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, 2002
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)
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 12, 2002, 11,519,557 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
-1-
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 (unaudited)
and December 31, 2001
Consolidated Statements of Operations for the Three Months
ended June 30, 2002 and June 30, 2001 (unaudited)
Consolidated Statements of Operations for the Six Months
ended June 30, 2002 and June 30, 2001 (unaudited)
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2002 and June 30, 2001 (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
-2-
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 annual report on Form 10-KSB for the year ended December 31, 2001 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, 2001.
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.
-3-
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF AS OF
JUNE 30, 2002 DECEMBER 31, 2001
-------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 94 $ 5,633
Accounts receivable, net of allowance for
doubtful accounts of $4,991
in 2002 and 2001 51,255 287,482
Inventory 744,052 911,421
Other 44,661 49,009
-------------- --------------
Total current assets 840,062 1,253,545
Property and equipment, net 329,536 386,914
Other assets, net 72,467 19,279
-------------- --------------
Total assets $ 1,242,065 $ 1,659,738
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 355,391 $ 579,021
Notes payable - related party 1,783,908 1,608,989
Payroll related liabilities 110,546 145,952
Royalties payable 108,272 110,846
Other current liabilities 66,360 44,607
-------------- --------------
Total current liabilities 2,424,477 2,489,415
-------------- --------------
Stockholders' equity (deficit):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, no shares issued and outstanding
at June 30, 2002 and December 31, 2001 0 0
Common stock, $.004 par value. Authorized
50,000,000 shares, 10,834,872 and 9,965,137 shares
issued and outstanding at June 30, 2002
and December 31, 2001, respectively 43,340 39,825
Additional paid-in capital 25,824,369 25,223,575
Accumulated deficit (27,050,121) (26,093,077)
-------------- --------------
Total stockholders' deficit (1,182,412) (829,677)
-------------- --------------
$ 1,242,065 $ 1,659,738
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-4-
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
THREE MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
-------------- --------------
Product sales $ 104,130 $ 386,099
Research and development grants -- 34,513
-------------- --------------
Total revenues 104,130 420,612
-------------- --------------
Product cost of goods sold (160,994) (298,950)
SBIR direct expenses (34,513)
-------------- --------------
Total cost of goods sold (160,994) (333,463)
-------------- --------------
Gross profit (loss) (56,864) 87,149
-------------- --------------
Operating expenses:
General and administrative 182,348 264,702
Marketing & sales 167,339 337,093
Research and development 91,810 155,201
-------------- --------------
Total operating expenses 441,497 756,996
-------------- --------------
Loss from operations (498,361) (669,847)
-------------- --------------
Other income (expense):
Interest income 2 1,150
Interest expense (34,976) (29,896)
Other income, net 7,605 14,560
-------------- --------------
Total other expense (27,369) (14,186)
-------------- --------------
Net loss $ (525,730) $ (684,033)
============== ==============
Weighted average common shares
outstanding, basic and diluted 10,615,737 9,980,644
============== ==============
Net loss per common share, basic and diluted $ (0.05) $ (0.07)
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-5-
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
-------------- --------------
Product sales $ 499,053 $ 605,390
Research and development grants 44,900
-------------- --------------
Total revenues 499,053 650,290
-------------- --------------
Product cost of goods sold (476,795) (551,812)
SBIR direct expenses (44,900)
-------------- --------------
Total cost of goods sold (476,795) (596,712)
-------------- --------------
Gross profit 22,258 53,578
-------------- --------------
Operating expenses:
General and administrative 367,171 504,636
Marketing & sales 342,320 692,843
Research and development 202,604 314,423
-------------- --------------
Total operating expenses 912,095 1,511,902
-------------- --------------
Loss from operations (889,837) (1,458,324)
-------------- --------------
Other income (expense):
Interest income 17 5,446
Interest expense (95,130) (37,889)
Other income, net 27,906 979
-------------- --------------
Total other expense (67,207) (31,464)
-------------- --------------
Net loss $ (957,044) $ (1,489,788)
============== ==============
Weighted average common shares
outstanding, basic and diluted 10,439,181 9,979,977
============== ==============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.09) $ (0.15)
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-6-
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (957,044) $ (1,489,788)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 73,340 90,974
Beneficial conversion charge 19,883 --
Options and warrants issued for services 61,781 46,121
Common stock issued for services -- 8,907
Decrease in accounts receivable 236,227 40,887
Decrease (increase) in inventory 167,369 (22,195)
(Increase) decrease in other assets (57,435) 26,012
Decrease in current liabilities (239,857) (443,788)
------------ ------------
Net cash used in operating activities (695,736) (1,742,870)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
purchase of property and equipment (7,367) (6,900)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and
warrants - related party 378,747 944,538
Repayments of notes payable - related party (203,828) (28,054)
Proceeds from exercise of stock options 2,932 --
Net proceeds from issuance of common stock 519,713 --
------------ ------------
Net cash provided by financing activities 697,564 916,484
------------ ------------
Net decrease in cash and cash equivalents: (5,539) (833,286)
Cash and cash equivalents:
Beginning of period 5,633 1,043,230
------------ ------------
End of period $ 94 $ 209,944
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 8,545 $ 4,546
============ ============
</Table>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-7-
CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
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 accounting principles generally accepted in the United
States. 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 2001, the Company issued 15,000 shares of its Common Stock
to Pollet & Richardson as payment for legal services. The Company recorded a
charge of approximately $8,900, the fair value of the stock issued. The fair
value was calculated on the measurement date using the market price of the
Company's common stock on that date.
In October 2001 the Company issued a total of 37,375 shares of its
Common Stock as payment for services. The Company recorded charges of $15,000,
the fair value of the stock issued. The fair value was calculated on the
measurement dates using the market price of the Company's common stock on those
dates.
On January 25, 2002, the Company issued 424,208 shares of its Common
Stock in a private placement with William Hayman, a private investor, which
resulted in gross proceeds to the Company of $300,000. Additionally Mr. Hayman
was issued warrants to purchase 84,842 shares of the Company's Common Stock at a
price of $0.90 per share. The warrants expire on January 25, 2007. A success fee
of 8,333 shares of the Company's Common Stock was paid after the close of the
transaction.
On May 16, 2002, the Company issued 438,270 shares of its Common Stock
in a private placement with three private investors, one of whom included Mr.
Oton Tisch, a director of the Company. The gross proceeds to the Company were
$235,000. Additionally the three investors were issued warrants to purchase a
total of 131,481 shares of the Company's Common Stock at a price of $0.87 per
share. The warrants expire on May 17, 2007.
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 principal balance
and accrued interest of the note were paid in installments of $50,000 each month
at the end of January, February and March 2002 with a final payment at the end
of April 2002 of $43,828. During the six-month period ended June 30, 2002 the
Company accrued and paid approximately $2,900 of 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 were due on January 31, 2002.
As of the filing date of this report these loans are due and payable in full.
Additionally, the lenders were issued
-8-
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 was recorded as a discount on the loans and was amortized
over the life of the loans. During the six-month period ended June 30, 2002 the
Company accrued approximately $50,000 of interest expense on these promissory
notes.
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, one of the Company's directors.
Mr. Tisch, funded $190,000 after the signing of the convertible note in August
2001. Additional funds of $150,000 and $40,000 were provided by Mr. Tisch in
December 2001 and January 2002, respectively. Principal and accrued interest
evidenced by the note are convertible into shares of the Company's Common Stock
at any time. The conversion price of the convertible note is $0.5994 per share
of the Company's Common Stock or 90% of the average closing price per share of
the Company's 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 secured by all of the Company's assets. 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 warrants to
purchase up to 37,500 shares of the Company's Common Stock, of which 28,500 have
become exercisable. The remaining shares covered by the warrant will become
exercisable in proportion to the amount funded by Mr. Tisch under the
convertible note. The warrants are exercisable until August 2, 2004, for Common
Stock at a price of $0.67 per share.
On March 29, 2002, the Company signed a promissory note in the face
amount of $2,000,000 payable to one of the Company's directors, Mr. Oton Tisch.
This new promissory note allows Mr. Tisch to make one or more advances to the
Company at times and in amounts, as determined by Mr. Tisch in his discretion,
up to an aggregate principal sum of $2,000,000. Therefore, Mr. Tisch has no
obligation or commitment to make any loans under this note. This note bears
interest at 8% per annum and is secured by all the Company's assets. Mr. Tisch
funded an aggregate of $263,500 under this note in April and May 2002. All
principal and interest outstanding under the note is due on April 1, 2004.
During the six-month period ended June 30, 2002 the Company accrued
approximately $4,500 of interest under this promissory note.
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, 2002 and 2001,
as all potentially dilutive securities were anti-dilutive.
Options to purchase 2,915,702 and 2,014,075 shares of common stock were
outstanding at June 30, 2002 and 2001, respectively. Warrants to purchase
1,942,649 and 1,653,826 shares of common stock were outstanding at both June 30,
2002 and 2001, 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,
2002 and 2001.
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.
-9-
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.
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2002
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
---------------- ------------------ --------- ---------
Revenues from customers $ 251,570 247,483 -- 499,053
Research and development
grants -- -- -- --
Loss from operations (179,203) (343,464) (367,170) (889,837)
</Table>
<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>
THREE MONTHS ENDED
JUNE 30, 2002
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
---------------- ------------------ --------- ---------
Revenues from customers $ 73,986 30,144 -- 104,130
Research and development
grants -- -- -- --
Loss from operations (106,442) (209,571) (182,348) (498,361)
</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
Loss from operations (20,962) (427,132) (263,677) (669,847)
</Table>
-10-
6. Capital Resources
Since inception, the Company has incurred operating losses and
other equity charges which have resulted in an accumulated deficit of
$27,050,121 at June 30, 2002 and operations using net cash of $695,736
in the six-month period ended June 30, 2002.
The Company's ability to improve cash flow and ultimately
achieve profitability will depend on its ability to significantly
increase sales. Accordingly, the Company is manufacturing and marketing
a sophisticated laser-based medical device that leverages the Company's
existing base of patented technology. The Company believes the markets
for this product are broader than that of the scientific research
instruments market and, as such, offer a greater opportunity to
significantly increase sales. In addition, the Company is pursuing
development and marketing partners for some of its new 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 is manufacturing and marketing its
sophisticated laser-based medical device and continues to market its
scientific research instrument line, it does not anticipate achieving
profitable operations in the foreseeable future. As a result, the
Company expects its accumulated deficit to increase in the near future.
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in
the United States of America which contemplate continuation of the
Company as a going concern. There is substantial doubt that the Company
will be able to continue as a going concern. The ultimate continuation
of the Company is dependent on attaining additional financing and
profitable operations.
7. Subsequent Event
On July 29, 2002 the Company paid the outstanding principal
and interest of its August 2, 2001 note by issuing to Mr. Tisch
684,685 shares of the Company's Common Stock upon conversion of the
note.
-11-
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
Cash used in operations for the six-month periods ended June 30, 2002
and 2001 was $695,736 and $1,742,870, respectively. The primary reason for the
decrease in cash used in operations during the six-month period ended June 30,
2002, as compared to the same period in the prior year, was that we had fewer
cash resources and limited our spending during 2002.
Cash provided by financing activities for the six-month periods ended
June 30, 2002 and 2001 was $697,564 and $916,484, respectively. The decrease in
net cash provided by financing activities resulted primarily from fewer
available sources of capital during the six-month period ended June 30, 2002
when compared to the same period in 2001.
Our liquidity and capital resources decreased in 2001 due primarily to
our ongoing operating losses. Our current ratio at June 30, 2002 was 0.35
compared to 0.5 at December 31, 2001.
Total assets decreased to $1,242,065 at June 30, 2002 from $1,659,738
at December 31, 2001, a decrease of $183,660, or 11%. This decrease in total
assets is primarily attributed to the following:
o Our current assets decreased $395,483, or 32%, as of June
30, 2002 compared to our current assets as of December 31,
2001. This decrease was the result of the use of cash
resources to fund our ongoing operating losses.
o Accounts receivable decreased $236,227 from $278,482 at
December 31, 2001 to $51,255 at June 30, 2002. This decrease
occurred because of our decreased sales in the second
quarter of 2002 and because we made an effort during the
second quarter of 2002 to collect as much cash as possible.
o Inventory decreased by $167,369, or 18%, to $744,052 at June
30, 2002 from $911,421 at December 31, 2001. The decrease
was primarily due to the lack of financial resources to
purchase additional components.
Our working capital decreased to a deficit of $1,584,415 at June 30,
2002 from a deficit of $1,253,870 at December 31, 2001. The decrease was
primarily due to the use of cash resources to fund our ongoing operating losses.
Our total current liabilities decreased $64,938 from $2,489,415 at
December 31, 2001 to $2,424,477 at June 30, 2002.
As of June 30, 2002, our outstanding indebtedness for borrowed money
includes the following:
o In January 2001, certain members of our board of directors
and affiliates of members or former members of our board of
directors also agreed to make term loan advances to us in an
aggregate amount of $1,000,000. Loans in the amount of
$100,000, $400,000 and $500,000 under this $1,000,0000
commitment were made in February 2001, March 2001 and May
2001, respectively. The loans are evidenced by unsecured
promissory notes, bear interest at the rate of ten percent
per annum and were due on January 31, 2002. As of the filing
date of this report we have not repaid these loans;
therefore, payment of these loans can be demanded at any
time. In connection with
-12-
the January 2001 loan commitment, each lender was issued a
warrant in proportion to the amount of the loan made by that
lender. The warrants allow the lenders to purchase an
aggregate of 150,000 shares of our common stock. The
warrants may be exercised until January 31, 2004, at a price
equal to $1.125 per share of our common stock. We used
$45,000 of the proceeds of the above loans by our directors
as payment against the outstanding balance of principal and
accrued interest on the $250,000 note payable to Humagen
Fertility Diagnostic, Inc., whose president, chief executive
officer and majority shareholder is Dr. Debra Bryant, a
former director of the company. The remaining proceeds were
used to pay trade payables and for working capital and other
general corporate purposes.
o In August 2001, we signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, one of our
directors. Mr. Tisch funded $190,000 after the signing of
the convertible note in August 2001. Additional funds of
$150,000 and $40,000 were provided by Mr. Tisch in December
2001 and January 2002, respectively. The convertible note
accrued interest at ten percent per annum and was secured by
all our assets. This convertible note, which was convertible
at our option, was converted into 684,685 shares of our
common stock on July 29, 2002 in repayment of all
outstanding principal and interest. The conversion price of
the convertible note was $0.5994 per share of our common
stock. In connection with the issuance of the convertible
note, Mr. Tisch was issued a warrant to purchase up to
37,500 shares of our common stock, of which 28,500 shares
are exercisable. The warrant is exercisable until August 2,
2004, for common stock at a price of $0.67 per share. The
proceeds from the loan made under the convertible note were
used to pay trade payables and for working capital and other
general corporate purposes.
o On March 29, 2002, we signed a promissory note in the face
amount of $2,000,000 payable to one of our directors, Mr.
Oton Tisch. This new promissory note allows Mr. Tisch to
make one or more advances to us at times and in amounts, as
determined by Mr. Tisch in his discretion, up to an
aggregate principal sum of $2,000,000. Therefore, Mr. Tisch
has no obligation or commitment to make any loans under this
note. This note bears interest at 8% per annum and is
presently secured by all our assets. Mr. Tisch funded
$214,000 and $49,500 under this note in April and May 2002,
respectively. All principal and interest outstanding under
the note is due on April 1, 2004.
Since our inception, to provide working capital for our product
development and marketing activities, we have relied principally upon the
proceeds of both debt and equity financings and, to a lesser extent, the
proceeds of Small Business Innovative Research grants. Research and development
grants accounted for revenues of $137,597 in 2001. No research and development
grant revenue was received in the first six months of 2002. We have not been
able to generate sufficient cash from operations and, as a consequence, we must
seek additional financing to fund ongoing operations.
We anticipate that our existing current working capital and expected
cash flow from operating activities will only be sufficient to allow us to meet
operational obligations through September 5, 2002, assuming the repayment of
$1,000,000 of our current outstanding indebtedness for borrowed money is not
demanded before that date. We expect to experience operating losses and negative
cash flow for the foreseeable future and do not have sufficient cash to sustain
those operating losses without additional financing. We presently need financing
to repay our current indebtedness, including payment of our notes in the
aggregate principal amount of $1,000,000 that are currently due. In addition to
debt service requirements, we will require cash to fund our operations which we
estimate will be approximately $1,000,000 for the remainder of 2002. Our
operating requirements depend upon several factors, including the rate of market
acceptance of our products, particularly the Lasette, our level of expenditures
for manufacturing, marketing and selling our products, costs associated with our
staffing and other factors. If our operating requirements vary materially from
those currently planned, we may require more financing than currently
anticipated. Although we have had discussions with potential investors, we have
not been able to obtain financing on acceptable terms as of the date of this
report. We intend to continue to seek to raise equity or debt financing.
However, no assurance can be given that we will be able to obtain additional
financing on favorable terms, if at all. Borrowing money may involve pledging
some or all of our assets. Raising additional funds by
-13-
issuing common stock or other types of equity securities would further dilute
our existing shareholders. If we cannot obtain additional financing in a timely
manner, we will not be able to continue our operations. In addition, we have
received a report from our independent auditors covering our fiscal years ended
December 31, 2001 and 2000 financial statements. The report contains an
explanatory paragraph that states that our recurring losses and negative cash
flows from operations raise substantial doubt about our ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
To date, we have generated only limited revenues from the sale of our
products and have been unable to profitably market our products. We incurred net
losses applicable to common shareholders of $957,044 and $1,489,788 for the
six-month periods ended June 30, 2002 and 2001, respectively and net losses of
$2,723,844 and $5,036,182 in 2001 and 2000, respectively, with revenues from the
sale of our products of $499,053 and $605,390 for the six-month periods ended
June 30, 2002 and 2001, respectively and $1,461,447 and $992,710 years ended
December 31, 2001 and 2000, respectively. We expect to experience operating
losses and negative cash flow for the foreseeable future. We do not have
sufficient cash to sustain continuing operating losses without additional
financing. Even if we are able to obtain additional financing to allow us to
continue operations and repay indebtedness, we will still need to generate
significant revenues and improve our gross margins to fund anticipated
manufacturing and marketing costs and to achieve and maintain profitability. We
cannot assure you that we will ever generate sufficient revenues to achieve
profitability, which will have a negative impact on the price of our common
stock. If we do achieve profitability, we cannot assure you that we will be able
to sustain or increase profitability in the future.
In October 2001, we were notified by the Center for Medicare and
Medicaid Services, or CMS, that a Healthcare Common Procedure Coding System, or
HCPCS, code had been assigned to our Lasette. In January 2002, CMS published the
allowable for our Lasette that was associated with the newly issued HCPCS code.
Generally, Medicare reimburses 80% of the published allowable. In March 2002, we
were notified by CMS that they have not established a medical criteria for our
Lasette and as a result CMS is reevaluating the amount of the allowable
previously assigned to our Lasette. The allowable actually set for the Lasette
will depend on the medical policy established by CMS for the Lasette, which is
largely outside our control. Based on CMS's present position, Medicare would
reimburse a minimal portion of the cost of the Lasette. We are currently working
with CMS to provide input into CMS's establishment of an appropriate medical
policy so that a higher allowable may be set. However, we can provide no
assurance as to whether a medical policy favorable to us will be established by
CMS, or when, if ever, an adequate allowable for the Lasette will be set or the
eventual amount of the allowable.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 2001
Sales of products for the three-month period ended June 30, 2002
decreased $281,969, or 73%, to $104,130 from $386,099 in the same period of
2001. The decrease was primarily due to a lack of financial resources to promote
sales and to purchase inventory components that were required to assemble
products for orders. Sales of our scientific research instruments decreased
$185,349 or 71% from $259,335 during the quarter ended June 30, 2001 to $73,986
for the quarter ended June 30, 2002. Sales of our laser-based medical products
decreased $96,620, or 76%, from $126,764 for the quarter ended June 30, 2001 to
$30,144 for the quarter ended June 30, 2002.
We generated no revenues from research and development grants in the
second quarter of 2002 because our final research grant expired in September
2001.
Our gross margin on product sales decreased to a negative margin of 55%
for the quarter ended June 30, 2002 from a positive gross margin of 30% for the
quarter ended June 30, 2001. A lack of efficiencies in the production of our
products contributed to the negative gross margin. These inefficiencies were
primarily due to low volume of sales.
Operating expenses decreased $315,499, or 42%, from $756,996 for the
quarter ended June 30, 2001 to $441,497 for the quarter ended June 30, 2002. The
decrease is primarily due to our efforts to reduce to the extent possible all
expenditures in 2002 because of the lack of financial resources. During latter
part of 2001 six full-time
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positions were eliminated. These included four in marketing and sales and two in
general and administrative. Additionally, advertising and travel expenditures
were limited and accounted for a decrease in sales and marketing expenses of
approximately $80,000 during the second quarter of 2002 when compared with the
same period in 2001. The decrease in research and development expenses was
primarily due to fewer engineering components being purchased in the second
quarter of 2002 when compared with the same period in 2001. The purchase of
component parts decreased by approximately $54,000 in the second quarter of 2002
when compared to the same period in 2001.
Interest income decreased from $1,150 for the quarter ended June 30,
2001 to $2 in the quarter ended June 30, 2002. The reason for the decrease is
that we had no excess cash to invest in short-term securities during 2002.
Interest expense increased $5,080 in the quarter ended June 30, 2002 when
compared with interest expense for the three-month period ended June 30, 2001.
The reason for the increase was the greater outstanding debt in the second
quarter of 2002 when compared with the same period in 2001. Other income
decreased $6,955 in the second quarter of 2002 compared with the second quarter
of 2001.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2001
Sales of products for the six-month period ended June 30, 2002
decreased $106,337, or 18%, to $499,053 from $605,390 in the same period of
2001. The decrease occurred in the second quarter of 2002 and was discussed
above.
We generated no revenues from research and development grants in the
six-month period ended June 30, 2002 because our final research grant expired in
September 2001.
Our gross margin on product sales decreased from 9% for the period
ended June 30, 2001 to 4% for the six-month period ended June 30, 2002. A lack
of efficiencies in the production of our products contributed to the decline in
gross margin. These inefficiencies were primarily due to low volume of sales
that occurred mainly in the second quarter of 2002.
Operating expenses decreased $599,807 or 40% from $1,511,902 for the
six-month period ended June 30, 2001 to $912,095 for the period ended June 30,
2002. As was explained above, the decrease is primarily due to our efforts to
reduce to the extent possible all expenditures in 2002 because of the lack of
financial resources. Reductions in expenditures for personnel, advertising,
travel and engineering all contributed to the decrease in operating expenses.
Interest income decreased in the six-month period ended June 30, 2002
to $17 from $5,446 in the six-month period ended June 30, 2001. The decrease was
due to the Company having practically no excess cash to invest in 2002. Interest
expense increased during the six-month period ended June 30, 2002 over that of
the same period in 2001 because of increased borrowings in 2002 over those in
2001. The primary reason for the increased borrowing was the $380,000 advance
under the August 2, 2001 convertible note and advances of $263,500 under the
March 29, 2002 promissory note. Both notes were made by Mr. Oton Tisch, one of
our directors.
CRITICAL ACCOUNTING POLICIES
High-quality financial statements require rigorous application of
high-quality accounting policies. The policies discussed below are considered by
management to be critical to an understanding of our financial statements
because their application places the most significant demands on management's
judgment, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, management cautions that future events rarely develop exactly
as forecast, and the best estimates routinely require adjustment.
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REVENUE RECOGNITION - Sales to qualified distributors are recognized when the
products are shipped from the plant and ownership is transferred to the
customer. In certain instances where we are required to install its products at
a customer location, the revenue is deferred until the installation is complete.
We provide an allowance for returns based on historical experience.
LOSS CONTINGENCIES - Loss contingencies are recorded as liabilities when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. Disclosure is required when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision.
Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple forecasts that often depend on
judgments about potential actions by third parties such as regulators.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology, for instance the
terms "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms or
other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of our financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o our ability to manufacture and distribute our products.
Potential investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties. Actual results will differ and
could differ materially from these forward-looking statements. The factors that
could cause actual results to differ materially from those in the
forward-looking statements include the following: (1) industry conditions and
competition, (2) reforms in the health care industry or limitations imposed on
third party or Medicare reimbursement of health care costs, (3) the rate of
market acceptance of our products, particularly the Lasette, (4) operational
risks and insurance, (5) risks associated with operating in foreign
jurisdictions, (6) product liabilities which may arise in the future which are
not covered by insurance or indemnity, (7) the impact of current and future laws
and government regulation, as well as repeal or modification of same, affecting
the medical device industry and our operations in particular, (8) the ability to
retain key personnel, (9) renegotiation, nullification or breach of contracts
with distributors, suppliers or other parties and (10) the relationship with our
suppliers, particularly our supplier of crystals used in our Ebrium:YAG lasers.
In light of these risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained in this
prospectus will in fact occur.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
On May 16, 2002, the Company issued 438,270 shares of
its Common Stock in a private placement with three private
investors, one of whom included Mr. Oton Tisch, a director of
the Company. The gross proceeds to the Company were $235,000.
Additionally, the three investors were issued warrants to
purchase a total of 131,481 shares of the Company's Common
Stock at a price of $0.87 per share. The warrants expire on
May 17, 2007. The proceeds were used for working capital in the
Company's day-to-day operations.
On July 29, 2002, we paid the outstanding principal
and interest of our August 2, 2001 note by issuing to Mr. Tisch
684,685 shares of our common stock upon conversion of the note.
The conversion price of the convertible note was $0.5994 per
share of our common stock.
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.
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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, 2002 By: /s/ Gary Oppedahl
----------------------- -----------------------------------------
Gary Oppedahl, President & CEO
Dated: August 14, 2002 By: /s/ Paul C. Johnson
----------------------- ----------------------------------------
Paul C. Johnson, Chief Financial Officer
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