriate transfer restrictions, was
issued without registration under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
On May 16, 2002, we issued 438,270 shares of our common stock in a private
placement with three private investors, one of whom included Mr. Oton Tisch, a
director of the Company. The gross proceeds to the Company were $235,000.
Additionally, the three investors were issued warrants to purchase a total of
131,481 shares of our common stock at an exercise price of $0.87 per share. The
warrants expire on May 17, 2007. 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.
On July 29, 2002, we converted the outstanding principal and interest of our
August 2, 2001 note by issuing to Mr. Oton Tisch 684,685 shares of our common
stock upon conversion of the note. The conversion price of the convertible note
was $0.5994 per share of our common stock. 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.
On August 2, 2002, we issued 70,000 shares of our common stock to three
consultants for services rendered, of which 50,000 shares were issued to Mr.
Tisch for consulting services provided by Obras Electromecanicas TKV and 5,000
shares were issued to Mr. Eutimio Sena. Mr. Oton Tisch, one of our directors, is
the sole owner and Chief Executive Officer and President of TKV. Mr. Sena is a
director of the company. 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.
On September 12 and 18, 2002, we issued and aggregate of 47,442 shares of our
common stock to two consultants for services rendered. 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.
On November 13, 2002 pursuant to a stock purchase agreement between the company
and one of our directors, Mr. Oton Tisch, dated November 12, 2002, we issued
2,309,255 shares of our common stock to Mr. Tisch at a price per share of $0.45
in repayment in full of $900,000 of principal and $139,165 of accrued interest
owing to Mr. Tisch under our January 31, 2001 loan agreement with him. On that
same date pursuant to such stock purchase agreement, we also issued 776,949
shares of our common stock to Mr. Tisch at a price per share of $0.45 in
repayment in full of $337,300 of principal and $12,327 of accrued interest owing
to Mr. Tisch under our September 17, 2002 amended and restated promissory note
in the face amount of $2,000,000. Additionally, on November 13, 2002 pursuant to
such stock purchase agreement, in connection with the conversion of the
outstanding principal and interest owing to Mr. Tisch under the January 2001
loan agreement and the September 17, 2002 promissory note, as described above,
we issued Mr. Tisch a warrant to purchase 771,551 shares of our common stock.
The warrant has an exercise price of $0.7125 per share and expires on November
13, 2007. 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.
On November 22, 2002, we issued 1,250,000 shares of our common stock in a
private placement with Frederick A. Voight, a private investor. Gross proceeds
to the company were $500,000. Additionally, Mr. Voight was issued a warrant to
purchase 250,000 shares of our common stock at an exercise price of $0.70 per
share. The warrant expires on November 22, 2007. The securities, which were
taken for investment and were subject to appropriate
II-4
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.
On December 2, 2002, we issued 111,111 shares of our common stock in a private
placement with Paul Bardacke, a private investor. The gross proceeds to the
company were $50,000. Additionally, Mr. Bardacke was issued warrants to purchase
22,222 and 30,000 shares, respectively, of our common stock. The warrant to
purchase 22,222 shares has an exercise price of $0.70 per share while the
warrant for 30,000 shares has an exercise price of $2.40 per share. Both of the
warrants expire on December 2, 2007. 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.
On December 12, 2002, we issued 371,711 shares of our common stock to Oton
Tisch, for services rendered by Obras Electromecanicas TKV in its capacity as a
consultant. Additionally, Mr. Tisch was issued a warrant to purchase 92,928
shares of our common stock at an exercise price of $0.60 per share in
consideration for consulting services. The warrant expires on December 7, 2007.
Mr. Oton Tisch, one of our directors, is the sole owner and Chief Executive
Officer and President of TKV. 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.
On February 24, 2003, we issued 250,000 shares of our common stock to Valentin
Bagarella, a private investor. The gross proceeds to the company were of
$100,000. Additionally Mr. Bagarella was issued warrants to purchase 50,000
shares of our common stock at a price of $0.575 per share. The warrants expire
on February 25, 2008. 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(17) Amended and Restated By-laws
3.3(1) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
5.1(18) Legal Opinion of Neuman & Drennen, LLC
10.1(2) 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(3) Employment Agreement between the company and Ronald K. Lohrding
10.3(2) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding, Ph.D. to MiCel, Inc.
10.4(2) 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(4) Purchase Agreement between the company and Tecnal Products, Inc.
10.8(1) License Agreement between the company and New Technology Engineering Center
10.9(5) Patent License Agreement between American Telephone and Telegraph Company and Cell Robotics, Inc.
10.10(5) Amendment to Patent License Agreement between Lucent Technologies, Inc., successor to American
</Table>
II-5
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
Telephone and Telegraph Company, and Cell Robotics, Inc.
10.11(6) Development and Distribution Agreement dated September 10, 1999 between Hamilton Thorne Research and
the company
10.12(6) Amendment to Development and Distribution Agreement dated May 18, 2000 between Hamilton Thorne
Research and the company
10.13(7) 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(7) 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(8) Employment Agreement between the company and Paul Johnson
10.16(9) Loan Agreement dated August 2, 2001 between the company and Oton Tisch
10.17(9) Warrant dated August 2, 2001 issued to Oton Tisch
10.18(10) Certificate for Common Stock Options dated June 15, 2001 between the company and Paul Johnson
10.19(10) Certificate for Common Stock Options dated October 31, 2001 between the company and Paul Johnson
10.20(11) License Agreement between the company and Becton, Dickinson & Company
10.21(12) First Amendment to Loan Agreement dated March 29, 2002 between the company and Oton Tisch
10.22(13) Certificate for Common Stock Options dated July 15, 2002 between the company and Gary Oppedahl
10.23(14) Amended and Restated Promissory Note dated September 17, 2002 executed by the company and payable to Oton Tisch
10.24(15) Warrant dated November 12, 2002 issued to Oton Tisch
10.25(15) Stock Purchase Agreement dated November 12, 2002 between the company and Oton Tisch
10.26(15) Cell Robotics International, Inc. 2002 Stock Purchase Plan
10.27(15) International Sales and Marketing Contract dated August 1, 2001 between the company and Obras
Electromecanicas TKV
10.28(15) Certificate for Common Stock Options dated August 2, 2002 between the company and Paul Johnson
10.29(15) Distribution Agreement dated July 8, 2002 between the company and California Caltech, Inc.
10.30(15) Warrant dated December 7, 2002 issued to Oton Tisch
10.31(16) Distribution Agreement between Meiwa Shoji Company Ltd. and the company
10.32(19) First Amendment to Cell Robotics International, Inc. 2002 Stock Purchase Plan
16.1(17) Letter from KPMG LLP to the Securities and Exchange Commission dated January 20, 2003
21.1(1) Subsidiaries
23.1(19) Consent of Grant Thornton LLP
23.2(19) Consent of KPMG LLP
23.3(19) Consent of Neuman & Drennen, LLC
24.1(19) Power of Attorney
</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 Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
II-6
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(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 14, 2001, SEC File No. 333-40920.
(11) Incorporated by reference from the company's Amendment No. 2 to Annual
Report on Form 10-KSB/A for the year ended December 31, 2001, as filed
with the SEC on August 22, 2002.
(12) Incorporated by reference from the company's Registration Statement on
Form SB-2, as filed with the SEC on April 12, 2002, SEC File No.
333-86138.
(13) 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
September 3, 2002, SEC File No. 333-86138.
(14) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2002, as filed with the SEC
on November 14, 2002.
(15) Incorporated by reference from the company's Pre-Effective Amendment
No. 2 to Registration Statement on Form SB-2, as filed with the SEC on
December 20, 2002, SEC File No. 333-86138.
(16) Incorporated by reference from the company's Amendment No. 3 to Annual
Report on Form 10-KSB/A for the year ended December 31, 2002, as filed
with the SEC on January 8, 2003.
(17) Incorporated by reference from the company's Pre-Effective Amendment
No. 4 to Registration Statement on Form SB-2, as filed with the SEC on
January 24, 2003, SEC File No. 333-86138.
(18) Previously Filed.
(19) Filed Herewith.
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 being registered, the company will,
unless in the opinion of its counsel the matter has been settled by controlling
II-7
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-8
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 18th day of
April, 2003.
CELL ROBOTICS INTERNATIONAL, INC.
By: /s/ Gary Oppedahl
----------------------------------------------
Gary Oppedahl, Chief Executive Officer,
President and Director
By: /s/ Paul Johnson
----------------------------------------------
Paul Johnson, Chief Financial Officer, Chief
Operating Officer, Secretary and Director
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>
<Caption>
/s/ Gary Oppedahl April 18, 2003
- ------------------------------------------------------------------
Gary Oppedahl, Chief Executive Officer, President and Director
/s/ Paul Johnson April 18, 2003
- ------------------------------------------------------------------
Paul Johnson, Chief Financial Officer, Chief Operating Officer,
Secretary and Director
/s/ Oton Tisch April 18, 2003
- ------------------------------------------------------------------
Oton Tisch, Chairman of the Board of Directors
/s/ Eutimio Sena April 18, 2003
- ------------------------------------------------------------------
Eutimio Sena, Vice Chairman of the Board of Directors
April __, 2003
- ------------------------------------------------------------------
Dr. Toby Simon, Director
April __, 2003
- ------------------------------------------------------------------
Dr. David Mueller, Director
</Table>
* Gary Oppedahl, by signing his name hereto,
does hereby sign this registration statement
on behalf of Cell Robotics International,
Inc. and each of the above-named officers
and directors of such company pursuant to
powers of attorney, executed on behalf of
the Company and each officer and director
/s/ Gary Oppedahl
--------------------------------------------
Gary Oppedahl, Attorney-in-Fact
II-9
CELL ROBOTICS INTERNATIONAL INC.
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
3.2(17) Amended and Restated By-laws
3.3(1) Amended and Restated Articles of Incorporation
4.1(1) Specimen Certificate of Common Stock
5.1(18) Legal Opinion of Neuman & Drennen, LLC
10.1(2) 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(3) Employment Agreement between the company and Ronald K. Lohrding
10.3(2) Irrevocable Appointment of Voting Rights by Ronald K. Lohrding, Ph.D. to MiCel, Inc.
10.4(2) 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(4) Purchase Agreement between the company and Tecnal Products, Inc.
10.8(1) License Agreement between the company and New Technology Engineering Center
10.9(5) Patent License Agreement between American Telephone and Telegraph Company and Cell Robotics, Inc.
10.10(5) Amendment to Patent License Agreement between Lucent Technologies, Inc., successor to American
Telephone and Telegraph Company, and Cell Robotics, Inc.
10.11(6) Development and Distribution Agreement dated September 10, 1999 between Hamilton Thorne Research and
the company
10.12(6) Amendment to Development and Distribution Agreement dated May 18, 2000 between Hamilton Thorne
Research and the company
10.13(7) 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(7) 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(8) Employment Agreement between the company and Paul Johnson
10.16(9) Loan Agreement dated August 2, 2001 between the company and Oton Tisch
10.17(9) Warrant dated August 2, 2001 issued to Oton Tisch
10.18(10) Certificate for Common Stock Options dated June 15, 2001 between the company and Paul Johnson
10.19(10) Certificate for Common Stock Options dated October 31, 2001 between the company and Paul Johnson
10.20(11) License Agreement between the company and Becton, Dickinson & Company
10.21(12) First Amendment to Loan Agreement dated March 29, 2002 between the company and Oton Tisch
10.22(13) Certificate for Common Stock Options dated July 15, 2002 between the company and Gary Oppedahl
10.23(14) Amended and Restated Promissory Note dated September 17, 2002 executed by the company and
payable to Oton Tisch
10.24(15) Warrant dated November 12, 2002 issued to Oton Tisch
10.25(15) Stock Purchase Agreement dated November 12, 2002 between the company and Oton Tisch
10.26(15) Cell Robotics International, Inc. 2002 Stock Purchase Plan
</Table>
<Table>
<Caption>
EXHIBIT
NO. TITLE
- ------- -----
10.27(15) International Sales and Marketing Contract dated August 1, 2001 between the company and Obras
Electromecanicas TKV
10.28(15) Certificate for Common Stock Options dated August 2, 2002 between the company and Paul Johnson
10.29(15) Distribution Agreement dated July 8, 2002 between the company and California Caltech, Inc.
10.30(15) Warrant dated December 7, 2002 issued to Oton Tisch
10.31(16) Distribution Agreement between Meiwa Shoji Company Ltd. and the company
10.32(19) First Amendment to Cell Robotics International, Inc. 2002 Stock Purchase Plan
16.1(17) Letter from KPMG LLP to the Securities and Exchange Commission dated January 20, 2003
21.1(1) Subsidiaries
23.1(19) Consent of Grant Thornton LLP
23.2(19) Consent of KPMG LLP
23.3(19) Consent of Neuman & Drennen, LLC
24.1(19) Power of Attorney
</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 Current Report on Form 8-K
dated February 23, 1995, as filed with the SEC on March 10, 1995.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(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 14, 2001, SEC File No. 333-40920.
(11) Incorporated by reference from the company's Amendment No. 2 to Annual
Report on Form 10-KSB/A for the year ended December 31, 2001, as filed
with the SEC on August 22, 2002.
(12) Incorporated by reference from the company's Registration Statement on
Form SB-2, as filed with the SEC on April 12, 2002, SEC File No.
333-86138.
(13) 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
September 3, 2002, SEC File No. 333-86138.
(14) Incorporated by reference from the company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2002, as filed with the SEC
on November 14, 2002.
(15) Incorporated by reference from the company's Pre-Effective Amendment
No. 2 to Registration Statement on Form SB-2, as filed with the SEC on
December 20, 2002, SEC File No. 333-86138.
(16) Incorporated by reference from the company's Amendment No. 3 to Annual
Report on Form 10-KSB/A for the year ended December 31, 2002, as filed
with the SEC on January 8, 2003.
(17) Incorporated by reference from the company's Pre-Effective Amendment
No. 4 to Registration Statement on Form SB-2, as filed with the SEC on
January 24, 2003, SEC File No. 333-86138.
(18) Previously Filed.
(19) Filed Herewith.