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 March 31, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________________ to
Commission file number: 0-27840
CELL ROBOTICS INTERNATIONAL, INC.
------------------------------------------------------------
(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 May 14, 2004, 24,434,588 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2004 (unaudited) and December 31, 2003
Consolidated Statements of Operations for the Three Months ended March 31, 2004
and March 31, 2003 (unaudited)
Consolidated Statements of Cash Flows for the Three Months ended March 31, 2004
and March 31, 2003 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
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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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 annual report on Form 10-KSB for the year ended December 31, 2003,
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, 2003.
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CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 DECEMBER 31, 2003
-------------- -----------------
(UNAUDITED)
ASSET
Current assets:
Cash and cash equivalents $ 10,259 $ 76,816
Accounts receivable, net of allowance for
doubtful accounts of $1,136 in 2004 and
$11,426 in 2003 13,087 116,278
Inventory 571,564 596,274
Other 23,255 27,635
-------------- -----------------
Total current assets 618,165 817,003
Property and equipment, net 211,910 233,645
Other assets, net 31,577 37,412
-------------- -----------------
Total assets $ 861,652 $ 1,088,060
============== =================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 572,153 $ 497,620
Notes payable 821,184 795,523
Notes payable - related parties 304,707 276,903
Royalties payable 189,500 180,204
Payroll related liabilities 467,579 224,732
Other current liabilities 61,833 61,534
-------------- -----------------
Total liabilities 2,416,956 2,036,516
-------------- -----------------
Stockholders' deficit:
Common stock, $.004 par value. Authorized 50,000,000 shares, 24,434,588
and 23,914,588 shares issued and outstanding at March 31, 2004 and
December 31, 2003,
respectively 97,738 95,658
Additional paid-in capital 31,628,088 31,500,168
Accumulated deficit (33,281,130) (32,544,282)
-------------- -----------------
Total stockholders' deficit (1,555,304) (948,456)
-------------- -----------------
$ 861,652 $ 1,088,060
============== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- -----------------
Product sales $ 23,835 $ 160,300
Product cost of goods sold 115,333 326,709
-------------- -----------------
Gross loss (91,498) (166,409)
-------------- -----------------
Operating expenses:
General and administrative 400,665 336,105
Marketing & sales 66,367 382,777
Research and development 96,103 159,403
-------------- -----------------
Total operating expenses 563,135 878,285
-------------- -----------------
Loss from operations (654,633) (1,044,694)
-------------- -----------------
Other expense:
Interest expense (82,215) (2,984)
-------------- -----------------
Total other expense (82,215) (2,984)
-------------- -----------------
Net loss $ (736,848) $ (1,047,678)
============== =================
Net loss per common share, basic and diluted $ (0.03) $ (0.06)
============== =================
Weighted average common shares
outstanding, basic and diluted 24,105,255 18,581,025
============== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
THREE MONTHS ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (736,848) $ (1,047,678)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 31,676 35,292
Decrease in allowance for doubtful accounts (10,290) -
Amortization of debt discount 28,926 -
Options and warrants issued for services - 58,618
Changes in operating assets and liabilities:
Decrease in accounts receivable 113,481 440,224
(Increase) decrease in inventory 24,710 (166,756)
Increase in other assets 4,380 (3,490)
Increase (decrease) in current liabilities 326,975 273,211
-------------- ---------------
Net cash used in operating activities (216,990) (410,579)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
Purchase of property and equipment (4,106) (9,816)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 130,000 170,000
Repayment of notes payable - (31,360)
Proceeds from notes payable 24,539 -
-------------- ---------------
Net cash provided by financing activities 154,539 138,640
-------------- ---------------
Net decrease in cash and cash equivalents: (66,557) (281,755)
Cash and cash equivalents:
Beginning of period 76,816 299,083
-------------- ---------------
End of period $ 10,259 $ 17,328
============== ===============
SUPPLEMENTAL INFORMATION:
Interest paid $ 37,500 $ 5,386
============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
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. Certain
information and footnotes normally included in financial statements prepared in
conformity with accounting principles generally accepted in the United States of
America (GAAP) have been condensed or omitted pursuant to such rules and
regulations. The results of operations for interim periods are not necessarily
indicative of results which may be expected for any other interim period or for
the year ending December 31, 2004.
2. Capital Resources
Since inception, the Company has incurred operating losses and other equity
charges which have resulted in an accumulated deficit of $33,281,130 at March
31, 2004 and operations using net cash of $216,990 in the first quarter of 2004.
The Company's ability to improve cash flow and ultimately achieve profitability
will depend on its ability to significantly increase sales. Accordingly, the
Company is manufacturing and marketing the Lasette, a sophisticated laser-based
medical device, that leverages the Company's existing base of technology. The
Company believes the markets for this product is broader than that of the
scientific research instruments market and, as such, offers a greater
opportunity to significantly increased sales. In addition, the Company is
pursuing development and marketing partners for some of its new medical
products, such as the UltraLight Laser. If obtained, the Company believes these
partnerships may enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.
Although the Company has begun manufacturing and marketing the Lasette and the
Company continues to market its scientific research instrument line, it does not
anticipate achieving profitable operations until after 2004. As a result, the
Company expects that additional operating funds will be required under
alternative financing sources and that its accumulated deficit will increase in
the foreseeable future.
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America which contemplate continuation of the Company as a going concern. There
is substantial doubt that the Company will be able to continue as a going
concern. No adjustments have been made to the accompanying financial statements
to reflect the potential impact of this uncertainity. The ultimate continuation
of the Company is dependent on obtaining additional financing and attaining
profitable operations.
This Form 10-QSB should be read in conjunction with the Form 10-KSB which
includes the Company's audited consolidated financial statements for the year
ended December 31, 2003.
3. Issuance of Equity Securities
On February 27, 2004, the Company entered into a stock purchase agreement with
Frederick Voight, a private investor. In connection with this agreement, the
Company issued 520,000 shares of its common stock and received, in gross
proceeds, $130,000.
4. Notes Payable
In January 2001, certain members of the Company's board of directors or
affiliates of members or former members of the Company's board of directors
agreed to make term loan advances to the Company in an aggregate amount of
$1,000,000 pursuant to the terms of a loan agreement. The loans are evidenced by
unsecured promissory notes, bear interest at the
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rate of ten percent per annum and were due on January 31, 2002. On November 13,
2002 pursuant to a stock purchase agreement between the Company and Mr. Oton
Tisch dated November 12, 2002, the Company issued 2,309,255 shares of its common
stock to Mr. Tisch at a price per share of $0.45 in repayment in full of
$900,000 of principal and $139,165 of accrued interest owing to Mr. Tisch under
the loan agreement. As of March 31, 2004, the remaining balance of loans
outstanding under the loan agreement of approximately $57,500 can be demanded at
any time.
On March 29, 2002, the Company signed a promissory note in the face amount of
$2,000,000 payable to a director, Mr. Oton Tisch. The promissory note was
amended and restated on September 17, 2002. This note bears interest at 8% per
annum and is presently secured by all of the Company's assets. All principal and
interest outstanding under the note became due on April 1, 2004. All principle
and interest outstanding under this note of approximately $304,700, at March 31,
2004, can be demanded at any time. Subsequent to March 31, 2004, Mr. Tisch
advanced additional funds of $47,338 to the Company.
Private investors have advanced the Company principal sums of $20,000 and
$35,000, on May 20, 2003 and on June 6, 2003, respectively. The notes are due on
demand and bear interest at a rate of 10%. The notes permit the holder of the
notes to convert the outstanding balance of the notes into the Company's common
stock at a rate of $0.30 per share. The Company recorded a beneficial conversion
charge during the quarter ended June 30, 2003 of $6,833 in connection with these
two notes.
On August 29, 2003 the Company entered into a loan and security agreement with a
private investor to loan the Company $750,000. As of December 31, 2003, the
Company had borrowed the entire $750,000 under this facility. The Company paid a
facility fee of 75,000 shares of its common stock in connection with the loan
and security agreement. A charge of approximately $10,000, the fair value of the
shares, was recorded in the financial statements for these shares. The loan is
due on September 5, 2004. For each advance under the loan and security
agreement, the Company paid a 4% origination fee and is required to pay advanced
interest of 2% per month. Additionally, the Company issued to the lender
warrants to purchase 600,000 shares of common stock. The warrants are
exercisable through various dates between September 5, 2006 and December 24,
2006 for a price of $0.375 per share. The loan is secured by the Company's
accounts receivable and inventory and by an interest in the Company's
intellectual property related to the workstation products.
5. Subsequent Event
On April 21, 2004, the Company entered into a note agreement with a private
investor for the principal sum of $60,000. The note accrues interest at a rate
of 10% and is payable upon demand.
6. 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 quarters ended March 31, 2004 and 2003, as all
potentially dilutive securities were anti-dilutive.
Options to purchase 2,944,180 and 3,717,536 shares of Common Stock were
outstanding at March 31, 2004 and 2003, respectively. Warrants to purchase
3,005,085 and 1,889,274 shares of Common Stock were outstanding at March 31,
2004 and 2003, respectively. These were not included in the computation of
diluted loss per share as the assumed exercise of the options would have been
anti-dilutive.
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its plans. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement 123, Accounting
for Stock-Based Compensation, to its stock-based employee plans.
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Quarter ended March 31,
--------------------------
2004 2003
Net loss, as reported $ (736,848) $(1,047,678)
Add: Stock-based employee compensation
expense included in reported net
income, net of related tax effects - -
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for awards granted,
modified, or settled, net of related tax effects (18,525) (35,261)
----------- -----------
Pro forma net loss $ (755,373) $(1,082,639)
=========== ===========
Loss per share, basic and diluted:
As reported $ (0.03) $ (0.06)
Pro forma $ (0.03) $ (0.06)
7. 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.
Operating Segments
March 31, 2004
--------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ----------- --------- -----------
Revenues from customers $ 3,020 $ 20,815 $ - $ 23,835
Loss from operations (49,824) (204,144) (400,665) (654,633)
March 31, 2003
--------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ----------- --------- -----------
Revenues from customers $ 54,485 $ 105,815 $ - $ 160,300
Loss from operations (78,765) (629,825) (336,104) (1,044,694)
-9-
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
Cash used in operations for the three-month periods ended March 31, 2004 and
2003 and the year ended December 31, 2003 was $216,990, $410,579 and $1,746,246,
respectively.
Net cash provided by financing activities for the three-month periods ended
March 31, 2004 and 2003 and for the year ended December 31, 2003 was $154,539,
$138,640 and $1,578,397, respectively.
Total assets decreased to $861,652 at March 31, 2004 from $1,088,060 at December
31, 2003, a decrease of $226,408, or 21%. This change in total assets is
primarily attributed to the following:
- Our total current assets decreased $198,838, or 24%, as of March 31,
2004 compared to our current assets as of December 31, 2003. This
decrease was primarily the result of decreases in cash, in accounts
receivables and in inventory, as described below.
- Cash decreased $66,557, from $76,816 at December 31, 2003 to $10,259
at March 31, 2004. The decrease in cash was primarily attributed to
our operational needs during the quarter ended March 31, 2004.
- Accounts receivable decreased $103,191 from $116,278 at December 31,
2003 to $13,087 at March 31, 2004. The decrease in accounts
receivable was primarily attributed to fewer sales in the first
quarter of 2004 when compared with the fourth quarter of 2003. Our
decline in sales was primarily due to our lack of capital to invest
in sales and marketing activities.
- Inventory decreased by $24,710, or 4%, to $571,564 at March 31, 2004
from $596,274 at December 31, 2003. Although not material, the
decrease in inventory was due to the few sales we completed during
the quarter ended March 31, 2004.
Our current ratio at March 31, 2004 was 0.26 compared to 0.40 at December 31,
2003. Our total current liabilities increased $380,440 from $2,036,516 at
December 31, 2003 to $2,416,956 at March 31, 2004. Our working capital decreased
from a deficit of $1,219,513 at December 31, 2003 to a deficit of $1,798,791 at
March 31, 2004. The decrease in working capital was primarily due to our
operating losses that we experienced in the three-month period ended March 31,
2004.
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 had not established a medical criteria for our
Lasette and as a result CMS will only reimburse approximately $17 for the price
of the Lasette, a minimal portion of its cost. Whether we can obtain a higher
reimbursement rate for the Lasette will depend on the establishment of a
favorable medical policy for the Lasette, which is largely outside our control.
In the past we were working to provide input into CMS's establishment of an
appropriate medical policy so that a higher reimbursement rate may be set.
Currently, due to our lack of financial resources as described herein, we are
not pursuing the establishment of a medical policy. In the future, if our
liquidity improves, we may again actively pursue the establishment of a
favorable medical policy. If and when we pursue a medical policy, we can provide
no assurance as to whether a medical policy favorable to us will be established
by CMS, or when, if ever, an adequate reimbursement rate for the Lasette will be
set or the eventual amount of reimbursement.
Our ability to improve cash flow and ultimately achieve profitability will
depend on our ability to significantly increase
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sales. Accordingly, we are manufacturing and marketing the Lasette, a
sophisticated laser-based medical device that leverages our existing base of
technology. We believe the markets for this product are broader than that of the
scientific research instruments market and, as such, offer a greater opportunity
to significantly increased sales. In addition, we are pursuing development and
marketing partners for some of our new medical products. If obtained, we believe
these partnerships may enhance our ability to rapidly ramp-up our marketing and
distribution strategy, and possibly offset the products' development costs. As a
result, as described in more detail below, additional operating funds will be
required under alternative financing sources and that our accumulated deficit
will increase in the foreseeable future.
COMMITMENTS - As of March 31, 2004, our outstanding indebtedness for borrowed
money included the following:
- - In January 2001, certain members of the Company's board of directors or
affiliates of members or former members of the Company's board of
directors agreed to make term loan advances to the Company in an aggregate
amount of $1,000,000 pursuant to the terms of a loan agreement. The loans
are evidenced by unsecured promissory notes, bear interest at the rate of
ten percent per annum and were due on January 31, 2002. On November 13,
2002 pursuant to a stock purchase agreement between the Company and Mr.
Oton Tisch dated November 12, 2002, the Company issued 2,309,255 shares of
its common stock to Mr. Tisch at a price per share of $0.45 in repayment
in full of $900,000 of principal and $139,165 of accrued interest owing to
Mr. Tisch under the loan agreement. As of March 31, 2004, the remaining
balance of loans outstanding under the loan agreement of approximately
$57,500 can be demanded at any time.
- - On March 29, 2002, the Company signed a promissory note in the face amount
of $2,000,000 payable to a director, Mr. Oton Tisch. The promissory note
was amended and restated on September 17, 2002. This note bears interest
at 8% per annum and is presently secured by all of the Company's assets.
All principal and interest outstanding under the note became due on April
1, 2004. All principle and interest outstanding under this note of
approximately $304,700, at March 31, 2004, can be demanded at any time.
Subsequent to March 31, 2004, Mr. Tisch advanced additional funds of
$47,338 to the Company.
- - Private investors that are not affiliated with the Company have advanced
the Company principal sums of $20,000 and $35,000, on May 20, 2003 and on
June 6, 2003, respectively. The notes are due on demand and bear interest
at a rate of 10%. The notes permit the holder of the notes to convert the
outstanding balance of the notes into the Company's common stock at a rate
of $0.30 per share. The Company recorded a beneficial conversion charge
during the quarter ended June 30, 2003 of $6,833 in connection with these
two notes.
- - On August 29, 2003 the Company entered into a loan and security agreement
that provides for a non-affiliated party to loan the Company, at the
lender's sole discretion, up to $750,000. As of December 31, 2003, the
Company had borrowed the entire $750,000 under this facility. The Company
paid a facility fee of 75,000 shares of its common stock in connection
with the loan and security agreement. A charge of approximately $10,000,
the fair value of the shares, was recorded in the financial statements for
these shares. The loan is due on September 5, 2004. For each advance under
the loan and security agreement, the Company paid a 4% origination fee and
is required to pay advanced interest of 2% per month. Additionally, the
Company issued to the lender warrants to purchase 600,000 shares of common
stock. The warrants are exercisable through various dates between
September 5, 2006 and December 24, 2006 for a price of $0.375 per share.
The loan is secured by the Company's accounts receivable and inventory and
by an interest in the Company's intellectual property related to the
workstation products.
CAPITAL SOURCES - Our operating cash flows continue to be provided by ongoing
sales of the Lasette and the Cell Robotics Workstation. During the first quarter
of 2004 and 2003, sales of our products generated revenues of approximately
$23,835 and $160,300, respectively. In July 2002, we received a commitment from
California Caltech, Inc., our distributor that sells the Lasette in China, to
order additional Lasettes. This commitment provides for sales of 1,500 Lasettes,
and for approximately 15 million of the corresponding disposables by June 2004.
Although the distributor has committed to purchase the above Lasettes and
related disposables, we have no control over the timing or the amount of any
order within the relevant periods discussed above. Further, the risks associated
with these international activities include, but are not limited to, the
compliance by our distributor with its commitments. Although
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the distributor has been compliant, and we are not aware of any reason that the
distributor will not fulfill its commitment, we cannot assure you that it will
remain in compliance with its agreement with us.
We are currently developing a modified version of the Lasette, called the Infant
Lasette, designed specifically for neonatal/pediatric heelstick applications. We
completed our clinical trials of the Infant Lasette and we anticipate that we
will be able to submit the Infant Lasette for FDA clearance in the second
quarter of 2004. We further anticipate that the FDA clearance will take at least
three months following this submission. However, FDA clearance will be delayed
if the FDA requests additional information based on the initial or subsequent
submissions. Although there can be no assurances, if we are able to improve our
liquidity position, we expect that we will be ready to sell the Infant Lasette
in the latter half of 2004.
On December 23, 2003 we signed an agreement with a private trust named
CRII-SASCO Business Trust. Under the agreement, CRII-SASCO Business Trust agreed
to purchase 1,600,000 shares of our common stock for an aggregate price of
$400,000. We expect the transaction to close in the second quarter of 2004.
In addition to the above sources, we have and will continue to actively pursue
negotiated transactions to raise capital through the issuance of debt, equity
and convertible debt instruments, or through the exchange of existing
instruments through transactions that could provide us with additional capital.
ADEQUACY OF CAPITAL - Since our inception, to provide working capital for our
product development and marketing activities, we have relied principally upon
the proceeds of both debt and equity financings. We have not been able to
generate sufficient cash from operations and, as a consequence, we must seek
additional and immediate financing to fund ongoing operations. Given our
immediate cash needs, we may be required to seek to obtain financings under
production loan facilities or other factoring arrangements. These types of
facilities are very expensive and there can be no assurance that we will be able
to enter into any financing agreement on terms acceptable to us, if at all.
Because of our immediate cash needs, we have had, and from time to time we
expect we will continue to have, difficulty fulfilling customer orders to the
extent we have insufficient available funds to purchase component parts
necessary to manufacture products ordered by our customers. Additionally,
suppliers of these component parts may require us to pay for those parts in
advance or provide acceptable forms of security as a condition for delivery,
which may impede our ability to meet customer orders. Until we are able to
obtain financing to meet our long-term needs, we anticipate that these
difficulties relating to the purchase and supply of parts for our products will
continue to exist. We may also from time to time grant discounts to customers as
a means to improve the speed of collection of receivables in order to meet our
cash needs.
As of March 31, 2004, our net working capital was a deficit of $1,798,791 and
our total cash was $10,259. We expect to experience operating losses and
negative cash flow for the foreseeable future. Therefore, we do not have
sufficient cash to sustain those operating losses without additional financing.
We presently need financing to repay our current indebtedness, including payment
of our notes in the aggregate amount of approximately $1,171,804 at March 31,
2004 of which approximately $421,800 is currently due or is payable on demand.
In addition to debt service requirements, we will require cash to fund our
operations. Based on our current operations, we estimate that our cash needs
approximate $200,000 each month for the foreseeable future. Our operating
requirements depend upon several factors, including the rate of market
acceptance of our products, particularly the Lasette, our level of expenditures
for manufacturing, marketing and selling our products, costs associated with our
staffing and other factors. We have been funding our operating requirements with
proceeds from small private placements of our equity securities and indebtedness
for borrowed money and with sales of our products. However, historically, these
sources of capital have only been adequate to meet our short-term needs. We need
immediate financing to fund both our short-term and long-term needs. Therefore,
we intend to continue to seek to raise equity or debt financing. Although we
have had discussions with potential investors, we have not been able to obtain
sufficient long-term financing on acceptable terms as of the date of this
report. No assurance can be given that we will be able to obtain any additional
financing on favorable terms, if at all. If our operating requirements vary
materially from those currently planned, we may require more financing than
currently anticipated. Borrowing money may involve pledging some or all of our
assets. Raising additional funds by issuing common stock or other types of
equity securities may further dilute our existing shareholders. If we cannot
obtain additional financing in a timely
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manner, we will not be able to continue our operations. In addition, the reports
we received from our independent auditors covering our fiscal years ended
December 31, 2003 and 2002 financial statements contain an explanatory paragraph
that states that our recurring losses and negative cash flows from operations
raise substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
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 $736,848 and $1,047,678 for the quarters
ended March 31, 2004 and 2003, respectively. Revenues from the sale of our
products were $23,835 and $160,300 for the quarters ended March 31, 2004 and
2003, 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 must generate significant revenues 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2003
Revenues from our product sales decreased 85% to $23,835 at March 31, 2004 from
$160,300 at March 31, 2003. Sales of our laser-based medical devices during the
quarter ended March 31, 2004 were $20,815, a decrease of 80% from sales of
$105,815 in the comparable quarter of 2003. Sales of our scientific research
instruments during the quarter ended March 31, 2004 were $3,020, a decrease of
94% in the comparable quarter of 2003. The decrease in sales occurred because of
a lack of financial resources available to market and sell our products. We
expect that sales will continue to be negatively impacted until we are able to
significantly improve our liquidity position.
Our gross margin declined to a negative margin of 384% for the quarter ended
March 31, 2004 from a negative margin of 104% for the quarter ended March 31,
2003. A lack of efficiencies in the production of our products contributed
significantly to the decline in gross margin. These inefficiencies were
primarily due to the lower volume of sales we experienced in 2004 than in 2003.
Operating expenses decreased $315,150 from $878,285 for the quarter ended March
31, 2003 to $563,135 for the quarter ended March 31, 2004. General and
administrative expenses increased $64,560, or 19%, from $336,105 in the first
quarter of 2003 to $400,665 in the first quarter of 2004. The increase was
primarily attributable to payroll. During the first quarter of 2004 we had
positions for our president and chief executive officer as well as the position
of our chief operating officer. During 2003 we did not have anyone filling the
position of chief operating officer.
Our sales and marketing expenses decreased $316,410, or 83%, from $382,777 in
the first quarter of 2003 to $66,367 in the first quarter of 2004. The decrease
was primarily due to our lack of financial resources to hire marketing and sales
personnel and to advertise or otherwise market our products. Our research and
development expenses decreased $63,300, or 40%, from $159,403 in the first
quarter of 2003 to $96,103 in the first quarter of 2004. The decrease in our
research and development expenses occurred primarily as a result of our lack of
financial resources to complete work on our new products.
During the three months ended March 31, 2004 interest expense increased to
$82,215 from $2,984 during the quarter ended March 31, 2003. The increase in
interest expense occurred because we had a significantly higher average
outsanding balance of debt in the first quarter of 2004 when compared with the
same period in 2003.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
High-quality financial statements require rigorous application of accounting
policies. Our policies are discussed in the Company's annual report on Form
10-KSB for the year ended December 31, 2003, and 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. We review the accounting policies we use in
reporting our financial results on a regular basis. As part of such review, we
assess how changes in our business processes and products may affect how we
account for transactions. For the quarter ended March 31, 2004, we have not
changed our critical accounting policies or practices, however, we are
evaluating how improvements in processes and other changes in our scientific
research instruments may impact revenue recognition policies in the future.
REVENUE RECOGNITION - Sales to qualified distributors are recognized when the
products are shipped from the plant and ownership is transferred to the
customer. In connection with the sale of our scientific research instruments and
at the customer's request, we may be requested to install the Cell Robotics
Workstation, provide training services or both. Prior to certain management
changes occurring in 2002, the production of our scientific research instruments
involved significant customization including modifications required for specific
customer applications. In the past these units often required our scientist to
complete complex configurations and customization during installation. However,
in connection with the management change in 2002, we have focused our efforts on
producing a scientific research instrument that is standardized and does not
involve significant customization during installation. We are now offering a
more standard product to our customers and we have evaluated how this change in
our product and the related reduced complexity of installation and training may
impact how we recognize revenue for our scientific research instruments. For
shipments made after March 2003 we have separate charges for the scientific
research instrument, the installation and the training. Revenue related to the
scientific research instrument will be recognized upon shipment and ownership is
transferred to the customer. Revenue, if applicable, related to the installation
and training will be recognized after the installation and training are
completed. We provide an allowance for returns based on historical experience.
LOSS CONTINGENCIES - Loss contingencies are recorded as liabilities when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. Disclosure is required when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision.
Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple forecasts that often depend on
judgments about potential actions by third parties such as regulators.
IMPAIRMENT - We review our inventory periodically for potential impairment. We
review our property and equipment for potential impairment as of December 31st
of each year or when factors indicate a potential impairment may have occurred.
Any losses noted are written-off in the period that the impairment occurs.
WARRANTIES - We warrant our products against defects in materials and
workmanship for one year. The warranty reserve is reviewed periodically and
adjusted based upon our historical warranty costs and our estimate of future
costs. We record a liability for an estimate of costs that we expect to incur
under our basic limited warranty when product revenue is recognized. Factors
affecting our warrant liability include the number of units sold and historical
and anticipated rates of claims and costs per claim. We periodically assess the
adequacy of our warranty liability based on changes in these factors.
ACCOUNTS RECEIVABLE - Substantially all of our accounts receivable are due from
distributors of medical devices or of research instruments. Credit is extended
based on evaluation of a customers' financial condition and, generally,
collateral is not required. Accounts receivable are due within 30 to 90 days and
are stated at amounts due from customers net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual payment terms are
considered past due. We determine our allowance by considering a number of
factors, including the length of time trade accounts receivable are past due,
our previous loss history, the customer's current ability to pay its obligation
to us, and the condition of the general economy and the industry as a whole. We
write-off accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the allowance for
doubtful accounts.
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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:
- anticipated operating results and sources of future revenue;
- growth;
- adequacy of the Company's financial resources;
- development of new products and markets;
- obtaining and maintaining regulatory approval and changes in
regulations;
- competitive pressures;
- commercial acceptance of new products;
- changing economic conditions;
- expectations regarding competition from other companies; and
- 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.
ITEM 3. CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer have evaluated
the effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of
the period covered by this Annual Report on Form 10-KSB. Based upon their
evaluation, the principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective. There have
been no changes in internal control over financial reporting for the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
-15-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
On February 27, 2004, the Company issued 520,000 shares of its
Common Stock in a private placement transaction with an investor,
which resulted in gross proceeds to the Company of $130,000. The
proceeds were used for working capital in the Company's day-to-day
operations.
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:
31.1 Certifications of the Chief Executive Officer
31.2 Certifications of the Chief Financial Officer
32.1 Certifications of the Chief Executive Officer provided pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certifications of the Chief Financial Officer provided pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Reports on Form 8-K:
None.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this quarterly report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CELL ROBOTICS INTERNATIONAL, INC.
Dated: May 14, 2004 By: /s/ Eutimio Sena
------------------------------------
Eutimio Sena, President, Chief
Executive Officer and Director
Dated: May 14, 2004 By: /s/ Paul C. Johnson
------------------------------------
Paul C. Johnson, Chief Financial
Officer, Director and Secretary
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