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 September 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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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
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer'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 November 9, 2001, 10,018,018 shares of Common Stock of the Issuer were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
INDEX
<Table>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2001 (unaudited)
and December 31, 2000
Consolidated Statements of Operations for the Three Months
ended September 30, 2001 and September 30, 2000
(unaudited)
Consolidated Statements of Operations for the Nine Months
ended September 30, 2001 and September 30, 2000
(unaudited)
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2001 and September 30, 2000
(unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
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
</Table>
-2-
PART I. FINANCIAL INFORMATION
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. 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 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.
-3-
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2001 2000
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 41,386 $ 958,144
Restricted cash 85,086 85,086
Accounts receivable, net of allowance for
doubtful accounts of $1,841 and $1,841
in 2001 and 2000, respectively 324,536 378,853
Inventory 1,266,622 1,079,086
Other 42,018 60,850
------------ ------------
Total current assets 1,759,648 2,562,019
Property and equipment, net 426,736 549,688
Other assets, net 20,486 24,109
------------ ------------
Total assets $ 2,206,870 $ 3,135,816
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 643,625 $ 350,399
Notes payable 233,863 --
Notes payable - related parties 1,128,287 250,000
Payroll related liabilities 155,215 152,860
Royalties and commissions payable 93,447 79,046
Accrued litigation costs -- 400,000
Other current liabilities 96,957 118,010
------------ ------------
Total current liabilities 2,351,394 1,350,315
------------ ------------
Stockholders' equity:
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero shares issued
and outstanding at September 30, 2001
and December 31, 2000 0 0
Common stock, $.004 par value. Authorized
50,000,000 shares, 9,980,644 and 9,965,644 shares
issued and outstanding at September 30, 2001
and December 31, 2000, respectively 39,923 39,863
Additional paid-in-capital 25,174,548 25,114,871
Accumulated deficit (25,358,995) (23,369,233)
------------ ------------
Total stockholders' equity (144,524) 1,785,501
------------ ------------
$ 2,206,870 $ 3,135,816
============ ============
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Product sales $ 402,063 $ 272,633
Research and development grants 88,923 10,029
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Total revenues 490,986 282,662
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Product cost of goods sold (269,236) (724,410)
SBIR direct expenses (88,923) (10,029)
------------ ------------
Total cost of goods sold (358,159) (734,439)
------------ ------------
Gross profit (loss) 132,827 (451,777)
------------ ------------
Operating expenses:
General and administrative 198,478 255,699
Marketing and sales 308,917 386,092
Research and development 99,714 264,677
------------ ------------
Total operating expenses 607,109 906,468
------------ ------------
Loss from operations (474,282) (1,358,245)
------------ ------------
Other income (expense):
Other income 15,284 24,585
Interest expense (40,976) (1,223,467)
------------ ------------
Total other expense (25,692) (1,198,882)
------------ ------------
Net loss $ (499,974) $ (2,557,127)
============ ============
Weighted average common shares
outstanding, basic and diluted 9,980,644 9,610,079
============ ============
Net loss per common share, basic and diluted $ (0.05) $ (0.27)
============ ============
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
Product sales $ 1,007,453 $ 749,055
Research and development grants 133,823 17,323
------------ ------------
Total revenues 1,141,276 766,378
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Product cost of goods sold (821,049) (1,249,940)
SBIR direct expenses (133,823) (17,323)
------------ ------------
Total cost of goods sold (954,872) (1,267,263)
------------ ------------
Gross profit (loss) 186,404 (500,885)
------------ ------------
Operating expenses:
General and administrative 699,693 1,027,505
Marketing and sales 1,005,180 771,522
Research and development 414,137 578,244
------------ ------------
Total operating expenses 2,119,010 2,377,271
------------ ------------
Loss from operations (1,932,606) (2,878,156)
------------ ------------
Other income (expense):
Other income 21,709 43,951
Interest expense (78,865) (1,254,620)
------------ ------------
Total other expense (57,156) (1,210,669)
------------ ------------
Net loss (1,989,762) (4,088,825)
------------ ------------
Weighted average common shares
outstanding, basic and diluted 9,980,203 9,057,133
============ ============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.20) $ (0.45)
============ ============
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-6-
CELL ROBOTICS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,989,762) $ (4,088,825)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 133,475 84,784
Beneficial conversion charge -- 1,200,000
Loss on sale of asset -- 35,000
Options and warrants issued for services 50,830 261,802
Common stock issued for services 8,907 551,405
Decrease (increase) in accounts receivable 54,317 (59,866)
Increase in inventory (187,536) (175,391)
Decrease (increase) in other current assets 18,832 (36,376)
(Decrease) increase in current liabilities (111,071) 117,076
------------ ------------
Net cash used in operating activities (2,022,008) (2,110,391)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of asset -- 232,500
Purchase of fixed assets (6,900) (342,224)
------------ ------------
Net cash used in investing activities (6,900) (109,724)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 1,735,502
Proceeds from notes payable and
warrants - related parties 1,140,204 --
Repayments of notes payable - related parties (28,054) --
Proceeds from exercise of stock options -- 225,066
Proceeds from exercise of warrants -- 691,756
Proceeds from issuance of secured convertible
note, net of expenses -- 1,212,480
------------ ------------
Net cash provided by financing activities 1,112,150 3,864,804
------------ ------------
Net (decrease) increase in cash and cash equivalents: (916,758) 1,644,689
Cash and cash equivalents:
Beginning of period 958,144 358,379
------------ ------------
End of period $ 41,386 $ 2,003,068
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid 4,546 --
Conversion of secured convertible note $ -- $ 1,200,000
============ ============
</Table>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-7-
CELL ROBOTICS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
1. Presentation of Unaudited Consolidated Financial Statements
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the Company's financial position, results of
operations and cash flows. The results of operations are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
2. Issuance of Equity Securities
In January 2000, the Company terminated its public and investor
relations agreement with RCG Capital Markets Group, Inc. effective January 1,
2000. In lieu of payment for three additional months of service retainer fees,
the Company granted options for an additional 25,000 shares of Common Stock at
an exercise price equal to $3.25, the closing price of the Company's Common
Stock on February 15, 2000. Due to early termination of this agreement, 50,000
unvested options were canceled. The Company recorded a charge of $44,659, the
fair value of the options granted. The fair value was calculated on the grant
date using the Black Scholes option-pricing model. The significant assumptions
include an expected dividend of zero, a risk free interest rate of 6.375% and an
expected volatility of 75.2%.
Additionally, in January 2000, the Company issued a total of 40,000
Common Stock purchase warrants to an investment research firm and a new public
relations firm. The Company was also committed under the terms of the agreement
with the new public relations firm to issue an additional 30,000 warrants if
representation continued beyond six months. The warrants are exercisable through
February 2, 2003 to purchase one share of Common Stock for a price of $2.40 per
share. Of the additional 30,000 warrants, 15,000 vested April 1, 2000, after
three months of service, and the remaining 15,000 vested on July 1, 2000, after
six months of service. The fair value of these performance-based options has
been measured upon vesting and charged to operations at such time. The Company
recorded charges of $124,321, the fair value of the options granted. The fair
value was calculated on the grant dates using the Black Scholes option-pricing
model. The significant assumptions include an expected dividend of zero, a risk
free interest rate of 6.375% and an expected volatility of 75.2%.
In February 2000, an underwriter in a previous offering exercised a
portion of its Placement Agent's Warrants to purchase a total of 10.9825 units
at a price of $25,000 per unit. Each unit consists of 20,000 shares of Common
Stock and class A warrants exercisable for 10,000 shares of Common Stock. The
underwriter exercised the underlying class A warrants simultaneously with the
exercise of the Private Placement Warrants. Proceeds to the Company were
approximately $467,000.
In March 2000, a previous distributor of the Company exercised its
warrant to purchase 100,000 shares of Common Stock at a price of $2.25 per
share. Proceeds to the Company were approximately $225,000.
On May 26, 2000 the Company issued 500,000 shares of its Common Stock
for $2,000,000 in a private placement with Paulson Investment Company of
Portland, Oregon. A five percent placement fee was
-8-
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 September 30, 2001
the Company expensed $9,196 of accrued interest on this note.
In February 2000, the Company executed a secured convertible promissory
note from a member of the Company's Board of Directors, which was amended in
March 2000. The director advanced $250,000 on March 3, 2000; $250,000 on March
9, 2000; $200,000 on March 28, 2000; and the remaining $500,000 on April 26,
2000 under the note. The principal amount of $1,200,000 was paid in full with
and converted into 500,000 shares of Common Stock on August 30, 2000. An SB-2
registration statement registering the shares issuable upon conversion of the
promissory note was declared effective by the SEC on July 20, 2000. In
connection with the beneficial conversion of this note, the Company recorded a
non-cash charge of $1,200,000 in the quarter ended September 30, 2000.
On January 31, 2001, certain members of the Company's board of
directors and affiliates of members or former members of its board of directors
agreed to make term loan advances to the Company in an aggregate amount of
$1,000,000. Loans in the amount of $100,000, $400,000 and $500,000 under this
$1,000,0000 commitment were made in February 2001, March 2001 and May 2001,
respectively. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and are due on January 31, 2002.
Additionally, the lenders were issued warrants to purchase an aggregate of
150,000 shares of Common Stock. The warrants are exercisable until January 31,
2004, for Common Stock at a price of $1.125 per share, the market price for the
Common Stock when the loan agreement was signed. The warrants are immediately
exercisable. The Company has allocated $32,540 in proceeds from the loan to the
warrants based on the fair value of the warrants. This amount has been recorded
as a discount on the loans and will be amortized over the life of the loans.
During the six-month period ended September 30, 2001 the Company expensed
$56,795 of accrued interest on this loan agreement.
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, a director of the Company. Mr.
Tisch, funded $190,000 after the signing of the convertible note. The remaining
$310,000 may be requested by the Company, at its option, after August 31, 2001
so long as the Company has not completed a round of debt or equity financing
providing gross proceeds to the Company of at least $310,000. Principal and
accrued interest evidenced by the note are convertible into shares of Common
Stock at any time. The conversion price of the convertible note is $0.5994 per
share of Common Stock or 90% of the average closing price per share of the
Common Stock for 15 trading days ending on the trading day immediately prior to
the date of conversion, whichever is less. However, the conversion price cannot
be less than $0.30 per share. The convertible note bears interest at 10% per
annum and is presently secured by the Company's equipment. Unless sooner
converted, the convertible note is due on August 2, 2002.
-9-
The Company anticipates that a non-cash beneficial conversion charge will be
expensed as interest as a result of this transaction. The amount of this charge
cannot be reasonably determined at this time. In connection with the issuance of
the convertible note, Mr. Tisch was issued a warrant to purchase up to 37,500
shares of the Company's Common Stock, of which 14,250 shares have vested. The
value assigned to the warrants that vested during the quarter ended September
30, 2001 of $4,709 was recorded as a discount to the convertible note and will
be amortized over the term of the convertible note. The remaining shares covered
by the warrant will vest in proportion to the amount funded by Mr. Tisch under
the convertible note. The warrant is exercisable until August 2, 2004, for
Common Stock at a price of $.67 per share. During the period ended September 30,
2001 the Company accrued interest expense of $2,499 in connection with this
convertible note.
4. Earnings Per Share
Basic loss per share is computed on the basis of the weighted average
number of shares of Common Stock outstanding during the quarter. Diluted loss
per share, which is computed on the basis of the weighted average number of
shares of Common Stock and all potentially dilutive shares of Common Stock
outstanding during the quarter, is the same as basic loss per share for the
periods ended September 30, 2001 and 2000, as all potentially dilutive
securities were anti-dilutive.
Options to purchase 2,226,075 and 1,660,242 shares of Common Stock were
outstanding at September 30, 2001 and 2000, respectively. Warrants to purchase
1,691,326 and 1,503,826 shares of Common Stock were outstanding at September 30,
2001 and 2000, respectively. These were not included in the computation of
diluted loss per share as the exercise of the options would have been
anti-dilutive because of the net losses incurred in the periods ended September
30, 2001 and 2000.
5. Operating segments
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments segment
produces research instruments for sale to universities, research institutes, and
distributors. The laser-based medical devices segment produces the Lasette for
home and clinical use for sale to clinics, individual consumers and to
distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-KSB. The Company evaluates segment performance based on profit or
loss from operations prior to the consideration of unallocated corporate general
and administration costs. The Company does not have intersegment sales or
transfers. The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business utilizes different technologies and marketing strategies.
-10-
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2001
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 714,770 292,683 -- 1,007,453
Research and development
grants 133,823 -- -- 133,823
Profit (loss) from operations 80,944 (1,316,856) (696,694) (1,932,606)
</Table>
<Table>
<Caption>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 424,773 324,282 -- 749,055
Research and development
grants 17,323 -- -- 17,323
Profit (loss) from operations 1,679 (1,378,702) (1,501,133) (2,878,156)
</Table>
<Table>
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30, 2001
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 320,057 82,006 -- 402,063
Research and development
grants 88,923 -- -- 88,923
Profit (loss) from operations 53,256 (330,135) (197,403) (474,282)
</Table>
<Table>
<Caption>
THREE MONTHS ENDED
SEPTEMBER 30, 2000
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
------------ ------------ ------------ ------------
Revenues from customers $ 207,303 65,330 -- 272,633
Research and development
grants 10,029 -- -- 10,029
Profit (loss) from operations 86,606 (699,015) (745,836) (1,358,245)
</Table>
-11-
6. Capital Resources
Since inception, the Company has incurred operating losses and other
equity charges, which have resulted in an accumulated deficit of $25,358,995 as
of September 30, 2001. During the nine-month period ended September 30, 2001 the
Company's operations used net cash of $2,022,008.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Accordingly, the Company is manufacturing and marketing a series of scientific
instruments and laser-based medical devices. In addition, the Company is
pursuing development and marketing partners for its medical products. These
partnerships will enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.
Although the Company has begun manufacturing and marketing its
laser-based medical devices and continues to market its scientific instrument
line, it does not anticipate achieving profitable operations any earlier than
the first quarter of fiscal 2002. The Company expects that its existing 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 December 2001.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 - SEPTEMBER 30, 2001 COMPARED TO
DECEMBER 31, 2000
The Company's working capital decreased to a deficit of $591,746 at
September 30, 2001 from a surplus of $1,211,704 at December 31, 2000. The
Company's current ratio decreased to 0.75:1 at September 30, 2001 compared with
1.90:1 at December 31, 2000. Total assets also decreased from $3,135,816 at
December 31, 2000 to $2,206,870 at September 30, 2001. Accounts receivable
decreased and inventory increased $54,317, or 14%, and $187,536, or 17%,
respectively, as of September 30, 2001 when compared with December 31, 2000. The
decrease in accounts receivable was primarily due to the Company being more
aggressive in collecting. The increase in inventory was due mainly to the
purchase of inventory parts associated with a new scientific research
instrumentation model that was introduced at the end of September 2001. Because
of expected sales of this product in the fourth quarter of 2001, the Company
made advanced purchases of inventory.
As of September 30, 2001, the Company's total liabilities were
$2,351,394 compared to $1,350,315 at December 31, 2000. This increase was
primarily due to the additional loans provided to the Company under its January
2001 loan agreement and the August 2001 convertible note. The increase is also
due, in part, to an increase in the payment cycle of accounts payable at
September 30, 2001 when compared with the level at December 31, 2000.
Under the January 2001 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,
including interest, 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 August 2001, the Company signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, a director of the Company. Mr.
Tisch, funded $190,000 after the signing of the convertible note. The remaining
$310,000 may be requested by the Company, at its option, after August 31, 2001
so long as the Company has not completed a round of debt or equity financing
providing gross proceeds to the Company of at least $310,000. Principal and
accrued interest evidenced by the note are convertible into shares of Common
Stock at any time. The conversion price of the convertible note is $0.5994 per
share of Common Stock or 90% of the average closing price per share of the
Common Stock for 15 trading days ending on the trading day immediately prior to
the date of conversion, whichever is less. However, the conversion price cannot
be less than $0.30 per share. The convertible note bears interest at 10% per
annum and is presently secured by the Company's equipment. Unless sooner
converted, the convertible note is due on August 2, 2002.
-13-
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 due to the variable nature of the
conversion prices. In connection with the issuance of the convertible note, Mr.
Tisch was issued a warrant to purchase up to 37,500 shares of the Company's
Common Stock, of which 14,250 shares have vested. The 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.
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
noted loans by the Company's directors and their affiliates as payment against
the outstanding balance and interest of this $250,000 note. 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.
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 December 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 December 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 the end of December 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:
the rate of market acceptance of its products, particularly
the Lasette;
its level of expenditures for marketing and sales;
costs associated with its staffing;
-14-
and 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 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.
-15-
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Sales of products for the three-month period ended September 30, 2001
increased $129,430 or 47% to $402,063 from $272,633 in the three-month period
ended September 30, 2000. The increase in sales resulted mainly from the
Company's scientific research instruments products. The sales of scientific
instrumentation products increased $112,754 during the quarter ended September
30, 2001 to $320,057 from $207,303 when compared to the same quarter of the
prior year. The increase resulted because the Company placed a greater emphasis
on its scientific research instrumentation products in 2001 than it did in 2000.
Additionally, at the end of September 2001 the Company released a newly
developed model of its scientific research instrumentation products, which
contributed to the increase. The Company's sales of laser-based medical products
increased $16,676 from $65,330 during the quarter ended September 30, 2000 to
$82,006 for the quarter ended September 30, 2001. Revenue generated from
research and development grants increased $78,894 to $88,923 in the quarter
ended September 30, 2001 from $10,029 in the quarter ended September 30, 2000.
The increase is attributed to more work being completed on a specific grant by
Company personnel in the third quarter of 2001 compared to the work completed
during the comparable period in 2000.
The Company's gross margin increased to 33% for the quarter ended
September 30, 2001 from a negative gross margin of 166% for the quarter ended
September 30, 2000. The significant negative gross margin experienced during the
quarter ended September 30, 2000 was primarily due to an accrual of $400,000
that was made in anticipation of the settlement of the lawsuit. This lawsuit was
settled in the first quarter of 2001 and was disclosed in the Company's Annual
Report on Form 10-KSB for the period ended December 31, 2000. Additionally,
during the quarter ended September 30, 2000 the Company accrued approximately
$64,000 in cost of sales to pay expenses associated with a design improvement in
one of the main components of the laser-based medical products. As a result of
the modification, certain parts in stock had to be reworked. Additionally, the
negative gross margin in 2000 was due to a lack of efficiencies in the
production of the Company's laser-based medical products. As sales have
increased in 2001 the Company's gross margin has returned to a positive level.
Operating expenses decreased 33% or $299,359 from $906,468 for the
quarter ended September 30, 2000 to $607,109 for the quarter ended September 30,
2001. The decrease occurred in nearly all areas of the Company's operations.
Because the Company's cash resources are limited, management took steps to
reduce expenditures during the quarter ended September 30, 2001.
Interest income decreased in the quarter ended September 30, 2001 from
the amount in the quarter ended September 30, 2000 primarily due to fact that
the cash received by the Company from the $2 million private placement that was
completed in May 2000 and proceeds from the issuance of the $1.2 million
convertible note in March 2000 was depleted in 2001; therefore, the Company had
less cash to invest in 2001. Interest expense decreased in 2001 from 2000
because of the required beneficial conversion charge to interest expense
associated with the conversion of the Company's $1.2 million convertible note in
August 2000 into 500,000 shares of the Common Stock. A similar charge was not
incurred in 2001. In accordance with accounting rules, the Company was required
to include a non-cash charge to interest expense when the $1.2 million
convertible note was converted to the Company's Common Stock in August 2000.
-16-
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Sales of products for the nine-month period ended September 30, 2001
increased $258,398 or 35% to $1,007,453 from $749,055 in the comparable period
of 2000. The increase is due primarily to sales of the Company's scientific
instrumentation products. As was discussed above, the Company increased selling
efforts with respect to these products in 2001. Also, the Company introduced a
new scientific research instrument product in September 2001 that contributed to
the sales increase.
The Company's gross margin increased from a negative gross margin of
67% for the nine-month period ended September 30, 2000 to a gross margin of 19%
for the nine-month period ended September 30, 2001. The increase is primarily
due to increased sales in 2001 when compared to sales in 2000 and the one-time
charges recorded in 2000 as mentioned above were not required in 2001.
Operating expenses decreased $258,261 from $2,377,271 for the
nine-month period ended September 30, 2000 to $2,119,010 for the nine-month
period ended September 30, 2001. The decrease is primarily due the Company's
curtailment of expenditures because its cash resources are limited. The decrease
in general and administrative expenses resulted primarily from decreases in fees
paid for legal services. Legal fees decreased by approximately $260,000 during
the nine-month period ended September 30, 2001 when compared to the same period
2000. Marketing and sales expenses increased during the nine-month period ended
September 30, 2001 when compared to the same period of 2000 primarily because of
increased sales personnel. The decrease in research and development expenses
occurred because the Company decided to devote less resources toward research
and development during the nine-month period ended September 30, 2001
considering the Company's decreasing available cash balance.
As was explained above, interest income decreased in the period ended
September 30, 2001 from the amount in the period ended September 30, 2000
primarily due to smaller cash balances available for investments in 2001 when
compared with 2000. Interest expense decreased in 2001 from 2000 because of the
beneficial conversion charge to interest expense associated with the conversion
of the Company's $1.2 million convertible note in August 2000 into 500,000
shares of the Common Stock. A similar charge was not required in 2001.
-17-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None
Reports on Form 8-K:
None.
-18-
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CELL ROBOTICS INTERNATIONAL, INC.
Dated: November 12, 2001 By: /s/ Ronald K. Lohrding
---------------------------- ----------------------------------
Ronald K. Lohrding, President,
Chief Executive Officer and
Chairman of the Board of Directors
Dated: November 12, 2001 By: /s/ Paul C. Johnson
---------------------------- ----------------------------------
Paul C. Johnson, Chief Financial
Officer and Secretary
-19-