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, 2004
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
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
- --------------------------------------------------------------------------------
(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, 2004, 24,927,813 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 June 30, 2004 (unaudited)
and December 31, 2003
Consolidated Statements of Operations for the Three Months
ended June 30, 2004 and June 30, 2003 (unaudited)
Consolidated Statements of Operations for the Six Months
ended June 30, 2004 and June 30, 2003 (unaudited)
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2004 and June 30, 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
-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 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 consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2003.
-3-
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
(UNAUDITED)
ASSET
Current assets:
Cash and cash equivalents $ 5,719 $ 76,816
Accounts receivable, net of allowance for
doubtful accounts of $1,136 in 2004
and $11,426 in 2003 4,951 116,278
Inventory 580,540 596,274
Other 22,456 27,635
------------ ------------
Total current assets 613,666 817,003
Property and equipment, net 186,353 233,645
Other assets, net 25,743 37,412
------------ ------------
Total assets $ 825,762 $ 1,088,060
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 680,660 $ 497,620
Notes payable 901,438 795,523
Notes payable - related parties 346,459 276,903
Royalties payable 198,897 180,204
Payroll related liabilities 702,705 224,732
Other current liabilities 135,860 61,534
------------ ------------
Total liabilities 2,966,019 2,036,516
------------ ------------
Stockholders' deficit:
Common stock, $.004 par value. Authorized
50,000,000 shares, 24,817,813 and
23,914,588 shares issued and outstanding at
June 30, 2004 and December 31, 2003,
respectively 99,271 95,658
Additional paid-in capital 31,685,042 31,500,168
Accumulated deficit (33,924,570) (32,544,282)
------------ ------------
Total stockholders' deficit (2,140,257) (948,456)
------------ ------------
$ 825,762 $ 1,088,060
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
-4-
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Product sales $ 35,671 $ 139,918
Product cost of goods sold 124,300 250,118
------------ ------------
Gross loss (88,629) (110,200)
------------ ------------
Operating expenses:
General and administrative 342,354 297,255
Marketing & sales 47,801 324,447
Research and development 89,521 189,411
------------ ------------
Total operating expenses 479,676 811,113
------------ ------------
Loss from operations (568,305) (921,313)
------------ ------------
Other income (expense):
Other income 3,221 10,000
Interest expense (78,356) (10,631)
------------ ------------
Total other expense (75,135) (631)
------------ ------------
Net loss $ (643,440) $ (921,944)
============ ============
Net loss per common share, basic and diluted $ (0.03) $ (0.05)
============ ============
Weighted average common shares
outstanding, basic and diluted 24,618,774 19,888,507
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
-5-
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
Product sales $ 59,506 $ 300,218
Product cost of goods sold 239,633 576,828
------------ ------------
Gross loss (180,127) (276,610)
------------ ------------
Operating expenses:
General and administrative 747,206 632,591
Marketing & sales 107,469 703,842
Research and development 188,136 352,965
------------ ------------
Total operating expenses 1,042,811 1,689,398
------------ ------------
Loss from operations (1,222,938) (1,966,008)
------------ ------------
Other income (expense):
Other income 3,221 10,000
Interest expense (160,571) (13,614)
------------ ------------
Total other expense (157,350) (3,614)
------------ ------------
Net loss $ (1,380,288) $ (1,969,622)
============ ============
Net loss per common share, basic and diluted $ (0.06) $ (0.10)
============ ============
Weighted average common shares
outstanding, basic and diluted 24,362,415 19,236,155
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
-6-
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,380,288) $ (1,969,622)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 62,858 66,200
Amortization of discount on notes payable 51,883 -
Decrease in allowance for doubtful accounts (10,290) -
Common stock issued for services 8,487 358,146
Options and warrants issued for services - 82,936
Beneficial conversion charge - 6,833
Changes in operating assets and liabilities:
Decrease in accounts receivable 121,617 670,296
Decrease (increase) in inventory 15,734 (169,537)
Decrease (increase) in other assets 5,179 (4,959)
Increase in current liabilities 754,032 362,712
------------ ------------
Net cash used in operating activities (370,788) (596,995)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities -
Purchase of property and equipment (3,897) (59,936)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 180,000 260,000
Repayment of notes payable - (44,344)
Proceeds from notes payable 123,588 201,532
------------ ------------
Net cash provided by financing activities 303,588 417,188
------------ ------------
Net decrease in cash and cash equivalents: (71,097) (239,743)
Cash and cash equivalents:
Beginning of period 76,816 299,083
------------ ------------
End of period $ 5,719 $ 59,340
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid $ 37,500 $ 5,386
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
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CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 $33,924,570 at June 30,
2004 and operations using net cash of $370,788 in the first six months 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 its accumulated deficit will increase in the foreseeable
future.
The reports the Company received from its independent auditors covering the
fiscal years ended December 31, 2003 and 2002 financial statements contain an
explanatory paragraph that states that Company's 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.
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.
On June 3, 2004, the Company entered into a stock purchase agreement with
William R Calabrese, a private investor. In connection with this agreement, the
Company issued 200,000 shares of its common stock and received, in gross
proceeds, $50,000.
On April 30, 2004, the Company issued 70,725 shares of its common stock as
payment for consulting services.
-8-
As required by the Company's February 20, 2003 stock purchase agreement with
RR&L, LLC, on April 30, 2004 the Company issued to RR&L, LLC 112,500 shares of
its common stock.
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 rate of 10% 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 June 30,
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 principal
and interest outstanding under this note of $358,605, at June 30, 2004, can be
demanded at any time.
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. During 2003, 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 2003 consolidated financial
statements for these shares. The loan is due on September 5, 2004 (see Note 5).
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.
On April 21, 2004, the Company entered into a note agreement with a private
investor for the principal sum of $60,000. The Company is required to accrue a
fee on the note of $35 a day. The note is payable upon demand.
5. Subsequent Event
On July 2, 2004 the Company entered into an Amended and Restated Loan and
Security Agreement ("Loan Agreement") with a private investor. This Loan
Agreement replaces the $750,000 loan and security agreement noted above. The
Loan Agreement, including the $750,000 previously advanced, provides the Company
with the ability to borrow a total of $1,000,000 under this revised agreement.
All accrued principal and interest is due on December 31, 2004. Interest accrues
at a rate of 2% per month and allows the lender to convert $250,000 of the total
amount into shares of Common Stock of the Company at a rate of $0.30 per share.
A beneficial conversion charge of approximately $33,333 will be recorded in
July, 2004. Additionally the Loan Agreement required the Company to issue to the
lender 110,000 shares of its Common Stock as a loan fee. A charge of
approximately $38,500 will be recorded in July, 2004. The lender will receive
warrants to purchase 300,000 shares of the Company's Common Stock at a price of
$0.375 per share. The warrants expire in July, 2007.
-9-
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 June 30, 2004 and 2003, as all
potentially dilutive securities were anti-dilutive.
7. Stock Based Compensation
Options to purchase 2,929,180 and 3,717,536 shares of Common Stock were
outstanding at June 30, 2004 and 2003, respectively. Warrants to purchase
3,005,085 and 2,099,562 shares of Common Stock were outstanding at June 30, 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.
Quarter ended June 30,
------------------------
2004 2003
Net loss, as reported $(643,440) $ (921,944)
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 $(661,965) $ (957,205)
========= ==========
Loss per share, basic and diluted:
As reported $ (0.03) $ (0.05)
Pro forma $ (0.03) $ (0.05)
Six Months ended June 30,
---------------------------
2004 2003
Net loss, as reported $(1,380,288) $(1,969,622)
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 (37,050) (70,522)
----------- -----------
Pro forma net loss $(1,417,338) $(2,040,144)
=========== ===========
Loss per share, basic and diluted:
As reported $ (0.06) $ (0.10)
Pro forma $ (0.06) $ (0.11)
-10-
8. 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
Three months ended:
June 30, 2004
-------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ----------- ----------- ----------
Revenues from customers $ 27,399 $ 8,272 $ - $ 35,671
Loss from operations (84,899) (141,052) (342,354) (568,305)
June 30, 2003
-------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ----------- ----------- ----------
Revenues from customers $ 138,515 $ 1,403 $ - $ 139,918
Loss from operations (41,565) (582,493) (297,255) (921,313)
Six months ended:
June 30, 2004
-------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ----------- ----------- -----------
Revenues from customers $ 30,419 $ 29,087 $ - $ 59,506
Loss from operations (130,527) (345,205) (747,206) (1,222,938)
June 30, 2003
-------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- ------------ ----------- ------------
Revenues from customers $ 193,000 $ 107,218 $ - $ 300,218
Loss from operations (116,307) (1,217,110) (632,591) (1,966,008)
-11-
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 Consolidated 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, 2004 and 2003
and the year ended December 31, 2003 was $370,788, $596,995 and $1,746,246,
respectively.
Net cash provided by financing activities for the six-month periods ended June
30, 2004 and 2003 and for the year ended December 31, 2003 was $426,659,
$417,188 and $1,578,397, respectively.
Total assets decreased to $825,762 at June 30, 2004 from $1,088,060 at December
31, 2003, a decrease of $262,298, or 24%. This change in total assets is
primarily attributed to the following:
- Our total current assets decreased $203,337, or 25%, as of June 30,
2004 compared to our current assets as of December 31, 2003. This
decrease was primarily the result of decreases in cash and in
accounts receivables, as described below.
- Cash decreased $71,097, from $76,816 at December 31, 2003 to $5,719
at June 30, 2004. The decrease in cash was primarily attributed to
our operational needs during the six-month period ended June 30,
2004.
- Accounts receivable decreased $111,327 from $116,278 at December 31,
2003 to $4,951 at June 30, 2004. The decrease in accounts receivable
was primarily attributed to our employees being aggressive in
collecting receivables. To a lesser extent the decrease is also due
to our having fewer sales in the second 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 $15,734, or 3%, to $580,540 at June 30, 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 June 30, 2004.
Our current ratio at June 30, 2004 was 0.21 compared to 0.40 at December 31,
2003. Our total current liabilities increased $929,503 from $2,036,516 at
December 31, 2003 to $2,966,019 at June 30, 2004. Our working capital decreased
from a deficit of $1,219,513 at December 31, 2003 to a deficit of $2,352,353 at
June 30, 2004. The decrease in working capital was primarily due to our
operating losses that we experienced in the six-month period ended June 30,
2004.
Our ability to improve cash flow and ultimately achieve profitability, we
believe, will depend on our ability to significantly increase 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 we expect that our accumulated
deficit will increase in the foreseeable future.
COMMITMENTS - As of June 30, 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
-12-
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
10% 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 June 30, 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 principal and interest outstanding under this note of
$358,605, at June 30, 2004, can be demanded at any time
- - Private investors that are not affiliated with the Company have advanced
the Company principal sums of $20,000, $35,000 and $60,000, on May 20,
2003, on June 6, 2003 and on April 21, 2004, respectively. The notes are
due on demand. The first two notes bear interest at a rate of 10% per
annum. The third note requires a fee of $35 per day be accrued and paid.
The first two 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. Subsequent to June 30, 2004 the Company entered into
an Amended and Restated Loan and Security Agreement that increased the
borrowings to a total of $1,000,000. The Company paid a loan fee of
110,000 shares of its common stock, with a value of $37,400 and additional
warrants were issued to the lender to purchase 300,000 shares of the
common stock of the Company at $0.375 per share. Additionally the new
agreement allows the lender to convert up to $250,000 of the loan into the
Company's common stock at a price of $0.30 per share. A beneficial
conversion charge of approximately $33,000 will be recorded in the third
quarter of 2004.
CAPITAL SOURCES - Our operating cash flows continue to be provided by ongoing
sales of the Lasette and the Cell Robotics Workstation. During the first six
months of 2004 and 2003, sales of our products generated revenues of
approximately $59,500 and $300,200, respectively.
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 submitted the Infant
Lasette for FDA clearance in the second quarter of 2004. We 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, we expect that we will be ready to sell the Infant Lasette in
the fourth quarter 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 third quarter of 2004.
-13-
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 June 30, 2004, our net working capital was a deficit of $2,352,353 and our
total cash was $5,719. 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 $1,342,000 at June 30, 2004 of which
approximately $540,000 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 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 $1,380,288 and $1,969,622 for the six-month
periods ended June 30, 2004 and 2003, respectively. Revenues from the sale of
our products were $59,506 and $300,218 for the six-month periods ended June 30,
2004 and 2003, respectively. We expect to experience operating losses and
negative cash flows for the foreseeable future, until we are able to generate
significant revenues to fund anticipated manufacturing, and marketing and
selling 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.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE
MONTHS ENDED JUNE 30, 2003
Revenues from our product sales decreased 75% to $35,671 at June 30, 2004 from
$139,918 at June 30, 2003. Sales of our laser-based medical devices during the
quarter ended June 30, 2004 were $8,272, compared with sales of our laser-based
medical devices of $1,403 in the comparable quarter of 2003. Sales of our
scientific research instruments during the quarter ended June 30, 2004 were
$27,399, a decrease of $111,116, or 80% from sales of our scientific research
instruments of $138,515 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 248% for the quarter ended
June 30, 2004 from a negative margin of 79% for the quarter ended June 30, 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 $331,437 from $811,113 for the quarter ended June
30, 2003 to $479,676 for the quarter ended June 30, 2004. General and
administrative expenses increased $45,099, or 15%, from $297,255 in the first
quarter of 2003 to $342,354 in the first quarter of 2004. The increase was
primarily attributable to payroll. During the second 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 $276,646, or 85%, from $324,447 in
the second quarter of 2003 to $47,801 in the second 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 $99,890, or 53%, from $189,411 in
the second quarter of 2003 to $89,521 in the second 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 June 30, 2004 interest expense increased to
$78,356 from $10,631 during the quarter ended June 30, 2003. The increase in
interest expense occurred because we had a significantly higher average
outstanding balance of debt in the second quarter of 2004 when compared with the
same period in 2003.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2003
Revenues from our product sales decreased 80% to $59,506 at June 30, 2004 from
$300,218 at June 30, 2003. Sales of our laser-based medical devices during the
quarter ended June 30, 2004 were $29,087, compared with sales of our laser-based
medical devices of $107,218 in the comparable period of 2003. Sales of our
scientific research instruments during the six-month period ended June 30, 2004
were $30,419, a decrease of $162,581, or 84% from sales of our scientific
research instruments of $193,000 in the comparable period 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 303% for the six-month period
ended June 30, 2004 from a negative margin of 92% for the six-month period ended
June 30, 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.
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Operating expenses decreased $646,587 from $1,689,398 for the six-month period
ended June 30, 2003 to $1,042,811 for the six-month period ended June 30, 2004.
General and administrative expenses increased $114,615, or 18%, from $632,591
during the six-month period ended June 30, 2003 to $747,206 in the first six
months of 2004. The increase was primarily attributable to payroll. During the
first half of 2004 we had positions for our president and chief executive
officer as well as the position of our chief operating officer. During the same
period in 2003 we did not have anyone filling the position of chief operating
officer.
Our sales and marketing expenses decreased $596,373, or 85%, from $703,842 in
the first half of 2003 to $107,469 in the first half 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 $164,829, or 47%, from $352,965 in the first six
months of 2003 to $188,136 in the first six months 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 six-month period ended June 30, 2004 interest expense increased to
$160,571 from $13,614 during the six-month period ended June 30, 2003. The
increase in interest expense occurred because we had a significantly higher
average outstanding balance of debt in the first six months of 2004 when
compared with the same period in 2003.
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 six-month period ended June 30, 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.
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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.
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
-17-
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.
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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.
On June 3, 2004, the Company issued 200,000 shares of its Common Stock
in a private placement transaction with an investor, which resulted in
gross proceeds to the Company of $50,000. 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:
10.1 Amended and Restated Loan and Security Agreement between Cell Robotics
International, Inc. and F.A. Voight & Associates
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.
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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: August 12, 2004 By: /s/ Eutimio Sena
-----------------------------------
Eutimio Sena, President, Chief
Executive Officer and Director
Dated: August 12, 2004 By: /s/ Paul C. Johnson
-----------------------------------
Paul C. Johnson, Chief Financial
Officer, Director and Secretary
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