-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C62cZefng0KLmYF12ygZ8moCbk09iD9yVpocNX34UrGwJY2TVb5OLNROwQRgfVAC AKRpY0r3HAwldW7UEvu1eQ== 0001045969-00-000287.txt : 20000419 0001045969-00-000287.hdr.sgml : 20000419 ACCESSION NUMBER: 0001045969-00-000287 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTICAL SENSORS INC CENTRAL INDEX KEY: 0000907658 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 411643592 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-27600 FILM NUMBER: 603682 BUSINESS ADDRESS: STREET 1: 7615 GOLDEN TRIANGLE DRIVE STREET 2: STE A CITY: EDEN PRARIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6179445857 MAIL ADDRESS: STREET 1: 7615 GOLDEN TRIANGLE DR STE A CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------ FORM 10-K/A (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to __________________. Commission File No. 0-27600 -------------------- OPTICAL SENSORS INCORPORATED (Exact name of registrant as specified in its charter) Delaware 41-164359 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7615 Golden Triangle Drive, Suite C Technology Park V Minneapolis, Minnesota 55344-3733 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (952) 944-5857 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Preferred Share Purchase Rights Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of March 15, 2000, 8,962,777 shares of Common Stock of the Registrant were outstanding, and the aggregate market value of the Common Stock of the Registrant as of that date (based upon the last reported sale price of the Common Stock at that date as reported by the Nasdaq National Market System), excluding outstanding shares beneficially owned by directors and executive officers, was $27,832,268. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant's Proxy Statement for its 2000 Annual Meeting of Stockholders to be held on May 4, 2000 (the "2000 Proxy Statement"). ================================================================================ Item 6. SELECTED FINANCIAL DATA.
Years Ended December 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- ---------- (in thousands, except per share data) Statements of Operations Data Net sales..................... $ 134 $ 1,019 $ 141 $ 163 $ -- Operating expenses............ 5,968 10,533 10,472 9,734 8,249 Loss from operations.......... (7,879) (12,420) (12,527) (10,941) (8,249) Interest income, net.......... 101 628 1,193 1,555 118 Net loss...................... (7,785) (11,817) (11,333) (9,385) (8,131) Net loss per common share, basic and diluted........... (.88) (1.34) (1.35) (1.30) (19.27) December 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- --------- ----------- ---------- ---------- (in thousands) Balance Sheet Data Cash and cash equivalents...... $ 1,451 $ 8,080 $17,101 $30,135 $ 5,395 Working capital................ 2,001 9,103 18,220 30,039 5,242 Total assets................... 4,296 12,565 21,626 32,369 6,367 Long-term obligations.......... 104 495 472 -- -- Total shareholders' equity..... 3,355 10,984 20,157 31,050 5,778
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Result of Operations Fiscal Years Ended December 31, 1999 and 1998 Net sales in 1999 decreased $884,733 or 87% to $134,131 from $1,018,864 in 1998. The decrease in sales is the result of the Company's suspension of direct sales and support activities of the SensiCath System in January 1999. Net sales for 1999 consisted of development fees and sales of SensiCath sensors to existing customers, less OpticalCAM product returns. No new customer sales were made during 1999. The Company does not expect meaningful sales of the SensiCath System in the future. Costs of products sold in 1999 decreased $860,383 or 30% to $2,045,183 from $2,905,566 in 1998. The decreased cost of products sold for 1999 was directly related to the suspension of SensiCath production in January 1999. Costs of products sold for 1999 included approximately $400,000 in fourth quarter writeoffs of SensiCath production tooling, equipment and inventories. Remaining fixed overhead costs and costs of personnel in support of CapnoProbe activities and the Company's proprietary technologies are expected to continue at approximately $250,000 per quarter through 2000. Research and development costs for 1999 decreased $1,132,954 or 27% to $3,115,075 from $4,248,029 in 1998. The decrease for 1999 is due primarily to a reduction in research and development staffing of approximately 25% in the first quarter of 1999. Research and development efforts during 1999 1 were directed towards product development and regulatory activities for the CapnoProbe product. Research and development expenses are expected to be approximately $500,000 per quarter through 2000. Under the July 1998 license agreement with ICCM, the Company paid $300,000 in minimum royalties in 1999 and expects to pay $300,000 in minimum royalties in 2000. The minimum royalty payments paid in 1999 were recorded as research and development expenses because no CapnoProbe sales took place in 1999. The Company is obligated to pay ICCM a customary royalty equal to a percentage of sales, which varies depending on the selling price to the customer of the CapnoProbe. Selling, general and administrative expenses in 1999 decreased $3,431,929 or 55% to $2,852,975 from $6,284,904 for 1998. Substantially all sales and marketing activities were suspended during the first quarter of 1999, accounting for the decrease from 1998. The Company expects selling, general and administrative expenses to be approximately $450,000 per quarter through 2000, not including expenses that might result from its activities in securing a corporate merger, sale of a portion or all of the Company. Selling, general and administrative expenses consist primarily of the cost of CapnoProbe marketing clinical activities, ongoing administrative activities and costs of maintaining the Company's public status. Net interest income in 1999 decreased $527,074 to $101,270 from $628,344 in 1998. The decrease in net interest income in 1999 is due to declining cash balances. The Company expects interest income to continue to decline in future periods as it uses cash for operations. Since its inception, the Company has experienced significant operating losses. The Company incurred a net loss of $7,785,276 for 1999, compared to a net loss of $11,817,330 for 1998. As of December 31, 1999, the Company had an accumulated deficit of $66,151,326. The Company anticipates that its operating losses will continue in the foreseeable future. Except for historical information contained herein, the disclosures in this report are forward looking statements. See "Certain Important Factors." Fiscal Years Ended December 31, 1998 and 1997 Net sales were $1,018,864 and $140,936 for 1998 and 1997, respectively. Sales in 1997 were adversely affected by a recall of the SensiCath initiated by the Company in May 1997 because of an interference problem with a certain portion of the critical care patient population. In December 1997, the Company introduced an enhanced version of its SensiCath Sensor that solved the inference problems, accounting for the sales increase in 1998. In 1998, approximately 26% of net sales were from the sale of SensiCath Sensors, and approximately 74% of net sales were from the placement of OpticalCAM instrumentation. In January 1999, the Company discontinued direct sales activities of the SensiCath System in order to focus its resources on development of the CapnoProbe product. Costs of products sold were $2,905,506 and $2,195,714 in 1998 and 1997, respectively, an increase of $709,792 in 1998. The increase in 1998 was the result of higher sales and manufacturing levels. A total of $446,000 in 1997 represented a write-down of OpticalCAM inventories to estimated market value. The amount of the write-down reflected the difference between the Company's estimated net realizable value based on the future selling price to its customers of the OpticalCAM System and the cost of inventories on hand or on order at the end of 1997. Under the agreement between the Company and IL, the Company agreed to sell OpticalCAM instrumentation to IL at the lower of the Company's direct cost of manufacturing or previously scheduled amounts. Research and development expenses were $4,248,029 and $4,975,037 in 1998 and 1997, respectively, a decrease of $727,008, or 15% in 1998. Research and development expenses in 1997 included a $500,000 payment to Marquette Medical Systems, Inc. under a previously disclosed 2 technology purchase agreement. No comparable payments occurred in 1998. In 1998 the Company's research and development efforts were directed primarily towards SensiCath System improvements. Towards the end of 1998, research and development efforts were directed increasingly towards development of the CapnoProbe product. Selling, general and administrative expenses were $6,284,904 and $5,496,772 in 1998 and 1997, respectively, an increase of $788,132, or 14%, in 1998. The increase is attributable primarily to increased sales activities in 1998. The Company's administrative expenses were essentially unchanged in 1998 from the prior year. In January 1999, the Company discontinued direct sales activities. Net interest income decreased $618,318 to $628,344 in 1998 from $1,246,662 in 1997, due to declining cash reserves resulting from negative cash flows. The Company incurred a net loss of $11,817,330 in 1998 compared to a net loss of $11,333,358 in 1997. The increase in net loss in 1998 was primarily due to the decrease in net interest income described above. Increased spending in selling expenses were offset by reductions in other areas. Liquidity and Capital Resources To date, the Company has financed its operations primarily through the sale of equity securities. From inception through December 31, 1995, the Company raised net proceeds of $30,400,000 from private equity financings and stock option exercises. In the first quarter of 1996, the Company completed an initial public offering of 2,875,000 shares of Common Stock. The net proceeds to the Company from the public offering were approximately $33,916,000. In January 1998, the Company sold 441,203 shares of Common Stock to IL, which represented 4.99% of the Company's outstanding Common Stock following completion of the transaction, at a price of $5.00 per share (which is equal to the closing market price on the date before signing of the agreement) for a total price of $2,206,015. In March 2000, the Company entered into an Investment Agreement with Circle F Ventures, LLC and Special Situations Fund III, L.P., pursuant to which the Company agreed to issue convertible promissory notes in the aggregate principal amount of up to $3,000,000. These notes are convertible into units, each unit consisting of 50,000 shares of Common Stock and a five-year warrant to purchase 12,500 shares of Common Stock at an exercise price of $1.00 per share, at a conversion price equal to $50,000 per unit, in accordance with the Investment Agreement. The Company received advances under these notes in the aggregate amount of $1,400,000 on March 10, 2000. The Company has the right to request additional advances up to the aggregate principal amount of $1,600,000 at any time during the 60 day period beginning on the first day after both of the following have occurred: (1) the Company executes a definitive distribution agreement for the Company's CapnoProbe product with a major medical company, and (2) the stockholders of the Company have approved the conversion of any additional advances to be made under the notes into units at the Company's 2000 Annual Meeting of Stockholders. The Company's right to request additional advances expires on June 15, 2000. The proceeds from the sales of these securities have been used to fund costs of producing products and for the operating expenses described above and capital expenditures described below. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "OPSI." The Company's cash and cash equivalents were $1,450,872 and $8,079,871 at December 31, 1999 and 1998, respectively. The decrease in the Company's cash balance is due to the operating losses described above. The Company incurred cash expenditures of $6,413,007 for operations and $38,365 for capital expenditures in 1999. In addition, the Company acquired equipment and tooling under capital 3 leases for a total of $140,036 in 1999. The capital equipment expenditures were principally for payments related to end of lease provisions under operating and capital leases. The inventory at December 31, 1999 consisted primarily of OpticalCAM monitors and ABG Modules for which the Company plans to use in conjunction with future configurations of the CapnoProbe product and other research and commercial applications. The Company has contracts to purchase minimum quantities of instrumentation and other sole source inventory items with an outstanding aggregate commitment of approximately $1,400,000 in 2000. The Company is currently negotiating nullification of these obligations. It is the Company's opinion based on discussions with the parties to these obligations that any future costs to the Company under these agreements are unlikely. The Company is obligated to pay ICCM $300,000 annually under the previously described license agreement. As of December 31, 1999, the Company had no material commitments outstanding for tooling, equipment or outside development contracts. The Company is currently in discussion with its equipment lessor regarding prepayment of certain lease obligations. The Company had previously reported that it was renegotiating an obligation to prepay $238,393 in certain end of lease provisions due to underutilization of a lease line. The negotiations resulted in this payment plus interest being rescheduled into twelve monthly installments beginning January 2000. The Company believes that its current cash balances, including the proceeds received on March 10, 2000 from advances under the notes issued under the Investment Agreement described above, will be sufficient to fund the Company's operations through June 30, 2000. Accordingly, the report of the independent auditors on the Company's 1999 financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern. Based on additional advances the Company expects to receive in 2000 under the Investment Agreement if the Company signs a definitive distribution agreement for its CapnoProbe product and the Company's stockholders approve the conversion of any additional advances to be made under the notes into units at the Company's 2000 Annual Meeting of Stockholders and payments the Company expects to receive in 2000 if it signs a definitive distribution agreement for its CapnoProbe product, the Company believes that it will have sufficient cash to fund its operations through 2000. There can be no assurance, however, that the Company will enter into a definitive distribution agreement for its CapnoProbe product, obtain the approval of the conversion of the notes into units by the Company's stockholders or otherwise obtain additional financing on satisfactory terms, or at all. In addition, the Company has based its estimates of how long its cash balances will last on assumptions that may prove to be wrong. If the Company is unable to obtain additional financing when needed, it will likely be forced to cease operations. Certain Important Factors In addition to the factors identified above, there are several important factors that could cause the Company's actual results to differ materially from those anticipated by the Company or which are reflected in any forward-looking statements of the Company. These factors, and their impact on the success of the Company's operations and its ability to achieve its goals, include the following: o Need for Additional Financing. The Company believes that its current cash balances, including the proceeds received on March 10, 2000 from advances under the notes issued under the Investment Agreement described above, will be sufficient to fund the Company's operations through June 30, 2000. Accordingly, the report of the independent auditors on the Company's 1999 financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern. Based on additional advances the Company expects to receive in 2000 under the Investment Agreement if the Company signs 4 a definitive distribution agreement for its CapnoProbe product and the Company's stockholders approve the conversion of any additional advances to be made under the notes into units at the Company's 2000 Annual Meeting of Stockholders and payments the Company expects to receive in 2000 if it signs a definitive distribution agreement for its CapnoProbe product, the Company believes that it will have sufficient cash to fund its operations through 2000. There can be no assurance, however, that the Company will enter into a definitive distribution agreement for its CapnoProbe product, obtain the approval of the conversion of the notes into units by the Company's stockholders or otherwise obtain additional financing on satisfactory terms, or at all. In addition, the Company has based its estimates of how long its cash balances will last on assumptions that may prove to be wrong. If the Company is unable to obtain additional financing when needed, it will likely be forced to cease operations. Additionally, any additional equity financings may be dilutive to the Company's existing stockholders, and debt financing, if available, may involve restrictive covenants on the Company's business. o Development and Commercialization of CapnoProbe. The Company's future success will depend, in large part, on successful development and commercialization of the CapnoProbe product. The Company is in the later stages of developing and testing prototypes and is currently engaged in human clinical trials of the CapnoProbe product. The Company has set up one manufacturing pod for manual assembly of the prototype probes and finished preliminary plans for automated probe assembly. The Company projects that the product will be available for limited release in 2000 and full commercial release in the first quarter of 2001. The Company has not yet established commercial manufacturing for the CapnoProbe. Accordingly, there can be no assurance that the Company will successfully develop a commercial CapnoProbe product. o Completion of Corporate Alliance or Business Combination. In January 1999, the Company announced that it had engaged Volpe Brown Whelan & Company, LLC, to serve as financial advisor to the Company. The Company continues to explore strategic alternatives, including joint ventures, corporate strategic alliances, sale of the business or product lines, or other business combinations. In January 2000, the Company signed a non-binding letter of intent with a major supplier of medical products and services to negotiate a definitive agreement for the Company's CapnoProbe product. There can be no assurance that the Company will be able to enter into a definitive distribution agreement for its CapnoProbe product with this party or otherwise complete a transaction with terms favorable to the Company. o Nasdaq Listing Requirements. The Company's Common Stock is currently quoted on the Nasdaq National Market under the symbol "OPSI." In order to be listed on the Nasdaq National Market, the Company must maintain total net tangible assets of at least $4.0 million. As of December 31, 1999, the Company had total net tangible assets of approximately $2.8 million. On March 10, 2000, the Company entered into an Investment Agreement with two of the Company's principal stockholders, Circle F Ventures, LLC, a Georgia limited liability company, and Special Situations Fund III, L.P., a Delaware limited partnership, pursuant to which the Company agreed to issue convertible promissory notes in the aggregate principal amount of up to $3.0 million. The Company received advances under the notes in the aggregate amount of $1.4 million on 5 March 10, 2000. The $1.4 million received by the Company, however, will not count towards the $4.0 million net tangible asset requirement until the amount is converted into equity. The Company has the right to request additional advances up to the aggregate principal amount of $1.6 million at any time during the 60 day period beginning on the first day after both of the following have occurred: (1) the Company executes a definitive distribution agreement for the Company's CapnoProbe product with a major medical company, and (2) the stockholders of the Company have approved the conversion of any additional advances to be made under the notes into units at the Company's 2000 Annual Meeting of Stockholders. The Company's right to request additional advances will expire on June 15, 2000. In addition to the net tangible asset requirement, the closing bid price for the Company's Common Stock cannot be less than $1.00 per share for 30 consecutive days. The closing bid price for the Company's Common Stock has been less than $1.00 per share on several occasions within the last year, but never for 30 or more consecutive days. If, in the future, the Company had less than $4.0 million in total net tangible assets but more than $2.0 million in total net tangible assets, the Company's Common Stock would be eligible for quotation on the Nasdaq Small Cap Market, provided that the $1.00 minimum bid price requirement was met. If the Common Stock was not eligible for either the Nasdaq National Market or the Nasdaq Small Cap Market, it would likely be quoted in the "over-the-counter" market and eligible to trade on the OTC bulletin board. If the Company's Common Stock traded on the OTC bulletin board, trading, if any, would be subject to the "penny stock" rules under the Securities Exchange Act of 1934 as amended, and the public trading market for the Company's Common Stock could be adversely affected. o Competition. Competition among medical device companies is intense and increasing. There can be no assurance that the Company's competitors will not succeed in developing or marketing technologies and products that are more effective or less expensive than the Company's products or that would render the Company's products obsolete or non- competitive. o Regulatory Approvals. The Company's ability to market its current products and any products that it may develop in the future requires clearances or approvals from the FDA and other governmental agencies, including, in some instances, foreign and state agencies. The process for maintaining and obtaining necessary regulatory clearances and approvals can be expensive and time consuming. There can be no assurance that the Company will be able to maintain or obtain necessary regulatory approvals and clearances in the future. 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OPTICAL SENSORS INCORPORATED Dated: April 14, 2000 By: /s/ Paulita M. LaPlante ------------------------------------- Paulita M. LaPlante President and Chief Executive Officer 7 -----END PRIVACY-ENHANCED MESSAGE-----