1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number: 0-27840
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CELL ROBOTICS INTERNATIONAL, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1153295
--------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
2715 Broadbent Parkway N.E., Albuquerque, New Mexico 87107
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 343-1131
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
As of August 13, 2001, 9,980,644 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
2
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2001 (unaudited)
and December 31, 2000
Consolidated Statements of Operations for the Three Months
ended June 30, 2001 and June 30, 2000 (unaudited)
Consolidated Statements of Operations for the Six Months
ended June 30, 2001 and June 30, 2000 (unaudited)
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2001 and June 30, 2000 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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ITEM 1. FINANCIAL STATEMENTS
The interim unaudited consolidated financial statements contained in
this report have been prepared by Cell Robotics International, Inc. (the
"Company") and, in the opinion of management, reflect all material adjustments
which are necessary for a fair presentation of the financial position, results
of operations and cash flows for the interim periods presented. Such adjustments
consisted only of normal recurring items. Certain information and footnote
disclosures made in the Company's last annual report on Form 10-KSB have been
condensed or omitted for the interim statements. These statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 2000. The
results of the interim periods are not necessarily indicative of results which
may be expected for any other interim period or for the full year.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Report 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. The forward-looking statements are made pursuant
to safe harbor provisions of the Private Securities Litigation Reform Act of
1995. 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 the Company's 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 the Company's ability to manufacture and distribute its
products.
Readers 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: (i) industry conditions and competition, (ii) reforms in
the health care industry or limitations imposed on third party reimbursement of
health care
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costs, (iii) the rate of market acceptance of the Company's products,
particularly the Lasette, (iv) operational risks and insurance, (v) risks
associated with operating in foreign jurisdictions, (vi) product liabilities
which may arise in the future which are not covered by insurance or indemnity,
(vii) the impact of current and future laws and government regulation, as well
as repeal or modification of same, affecting the medical device industry and the
Company's operations in particular, (viii) the ability to retain key personnel,
(ix) renegotiation, nullification, or breach of contracts with distributors,
suppliers or other parties, (x) the relationship with the Company's suppliers,
particularly its supplier of crystals used in our Ebrium: YAG lasers and (xi)
the risks described elsewhere, herein and from time to time in the Company's
other reports to and filings with the Securities and Exchange Commission. 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 Report
will in fact occur. The Company does not intend to update any of the
forward-looking statements after the date of this Report.
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF AS OF
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 124,858 $ 958,144
Restricted cash 85,086 85,086
Accounts receivable, net of allowance for
doubtful accounts of $1,841 and $1,841
in 2001 and 2000, respectively 337,966 378,853
Inventory 1,101,281 1,079,086
Other 34,838 60,850
------------- -----------------
Total current assets 1,684,029 2,562,019
Property and equipment, net 468,029 549,688
Other assets, net 21,694 24,109
------------- -----------------
Total assets $ 2,173,752 $ 3,135,816
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 331,220 $ 350,399
Notes payable - related party 1,166,484 250,000
Payroll related liabilities 118,553 152,860
Royalties payable 80,319 79,046
Accrued litigation costs -- 400,000
Other current liabilities 126,435 118,010
------------- -----------------
Total current liabilities 1,823,011 1,350,315
------------- -----------------
Stockholders' equity:
Preferred stock, $.04 par value. Authorized
2,500,000 shares, no shares issued and outstanding
at June 30, 2000 and December 31, 1999 0 0
Common stock, $.004 par value. Authorized
50,000,000 shares, 9,980,644 and 9,965,644 shares
issued and outstanding at June 30, 2001
and December 31, 2000, respectively 39,923 39,863
Additional paid-in capital 25,169,839 25,114,871
Accumulated deficit (24,859,021) (23,369,233)
------------- -----------------
Total stockholders' equity 350,741 1,785,501
------------- -----------------
$ 2,173,752 $ 3,135,816
============= =================
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Product sales $ 386,099 $ 261,828
Research and development grants 34,513 1,334
------------- -------------
Total revenues 420,612 263,162
------------- -------------
Product cost of goods sold (298,950) (354,535)
SBIR direct expenses (34,513) (1,334)
------------- -------------
Total cost of goods sold (333,463) (355,869)
------------- -------------
Gross profit (loss) 87,149 (92,707)
------------- -------------
Operating expenses:
General and administrative 264,702 337,422
Marketing & sales 337,093 206,068
Research and development 155,201 164,688
------------- -------------
Total operating expenses 756,996 708,178
------------- -------------
Loss from operations (669,847) (800,885)
------------- -------------
Other income (expense):
Interest income 1,150 16,080
Interest expense (29,896) (27,598)
Other income, net 14,560 --
------------- -------------
Total other income (expense) (14,186) (11,518)
------------- -------------
Net loss $ (684,033) $ (812,403)
============= =============
Weighted average common shares
outstanding, basic and diluted 9,980,644 9,037,152
============= =============
Net loss per common share, basic and diluted $ (0.07) $ (0.09)
============= =============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Product sales $ 605,390 $ 476,422
Research and development grants 44,900 7,294
------------- -------------
Total revenues 650,290 483,716
------------- -------------
Product cost of goods sold (551,812) (525,529)
SBIR direct expenses (44,900) (7,294)
------------- -------------
Total cost of goods sold (596,712) (532,823)
------------- -------------
Gross profit (loss) 53,578 (49,107)
------------- -------------
Operating expenses:
General and administrative 504,636 840,502
Marketing & sales 692,843 340,346
Research and development 314,423 289,955
------------- -------------
Total operating expenses 1,511,902 1,470,803
------------- -------------
Loss from operations (1,458,324) (1,519,910)
------------- -------------
Other income (expense):
Interest income 5,446 19,367
Interest expense (37,889) (31,153)
Other income, net 979 --
------------- -------------
Total other income (expense) (31,464) (11,786)
------------- -------------
Net loss $ (1,489,788) $ (1,531,696)
============= =============
Weighted average common shares
outstanding, basic and diluted 9,979,977 8,777,218
============= =============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.15) $ (0.17)
============= =============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,489,788) $ (1,531,696)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 90,974 101,331
Options and warrants issued for services 46,121 134,398
Common stock issued for services 8,907 551,405
Decrease (increase) in accounts receivable 40,887 (125,173)
Increase in inventory (22,195) (39,772)
Decrease (increase) in other assets 26,012 (62,071)
Decrease in current liabilities (443,788) (382,654)
------------- -------------
Net cash used in operating activities (1,742,870) (1,354,232)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
purchase of fixed assets (6,900) (35,462)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 1,735,502
Proceeds from notes payable and
warrants - related party 944,538 1,200,000
Repayments of notes payable - related party (28,054) --
Proceeds from exercise of stock options -- 139,980
Proceeds from exercise of warrants -- 691,756
------------- -------------
Net cash provided by financing activities 916,484 3,767,238
------------- -------------
Net increase (decrease) in cash and cash equivalents: (833,286) 2,377,544
Cash and cash equivalents:
Beginning of period 1,043,230 358,379
------------- -------------
End of period $ 209,944 $ 2,735,923
============= =============
SUPPLEMENTAL INFORMATION:
Interest paid $ 4,546 $ --
============= =============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
1. Presentation of Unaudited Consolidated Financial Statements
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the Company's financial position, results of
operations and cash flows. The results of operations are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
2. Issuance of Equity Securities and Convertible Note
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of Common
Stock and 7,500 Common Stock purchase warrants. In connection with this private
placement, the Company granted 15,000 warrants to two placement agents. The
Company granted an additional 15,000 warrants to one of these placement agents
for other investment banking services, which were unrelated to the private
placement. Each warrant is exercisable through February 2, 2003 to purchase one
share of Common Stock at a price of $2.40 per share. The latter warrants were
valued at $.406625 each. This fair value was calculated using the Black Scholes
option-pricing model. The significant assumptions include an expected dividend
of zero, a risk free interest rate of 6.375% and an expected volatility of
75.2%.
In January 2000, the Company terminated its public and investor
relations agreement with RCG Capital Markets Group, Inc. effective January 1,
2000. In lieu of payment for three additional months of service retainer fees,
the Company granted options for an additional 25,000 shares of Common Stock at
an exercise price equal to $3.25, the closing price of the Company's Common
Stock on February 15, 2000. Due to early termination of this agreement, 50,000
unvested options were canceled. The Company recorded a charge of $44,659, the
fair value of the options granted. The fair value was calculated on the grant
date using the Black Scholes option-pricing model. The significant assumptions
include an expected dividend of zero, a risk free interest rate of 6.375% and an
expected volatility of 75.2%.
Additionally, in January 2000, the Company issued a total of 40,000
Common Stock purchase warrants to an investment research firm and a new public
relations firm. The Company was also committed under the terms of the agreement
with the new public relations firm to issue an additional 30,000 warrants if
representation continued beyond six months. The warrants are exercisable through
February 2, 2003 to purchase one share of Common Stock for a price of $2.40 per
share. Of the additional 30,000 warrants, 15,000 vested April 1, 2000, after
three months of service, and the remaining 15,000 vested on July 1, 2000, after
six months of service. The fair value of these performance-based options has
been measured upon vesting and charged to operations at such time. The Company
recorded charges of $124,321, the fair value of the options granted. The fair
value was calculated on the grant dates using the Black Scholes option-pricing
model. The significant assumptions include an expected dividend of zero, a risk
free interest rate of 6.375% and an expected volatility of 75.2%.
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In February 2000, the Company executed a secured convertible promissory
note from a member of the Company's Board of Directors, which was amended in
March 2000. The director advanced $250,000 on March 3, 2000; $250,000 on March
9, 2000; $200,000 on March 28, 2000; and the remaining $500,000 on April 26,
2000 under the note. The principal amount of $1,200,000 was paid in full with
and converted into 500,000 shares of Common Stock on August 30, 2000. An SB-2
registration statement registering the shares issuable upon conversion of the
promissory note was declared effective by the SEC on July 20, 2000. In
connection with the beneficial conversion of this note, the Company recorded a
non-cash charge of $1,200,000 in the quarter ended September 30, 2000.
In February 2000, an underwriter in a previous offering exercised a
portion of its Placement Agent's Warrants to purchase a total of 10.9825 units
at a price of $25,000 per unit. Each unit consists of 20,000 shares of Common
Stock and class A warrants exercisable for 10,000 shares of Common Stock. The
underwriter exercised the underlying class A warrants simultaneously with the
exercise of the Private Placement Warrants. Proceeds to the Company were
approximately $467,000.
In March 2000, a previous distributor of the Company exercised its
warrant to purchase 100,000 shares of Common Stock at a price of $2.25 per
share. Proceeds to the Company were approximately $225,000.
On May 26, 2000 the Company issued 500,000 shares of its Common Stock
for $2,000,000 in a private placement with Paulson Investment Company of
Portland, Oregon. A five percent placement fee was paid to Mark T. Waller of
BridgeWorks Capital, a former member of the Company's Board of Directors after
the close of the transaction.
In February, May and July 2000, and in January 2001, the Company issued
a total of 145,000 shares of its Common Stock to Pollet & Richardson as payment
for legal services.
3. Notes Payable
In December 1999, the Company issued a note payable for $250,000 to
Humagen Fertility Diagnostics, Inc. whose president, chief executive officer and
majority shareholder is Dr. Debra Bryant, a former member of the Company's board
of directors. The note bears interest at six percent. In January 2001, the
Company used $45,000 of the proceeds of the loans by the Company's directors and
their affiliates described below as payment against the outstanding balance of
$250,000 plus accrued interest. The Company also paid monthly installments of
$10,000 each from February through April 2001. The remaining balance of the note
is now payable upon demand. During the six-month period ended June 30, 2001 the
Company expensed $6,299 of accrued interest on this note.
On January 31, 2001, certain members of the Company's board of
directors and affiliates of members or former members of its board of directors
agreed to make term loan advances to the Company in an aggregate amount of
$1,000,000. Loans in the amount of $100,000, $400,000 and $500,000 under this
$1,000,0000 commitment were made in February 2001, March 2001 and May 2001,
respectively. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and are due on January 31, 2002.
Additionally, the lenders were issued warrants to purchase an aggregate of
150,000 shares of Common Stock. The warrants are exercisable until January 31,
2004, for Common Stock at a price of $1.125 per share, the market price for the
Common Stock when the loan agreement was signed. The warrants are immediately
exercisable. The Company has allocated $32,540 in proceeds
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from the loan to the warrants based on the fair value of the warrants. This
amount has been recorded as a discount on the loans and will be amortized over
the life of the loans. During the six-month period ended June 30, 2001 the
Company expensed $31,590 of accrued interest on this loan agreement.
4. Earnings Per Share
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the quarter. Diluted loss per share,
which is computed on the basis of the weighted average number of common shares
and all potentially dilutive common shares outstanding during the quarter, is
the same as basic loss per share for the periods ended June 30, 2001 and 2000,
as all potentially dilutive securities were anti-dilutive.
Options to purchase 2,014,075 and 1,499,623 shares of common stock were
outstanding at June 30, 2001 and 2000, respectively. Warrants to purchase
1,653,826 and 1,504,351 shares of common stock were outstanding at both June 30,
2001 and 2000, respectively. These were not included in the computation of
diluted earnings per share as the exercise of the options would have been
anti-dilutive because of the net losses incurred in the periods ended June 30,
2001 and 2000.
5. Operating segments
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments segment
produces research instruments for sale to universities, research institutes, and
distributors. The laser-based medical devices segment produces the Lasette for
home and clinical use for sale to clinics, individual consumers and to
distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-KSB. The Company evaluates segment performance based on profit or
loss from operations prior to the consideration of unallocated corporate general
and administration costs. The Company does not have intersegment sales or
transfers.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business utilizes different technologies and marketing strategies.
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<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2001
----------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- --------- ----------
Revenues from customers $ 394,713 210,677 -- 605,390
Research and development
grants 44,900 -- -- 44,900
Profit (loss) from operations 18,464 (974,076) (502,712) (1,458,324)
</Table>
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2000
----------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- --------- ----------
Revenues from customers $ 217,470 258,952 -- 476,422
Research and development
grants 7,294 -- -- 7,294
Loss from operations (71,984) (618,178) (829,748) (1,519,910)
</Table>
<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30, 2001
--------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- --------- --------
Revenues from customers $ 259,335 126,764 -- 386,099
Research and development
grants 34,513 -- -- 34,513
Profit (loss) from operations 20,962 (427,132) (263,677) (669,847)
</Table>
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<Table>
<Caption>
THREE MONTHS ENDED
JUNE 30, 2000
----------------------------------------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ----------- --------- ---------
Revenues from customers $ 145,993 115,835 -- 261,828
Research and development
grants 1,334 -- -- 1,334
Loss from operations (43,515) (423,974) (333,396) (800,885)
</Table>
6. Capital Resources
Since inception, the Company has incurred operating losses and other
equity charges, which have resulted in an accumulated deficit of $24,859,021 as
of June 30, 2001. During the six-month period ended June 30, 2001 the Company's
operations used net cash of $1,742,870.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Accordingly, the Company is manufacturing and marketing a series of scientific
instruments and laser-based medical devices. In addition, the Company is
pursuing development and marketing partners for its medical products. These
partnerships will enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.
Although the Company has begun manufacturing and marketing its
laser-based medical devices and continues to market its scientific instrument
line, it does not anticipate achieving profitable operations any earlier than
the first quarter of fiscal 2002. As a result, the Company's working capital
surplus is expected to erode over the next six months. The Company expects that
its existing working capital, loans made and expected to be made under its
$500,000 convertible note issued in August 2001 and future product sales will be
sufficient to cover its expected operational deficits through November 2001.
7. Subsequent Event
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable Mr. Oton Tisch, a director of the Company. Under the
Company's arrangements with Mr. Tisch, $200,000 was funded upon signing of the
convertible note. The remaining $300,000 may be requested by the Company, at its
option, after August 31, 2001 so long as the Company has not completed a round
of debt or equity financing providing gross proceeds to the Company of at least
$300,000. Principal and accrued interest evidenced by the note is convertible by
Mr. Tisch into shares of Common Stock at any time. The conversion price of the
convertible note is $0.5994 per share of Common Stock or 90% of the average
closing price per share of the Common Stock for 15 trading days ending on the
trading day immediately prior to the date of conversion, whichever is less.
However, the conversion price cannot be less than $0.30 per share. The
convertible note bears interest at 10% per annum and is presently secured by the
Company's equipment. Unless sooner converted, the convertible note is due on
August 2, 2002. The Company anticipates that a non-cash beneficial conversion
charge will be expensed as interest as a result of this transaction. The amount
of this charge cannot be reasonably determined at this time. In connection with
the issuance of the convertible note, Mr. Tisch was issued a warrant to purchase
up to
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37,000 shares of the Company's Common Stock, of which 14,800 shares have vested.
The remaining shares covered by the warrant will vest in proportion to the
amount funded by Mr. Tisch under the convertible note. The warrant is
exercisable until August 2, 2004, for Common Stock at a price of $.67 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CELL ROBOTICS INTERNATIONAL, INC.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
report.
LIQUIDITY AND CAPITAL RESOURCES - JUNE 30, 2001 COMPARED TO DECEMBER 31, 2000
The Company's working capital decreased to a deficit of $138,982 at
June 30, 2001 from $1,211,704 at December 31, 2000. The Company's current ratio
decreased to 0.92:1 at June 30, 2001 compared with 1.90:1 at December 31, 2000.
Total assets also decreased from $3,135,816 at December 31, 2000 to $2,173,752
at June 30, 2001. Accounts receivable decreased and inventory increased $40,887,
or 11%, and $22,195, or 2%, respectively, as of June 30, 2001 when compared with
December 31, 2000.
As of June 30, 2001, the Company's total liabilities were $1,823,011
compared to $1,350,315 at December 31, 2000. This increase was primarily due to
the $1 million of additional loans provided to the Company under its January
2001 loan agreement. Under this loan agreement, certain members of the Company's
board of directors and affiliates of members or former members of its board of
directors agreed to make term loan advances to the Company in an aggregate
amount of $1,000,000. Loans in the amount of $100,000, $400,000 and $500,000
under this $1,000,0000 commitment were made in February 2001, March 2001 and May
2001, respectively. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and are due on January 31, 2002.
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 Common
Stock. The warrants may be exercised until January 31, 2004, at a price equal to
$1.125 per share of Common Stock. The Company used $45,000 of the proceeds of
the above loans by its directors as payment against the outstanding balance of
the $250,000 note payable to Humagen Fertility Diagnostic, Inc., whose
president, chief executive officer and majority shareholder is Dr. Debra Bryant,
one of the Company's former directors.
In December 1999, the Company borrowed $250,000 from Humagen Fertility
Diagnostics, Inc. The note did not bear interest until June 2000, at which time
the unpaid balance of the note began to accrue interest at six percent per
annum. In January 2001, the Company used $45,000 of the proceeds of the above
loans by the Company's directors and their affiliates as payment against the
outstanding balance of $250,000. The Company paid monthly installments of
$10,000 each from February through April 2001. The remaining balance of the note
is now payable upon demand.
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable Mr. Oton Tisch, a director of the Company. Under the
Company's arrangements with Mr. Tisch, $200,000 was funded upon signing of the
convertible note. The remaining $300,000 may be requested by the Company, at its
option, after August 31, 2001 so long as the Company has not completed a round
of debt or equity financing providing gross proceeds to the Company of at least
$300,000. The note is convertible by Mr. Tisch into shares of Common Stock at
any time. The conversion price of the convertible note is $0.5994 per share of
Common Stock or 90% of the average closing price per share of the Common Stock
for 15 trading days ending on the trading day immediately prior to the date of
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conversion, whichever is less. However, the conversion price cannot be less than
$0.30 per share. The convertible note bears interest at 10% per annum and is
presently secured by the Company's equipment. Unless sooner converted, the
convertible note is due on August 2, 2002. In connection with the issuance of
the convertible note, Mr. Tisch was issued a warrant to purchase up to 37,000
shares of the Company's Common Stock, of which 14,800 shares have vested. The
remaining shares covered by the warrant will vest in proportion to the amount
funded by Mr. Tisch under the convertible note. The warrant is exercisable until
August 2, 2004, for Common Stock at a price of $.67 per share.
To date, the Company has funded its operations primarily from the sale
of equity securities and short term borrowings as it has not generated
sufficient cash from its operations. The Company expects that its existing
working capital, loans made and expected to be made under the $500,000
convertible note described above and future product sales will be sufficient to
allow the Company to meet operational obligations through November 2001,
assuming that the demand note to Humagen Fertility Diagnostics, Inc. referred to
above is not demanded by the lender. While the Company believes that payment
under the note owed to Humagen Fertility Diagnostics, Inc. will not be demanded
before November 2001, no assurances can be made that payment will not be
demanded. If payment is demanded there can be no assurances that the Company
will have sufficient cash on hand to repay the note. Accordingly, it is
imperative that the Company complete a significant financing during the quarter
ending December 31, 2001. Although the Company has had discussions with
potential investors, it has not been able to obtain financing on acceptable
terms as of the date of this Report that will allow it to continue its
operations after November 2001. The Company intends to continue to seek to raise
equity or debt financing. However, no assurance can be given that the Company
will be able to obtain additional financing on favorable terms, if at all.
Borrowing money may involve pledging some or all of the Company's assets.
Raising additional funds by issuing common stock or other types of equity
securities would further dilute our existing shareholders. If new equity
securities are issued, those securities may have rights, preferences or
privileges senior to those of existing holders of common stock. If the Company
cannot obtain additional financing as needed, the Company may not be able to
continue its operations, grow its market share, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
This would have a material adverse effect on the Company's business, financial
condition, results of operation and its ability to continue as a going concern.
Even if the Company is able to obtain additional financing during the
quarter ending December 31, 2001 to allow it to continue its operations, the
Company still will need to generate significant revenues or obtain additional
financing to fund anticipated capital requirements and to achieve and maintain
profitability. The Company's capital requirements depend upon several factors,
including:
o the rate of market acceptance of its products, particularly
the Lasette;
o its level of expenditures for marketing and sales;
o costs associated with its staffing; and
o other factors, including unforeseen factors and developments.
The Company will need additional cash to fund the costs associated with
manufacturing, marketing and selling its products. The Company may also need
cash to file, prosecute, defend and enforce patent claims and other intellectual
property rights, purchase capital equipment, develop new products and maintain
or obtain necessary regulatory approvals. If the Company's capital requirements
vary materially from those currently planned, the Company may require more
financing during 2001 than currently anticipated. The Company's inability to
finance its growth, either internally or externally, may limit its growth
potential and its ability to execute its business plan. External financing may
not be available to
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the Company on favorable terms or at all. In addition, the Company received a
report from its independent auditors covering its fiscal years ended December
31, 2000 and 1999 financial statements. The report 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.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 2000
Sales for the three-month period ended June 30, 2001 increased
$124,271, or 47%, to $386,099 from $261,828 in the same period of 2000. The
increase is primarily due to sales of the Company's scientific research
instruments. Sales of these products increased $113,342 or 78% from $145,993
during the quarter ended June 30, 2000 to $259,335 for the quarter ended June
30, 2001. The sales increases in the scientific research instruments products
related to increased demand for the Company's products that has occurred in the
current quarter when compared to the same period of the prior year. Management
expects this demand to continue during the last half of 2001 and intends to
devote more resources to better identify potential customers of these products
and achieve additional sales. Sales of the Company's laser-based medical
products increased $10,929, or 9%, from $115,835 for the quarter ended June 30,
2000 to $126,764 for the quarter ended June 30, 2001.
Revenue generated from research and development grants increased
$33,179 from $1,334 for the quarter ended June 30, 2000 to $34,513 for the
quarter ended June 30, 2001. The increase is attributed to more work being
completed on a specific grant by Company personnel in the second quarter of 2001
compared to the work competed during the same period during 2000.
The Company's gross margin on product sales increased from a negative
margin of 35% for the quarter ended June 30, 2000 to a positive gross margin of
22.6%. The increase is primarily attributed to the increase in sales.
Operating expenses increased $48,818, or 7%, from $708,178 for the
quarter ended June 30, 2000 to $756,996 for the quarter ended June 30, 2001. The
increase is primarily due to an increase in selling and marketing expenses of
$131,025, or 64%, during the second quarter of 2001 when compared with the same
period in 2000. The Company had a sales force of ten in the second quarter of
2001 compared with three in the second quarter of 2000. The additional sales
personnel and increased costs associated with selling activities resulted in the
increase in operating expenses. The Company was able to decrease its general and
administrative costs during the quarter ended June 30, 2001 when compared to the
same period of 2000. This decrease occurred primarily because of a reduction in
legal fees of approximately $96,000 in the second quarter of 2001 when compared
with the same period in 2000.
Interest income decreased to $1,150 for the quarter ended June 30, 2001
from $16,080 for the quarter ended June 30, 2000. The reason for the decrease is
that the Company had less cash to invest in short-term securities during 2001
than it did in 2000. Interest expense remained relatively constant during the
quarter ended June 30, 2001 when compared with interest expense for the
three-month period ended June 30, 2000. Other income increased in the second
quarter of 2001 to $14,560 compared with no other income in the second quarter
of 2000. This increase was the result of a royalty payment. In 2000 the Company
sold its in-vitro fertilization workstation technology. The royalty was for
product sales related to this technology.
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RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2000
Sales for the six-month period ended June 30, 2001 increased $128,968,
or 27%, to $605,390 from $476,422 in the same period of 2000. The increase is
primarily due to sales of the Company's scientific research instruments. Sales
of these products increased $177,243, or 82%, from $217,470 during the six-month
period ended June 30, 2000 to $394,713 for the six-month period ended June 30,
2001. As was stated above in the analysis for the quarterly period, the sales
increases in the scientific research instruments products related to increased
demand for the Company's products that has occurred in the current quarter when
compared to the same period of the prior year. Management expects this demand to
continue during the last half of 2001 and intends to devote more resources to
better identify potential customers of these products and achieve additional
sales.
As explained in the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 2001, during 2000 the Company had sales of approximately
$97,000 of in-vitro fertilization products. That product line was sold in 2000
and no comparable sales exist for the same period in 2001. On a comparable basis
sales of the Company's laser-based medical products increased $48,725, or 30%,
from $161,952 for the six-month period ended June 30, 2000 to $210,677 for the
six-month period ended June 30, 2001.
Revenue generated from research and development grants increased
$37,606 from $7,294 for the six-month period ended June 30, 2000 to $44,900 for
the six-month period ended June 30, 2001. The increase is attributed to more
work being completed on a specific grant by Company personnel in the six-month
period ended June 30, 2001 compared to the work competed during the same period
during 2000.
The Company's gross margin on product sales increased from a negative
margin of 10% for the period ended June 30, 2000 to a positive gross margin of
9%. The reason for the increase is primarily due to the increase in sales.
Operating expenses increased $41,099 or 3% from $1,470,803 for the
period ended June 30, 2000 to $1,511,902 for the period ended June 30, 2001. The
increase in operating expenses is primarily due to an increase in selling and
marketing expenses of $352,497, or 104%, during the second quarter of 2001 when
compared with the same period in 2000. The increase in sales in marketing
expense resulted from an increase in the Company's sales force and increased
costs associated with selling activities in the six months ended June 30, 2001
compared with the same period of 2000. Also, as previously discussed, the
Company was able to decrease its general and administrative costs during the
six-month period ended June 30, 2001 when compared to the same period of 2000.
This decrease occurred primarily because of a reduction in legal fees of
approximately $255,000 in the six-month period ended June 30, 2001 when compared
with the same period in 2000.
Interest income decreased in the six-month period ended June 30, 2001
to $5,446 from $19,367 in the six-month period ended June 30, 2000. The decrease
was due to the Company having less cash to invest in 2001. Interest expense
increased during the six-month period ended June 30, 2001 over that of the same
period in 2000 because of increased borrowings in 2001 over those in 2000. The
primary reason for the increased borrowing was the $1 million board loans that
were made in February through May 2001.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held June 15, 2001, in
Albuquerque, New Mexico. At that meeting, the shareholders voted on the
following proposal:
Proposal 1. Election of directors;
Proposal 1 was a proposal to elect the Board of Directors' seven
nominees for the Board of Directors. Those nominees are each listed
below in the summary of the vote on Proposal 1.
With respect to Proposal 1, the Directors received the following votes:
<Table>
<Caption>
For Against Abstained
--------- ------- ---------
Dr. Gerald Bernstein 7,747,080 200 65,173
Dr. Raymond Radosevich 7,747,080 200 65,173
Oton Tisch 7,747,080 200 65,173
Steven Crees 7,747,080 200 65,173
Dr. Ronald Lohrding 7,747,080 200 65,173
</Table>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Exhibit 10.17 Loan Agreement dated August 2, 2001 between the
Company and Mr. Oton Tisch
Exhibit 10.18 Promissory Note dated August 2, 2001 payable to Mr.
Oton Tisch
Exhibit 10.19 Warrant dated August 2, 2001 issued by the Company to
Mr. Oton Tisch
Exhibit 10.20 Amendment to promissory note dated August 13, 2001
between the Company and Humagen Fertility
Diagnostics, Inc.
Reports on Form 8-K: None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CELL ROBOTICS INTERNATIONAL, INC.
Dated: August 14, 2001 By: /s/ Ronald K. Lohrding
----------------- -----------------------------------------
Ronald K. Lohrding, President & CEO
Dated: August 14, 2001 By: /s/ Paul C. Johnson
----------------- ----------------------------------------
Paul C. Johnson, Chief Financial Officer
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INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.17 Loan Agreement dated August 2, 2001 between the
Company and Mr. Oton Tisch
10.18 Promissory Note dated August 2, 2001 payable to Mr.
Oton Tisch
10.19 Warrant dated August 2, 2001 issued by the Company to
Mr. Oton Tisch
10.20 Amendment to promissory note dated August 13, 2001
between the Company and Humagen Fertility
Diagnostics, Inc.
</Table>