UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
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
-------------------------------------------------------------------------------
(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 November 12, 2003, 20,667,117 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 Condensed Balance Sheets at September 30,
2003 (unaudited) and December 31, 2002
Consolidated Condensed Statements of Operations for the
Three Months ended September 30, 2003 and September 30,
2002 (unaudited)
Consolidated Condensed Statements of Operations for the
Nine Months ended September 30, 2003 and September 30,
2002 (unaudited)
Consolidated Condensed Statements of Cash Flows for the
Nine Months ended September 30, 2003 and September 30,
2002 (unaudited)
Notes to Unaudited Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim unaudited consolidated condensed 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, 2002, 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, 2002.
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Condensed Balance Sheets
September 30, December 31,
2003 2002
------------ ------------
(UNAUDITED)
Assets
- ------
Current assets:
Cash and cash equivalents ............... $ 109,945 $ 299,083
Accounts receivable, net of
allowance for doubtful
accounts of $4,991 in
2003 and 2002 ........................ 182,223 500,636
Other receivables ....................... -- 260,000
Inventory ............................... 613,282 539,284
Other ................................... 40,537 48,246
------------ ------------
Total current assets ................. 945,987 1,647,249
Property and equipment, net ............. 253,354 274,589
Other assets, net ....................... 43,254 60,782
------------ ------------
Total assets ............. $ 1,242,595 $ 1,982,620
============ ============
Liabilities and Stockholders' Equity (Deficit)
- ---------------------------------------------
Current liabilities:
Notes payable - related parties ......... $ 196,972 $ 180,402
Notes payable ........................... 651,587 --
Accounts payable ........................ 750,062 619,679
Royalties payable ....................... 170,192 152,400
Payroll related liabilities ............. 214,784 169,123
Other current liabilities ............... 304,789 71,125
------------ ------------
Total liabilities ........ 2,288,386 1,192,729
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.004 par value ...........
Authorized 50,000,000 shares,
20,644,349 and 18,406,025
shares issued and outstanding
at September 30, 2003 and
December 31, 2002, respectively ....... 82,577 73,624
Additional paid-in capital .............. 30,618,817 29,816,590
Accumulated deficit ..................... (31,747,185) (29,100,323)
------------ ------------
Total stockholders'
equity (deficit) ....... (1,045,791) 789,891
------------ ------------
$ 1,242,595 $ 1,982,620
============ ============
See accompanying notes to unaudited consolidated condensed financial statements
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Condensed Statements of Operations
UNAUDITED
Three Months Ended
September 30, September 30,
2003 2002
------------ ------------
Product sales .................................. $ 263,970 $ 477,277
Total revenues ........................ 263,970 477,277
------------ ------------
Product cost of goods sold ..................... 251,516 380,217
Total cost of goods sold .............. 251,516 380,217
------------ ------------
Gross profit ................................... 12,454 97,060
------------ ------------
Operating expenses:
General and administrative ................ 323,852 327,390
Marketing & sales ......................... 147,779 190,344
Research and development .................. 128,067 140,981
------------ ------------
Total operating expenses .............. 599,698 658,715
------------ ------------
Loss from operations ........................... (587,244) (561,655)
------------ ------------
Other income (expense):
Other income .............................. -- 29,453
Interest expense .......................... (89,994) (34,986)
------------ ------------
Total other expense ................... (89,994) (5,533)
------------ ------------
Net loss .............................. $ (677,238) $ (567,188)
============ ============
Weighted average common shares
outstanding, basic and diluted ............ 20,464,099 11,357,919
============ ============
Net loss per common share, basic and diluted .. $ (0.03) $ (0.05)
============ ============
See accompanying notes to unaudited consolidated condensed financial statements
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Condensed Statements of Operations
UNAUDITED
Nine Months Ended
September 30, September 30,
2003 2002
------------ ------------
Product sales .................................. $ 564,187 $ 976,330
Total revenues ........................ 564,187 976,330
------------ ------------
Product cost of goods sold ..................... 828,344 857,012
Total cost of goods sold .............. 828,344 857,012
------------ ------------
Gross (loss) profit ............................ (264,157) 119,318
------------ ------------
Operating expenses:
General and administrative ................ 974,233 699,469
Marketing & sales ......................... 855,410 532,235
Research and development .................. 459,453 339,106
------------ ------------
Total operating expenses .............. 2,289,096 1,570,810
------------ ------------
Loss from operations ........................... (2,553,253) (1,451,492)
------------ ------------
Other income (expense):
Other income .............................. 10,000 57,376
Interest expense .......................... (103,609) (130,116)
------------ ------------
Total other expense ................... (93,609) (72,740)
------------ ------------
Net loss .............................. $ (2,646,862) $ (1,524,232)
============ ============
Weighted average common shares
outstanding, basic and diluted ............ 19,650,699 10,748,007
============ ============
Net loss per common share, basic and diluted .. $ (0.13) $ (0.14)
============ ============
See accompanying notes to unaudited consolidated condensed financial statements
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
UNAUDITED
Nine Months Ended
September 30, September 30,
2003 2002
----------- -----------
Cash flows from operating activities:
- -------------------------------------
Net loss ...................................... $(2,646,862) $(1,524,232)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ................. 99,524 109,449
Beneficial conversion charge .................. 6,833 19,884
Common stock issued for services .............. 428,333 71,573
Options and warrants issued for services ...... 112,014 61,781
Changes in operating assets and liabilities:
Decrease in accounts receivable ............. 578,413 100,892
(Increase) decrease in inventory ............ (73,998) 292,358
Decrease (increase) in other assets ......... 7,709 (51,096)
Increase (decrease) in current liabilities .. 427,500 (62,491)
----------- -----------
Net cash used in operating activities .... (1,060,534) (981,882)
----------- -----------
Cash flows from investing activities:
- -------------------------------------
Net cash used in investing activities -
Purchase of property and equipment ........ (60,761) (8,923)
----------- -----------
Cash flows from financing activities:
- -------------------------------------
Net proceeds from exercise of options ......... 4,000 2,932
Proceeds from issuance of common stock ........ 260,000 519,713
Repayment of notes payable .................... (64,344) (221,328)
Proceeds from notes payable ................... 732,501 687,533
----------- -----------
Net cash provided by financing activities 932,157 988,850
----------- -----------
Net decrease in cash and cash equivalents: ....... (189,138) (1,955)
Cash and cash equivalents:
Beginning of period ...................... 299,083 5,633
----------- -----------
End of period ............................ $ 109,945 $ 3,678
=========== ===========
Supplemental information:
- -------------------------
Interest paid ................................. $ 24,626 $ 8,545
Non-cash - Conversion of debt to equity
-- 410,400
See accompanying notes to unaudited consolidated condensed financial statements
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Unaudited Consolidated Condensed Financial Statements
September 30, 2003
1. Presentation of Unaudited Consolidated Financial Statements
-----------------------------------------------------------
These unaudited consolidated condensed 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, 2003.
2. Capital Resources
-----------------
Since inception, the Company has incurred operating losses and other equity
charges which have resulted in an accumulated deficit of $31,747,185 at
September 30, 2003 and operations using net cash of $1,060,534 in the first nine
months of 2003.
The Company's ability to improve cash flow and ultimately achieve profitability
will depend on its ability to raise capital and 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 are
broader than that of the scientific research instruments market and, as such,
offer a greater opportunity to significantly increased sales. In addition, the
Company is pursuing development and marketing partners for some of its new
medical products. 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 2003. As a result, the
Company expects that additional operating funds will be required under its
September 2002 promissory note or under alternative financing sources and that
its accumulated deficit will increase in the foreseeable future.
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, 2002. 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.
3. Issuance of Equity Securities
-----------------------------
On February 20, 2003, the Company entered into a stock purchase agreement with
RR&L, an investment partnership. In connection with this agreement, the Company
issued 375,000 shares of its common stock and received, in gross proceeds,
$150,000. Additionally the investor was issued warrants to purchase 112,500
shares of the Company's common stock at a price of $0.55 per share. The warrants
expire on June 11, 2008.
On February 24, 2003, the Company entered into a stock purchase agreement with
Mr. Valentin Bagarella, a private investor. In connection with this agreement,
the Company issued 250,000 shares of its common stock and received, in gross
proceeds, $100,000. Additionally Mr. Bagarella was issued warrants to purchase
50,000 shares of the Company's common stock at a price of $0.58 per share. The
warrants expire on February 25, 2008.
On April 7, 2003, the Company entered into a stock purchase agreement with Mr.
Eutimio Sena, a Director and as of June 17, 2003 the Company's President and
Chief Executive Officer. In connection with this agreement, the Company issued
543,150 shares of its common stock in payment for $151,725 fees owed to Mr.
Sena. Additionally Mr. Sena was issued warrants to purchase 135,788 shares of
the Company's common stock at a price of $0.60 per share. The warrants expire on
April 7, 2008.
On June 5, 2003, the Company entered into a stock purchase agreement with Mr.
Haydock Miller, a private investor. In connection with this agreement, the
Company issued 28,572 shares of its common stock and received, in gross
proceeds, $10,000. Additionally Mr. Miller was issued warrants to purchase 5,750
shares of the Company's common stock at a price of $0.60 per share. The warrants
expire on June 5, 2008.
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 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. As of
September 30, 2003, the remaining principal and interest balance of loans
outstanding under the loan agreement was approximately $54,800 which can be
demanded at any time.
On March 29, 2002, the Company signed a non-revolving line of credit documented
as 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.
Under this promissory note, Mr. Tisch may make one or more advances to the
Company at times and in amounts, as determined by Mr. Tisch in his discretion,
up to an aggregate principal sum of $1,488,500 (the "Loan A Facility").
Additionally, Mr. Tisch must make requested advances under this note up to an
aggregate principal sum of $511,500 so long as he remains satisfied in his
reasonable credit judgment with the Company's capital raising activities (the
"Loan B Facility"). Therefore, Mr. Tisch has no obligation or commitment to make
any loans under the Loan A Facility and must make advances under the Loan B
Facility only to the extent he is satisfied with the Company's capital raising
activities in his reasonable credit judgment. This note bears interest at 8% per
annum and is presently secured by all of the Company's assets. As of September
30, 2003, the remaining principal balance outstanding under the note was
approximately $189,000, all of which was outstanding under the Loan B Facility.
No amounts borrowed under the Loan A Facility or the Loan B Facility may be
reborrowed after being repaid by the Company. As of September 30, 2003, the
remaining amount available at Mr. Tisch's sole discretion under the Loan A
Facility is $1,000,000. As of September 30, 2003, the remaining amount available
under the Loan B Facility is approximately $294,000. All principal and interest
outstanding under the note are due on April 1, 2004.
Private investors that are not affiliated with the Company have advanced the
Company principal sums of $27,000, $75,000, $50,000, $56000, $20,000 and
$35,000, on October 3, 2002, June 16, 2003, July 17, 2003, August 28, 2003, May
20, 2003 and June 6, 2003, respectively. The notes are due on demand and bear
interest at rates between 3% and 24%. The last two notes mentioned above permit
the payee 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 September 30, 2003 the Company had borrowed
$325,000 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. For each advance under the loan and
security agreement the Company must pay a 4% origination fee and advanced
interest of 2% per month.
5. Earnings Per Share
------------------
Basic loss per share is computed on the basis of the weighted-average number of
common shares outstanding during the quarter. Diluted loss per share, which is
computed on the basis of the weighted average number of common shares and all
potentially dilutive common shares outstanding during the quarter, is the same
as basic loss per share for the periods ended September 30, 2003 and 2002, as
all potentially dilutive securities were anti-dilutive. Options to purchase
3,617,536 and 3,585,702 shares of Common Stock were outstanding at September 30,
2003 and 2002, respectively. Warrants to purchase 2,409,562 and 2,182,649 shares
of Common Stock were outstanding at September 30, 2003 and 2002, 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 because of net
losses incurred in the periods ended September 30, 2003 and 2002.
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
September 30,
---------------------------
2003 2002
Net loss, as reported .......................... $ (677,238) $ (567,188)
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 .................... (35,261) (58,677)
----------- -----------
Pro forma net loss ............................. $ (712,499) $ (625,865)
=========== ===========
Loss per share, basic and diluted:
As reported ............................... $ (0.03) $ (0.05)
Pro forma ................................. $ (0.03) $ (0.06)
Nine Months ended September 30,
------------------------------
2003 2002
Net loss, as reported .......................... $(2,646,862) $(1,524,232)
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 ................... (105,782) (176,031)
----------- -----------
Pro forma net loss ............................. $(2,752,644) $(1,700,263)
=========== ===========
Loss per share, basic and diluted:
As reported ............................... $ (0.13) $ (0.14)
Pro forma ................................. $ (0.13) $ (0.16)
6. 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
consumer and clinical markets for sale to, individual consumers and to
hospitals, nursing homes, prison systems and blood banks through 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 and the critical accounting policies and estimates are described
herein. 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: September 30, 2003
------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
--------------- ----------- ----------- -----------
Revenues from customers ......................... $ 240,728 $ 23,242 $ -- $ 263,970
Loss from operations ............................ (41,246) (192,147) (353,851) (587,244)
<FN>
September 30, 2002
------------------
</FN>
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
--------------- ----------- ----------- -----------
Revenues from customers ......................... $ 282,939 $ 194,338 $ -- $ 477,277
Profit (loss) from operations ................... 5,120 (239,385) (327,390) (561,655)
<FN>
Nine months ended:
September 30, 2003
------------------
</FN>
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
--------------- ----------- ----------- -----------
Revenues from customers ......................... $ 433,728 $ 130,459 $ -- $ 564,187
Loss from operations ............................ (141,986) (1,407,034) (1,004,233) (2,553,253)
<FN>
September 30, 2002
------------------
</FN>
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
--------------- ----------- ----------- -----------
Revenues from customers ......................... $ 534,509 $ 441,821 $ -- $ 976,330
Loss from operations ............................ (173,630) (578,393) (699,469) (1,451,492)
7. New Pronouncement
-----------------
The FASB issued Statement 150 (SFAS 150), Accounting For Certain Financial
Instruments With Characteristics Of Both Liabilities And Equity, on May 15,
2003. Statement 150 changes the classification in the statement of financial
position of certain common financial instruments from either equity or mezzanine
presentation to liabilities and requires an issuer of those financial statements
to recognize changes in fair value or redemption amount, as applicable, in
earnings. Statement 150 is effective for financial instruments entered into or
modified after May 31, 2003 and, with one exception, is effective at the
beginning of the first interim period beginning after June 15, 2003 (July 1,
2003 for calendar year companies). The effect of adopting Statement 150 will be
recognized as a cumulative effect of an accounting change as of the beginning of
the period of adoption. Restatement of prior periods is not permitted. The
Company is in the process of determining what impact, if any, the adoption of
the provisions of SFAS 150 will have upon its financial condition or results of
operations."
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 nine-month periods ended September 30, 2003 and
2002 and the year ended December 31, 2002 was $1,060,534, $981,882 and
$1,831,591, respectively.
Net cash provided by financing activities for the nine-month periods ended
September 30, 2003 and 2002 and for the year ended December 31, 2002 was
$932,157, $988,850 and $2,136,508, respectively.
Total assets decreased to $1,242,595 at September 30, 2003 from $1,982,620 at
December 31, 2002, a decrease of $740,025, or 37%. This change in total assets
is primarily attributed to the following:
o Our current assets decreased $701,262, or 43%, as of September 30, 2003
compared to our current assets as of December 31, 2002. This decrease was
primarily the result of a decrease in receivables, as described below.
o Cash decreased $189,138, from $299,083 at December 31, 2002 to $109,945 at
September 30, 2003. The decrease in cash was primarily attributed to our
operational needs during the nine-month period ended September 30, 2003.
o Accounts receivable decreased $318,413 from $500,636 at December 31, 2002
to $182,223 at September 30, 2003 and other receivables decreased to zero
at September 30, 2003 from $260,000 at December 31, 2002. The decrease in
accounts receivable was primarily attributed to fewer sales in the third
quarter of 2003 when compared with the fourth quarter of 2002. Our decline
in sales was primarily due to our lack of capital to invest in sales and
marketing activities. The other receivables balance at December 31, 2002
represented amounts due by an investor in connection with a December 2002
private placement transaction. The balance of the other receivables was
collected in January and February of 2003.
o Inventory increased by $73,998, or 14%, to $613,282 at September 30, 2003
from $539,284 at December 31, 2002. Although not material, the increase in
inventory was due to the purchase of certain inventory parts that have to
be ordered in large quantities. The increase in inventory resulted in
increasing accounts payable as well.
Our current ratio at September 30, 2003 was .41 compared to 1.38 at December 31,
2002. Our total current liabilities increased $1,095,657 from $1,192,729 at
December 31, 2002 to $2,288,386 at September 30, 2003. Our working capital
decreased from $454,520 at December 31, 2002 to a deficit of $1,342,399 at
September 30, 2003. The decrease in working capital was primarily due to our
operating losses that we experienced in the nine-month period ended September
30, 2003.
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.
However, we can provide no assurance as to whether a medical policy favorable to
us will be established by CMS, or when, if ever, an adequate reimbursement rate
for the Lasette will be set or the eventual amount of reimbursement. Currently,
due to our lack of financial resources as described herein, we are not pursuing
the establishment of a medical policy. In the future, as our liquidity improves
we may again actively pursue the establishment of a favorable medical policy.
Our ability to improve cash flow and ultimately achieve profitability 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. Although we have begun
manufacturing and marketing the Lasette and we continue to market our scientific
research instrument line, we do not anticipate achieving profitable operations
until after 2003. As a result, as described in more detail below, we expect that
additional operating funds will be required under our September 17, 2002 amended
and restated promissory note or under alternative financing sources and that our
accumulated deficit will increase in the foreseeable future.
Commitments - As of September 30, 2003, our outstanding indebtedness for
borrowed money included the following:
o In January 2001, certain members of our board of directors and affiliates
of members or former members of our board of directors agreed to make term
loan advances to us in an aggregate amount of $1,000,000 pursuant to the
terms of a loan agreement with us. The loans are evidenced by unsecured
promissory notes, bear interest at the rate of ten percent per annum and
were due on January 31, 2002. As of September 30, 2003, the remaining
principal and interest balance of loans outstanding under the loan
agreement was approximately $54,800, which can be demanded at any time. In
connection with the January 2001 loan commitment, each lender was issued a
warrant in proportion to the amount of the loan made by that lender. The
warrants allow the lenders to purchase an aggregate of 150,000 shares of
our common stock. The warrants may be exercised until January 31, 2004, at
a price equal to $1.125 per share of our common stock.
o On March 29, 2002, we signed a non-revolving line of credit documented as a
promissory note in the face amount of $2,000,000 payable to one of our
directors, Mr. Oton Tisch. The promissory note was amended and restated on
September 17, 2002. Under this promissory note, Mr. Tisch may make one or
more advances to us at times and in amounts, as determined by Mr. Tisch in
his discretion, up to an aggregate principal sum of $1,488,500 (the "Loan A
Facility"). Additionally, Mr. Tisch must make requested advances under this
note up to an aggregate principal sum of $511,500 so long as he remains
satisfied in his reasonable credit judgment with our capital raising
activities (the "Loan B Facility"). Therefore, Mr. Tisch has no obligation
or commitment to make any loans under the Loan A Facility and must make
advances under the Loan B Facility only to the extent he is satisfied with
our capital raising activities in his reasonable credit judgment. This note
bears interest at 8% per annum and is presently secured by all our assets.
As of September 30, 2003, the remaining principal balance outstanding under
the note was approximately $189,000, all of which was outstanding under the
Loan B Facility. No amounts borrowed under the Loan A Facility or the Loan
B Facility may be reborrowed after being repaid by us. As of September 30,
2003, the remaining amount available at Mr. Tisch's sole discretion under
the Loan A Facility is $1,000,000. As of September 30, 2003, the remaining
amount available under the Loan B Facility is approximately $294,000. All
principal and interest outstanding under the note are due on April 1, 2004.
o Private investors that are not affiliated with the Company have advanced
us principal sums of $27,000, $75,000, $50,000, $56000, $20,000 and
$35,000, on October 3, 2002, June 16, 2003, July 17, 2003, August 28,
2003, May 20, 2003 and June 6, 2003, respectively. The notes are due on
demand and bear interest at rates between 3% and 24%. The last two notes
detailed in this paragraph permit the payee of the notes to convert the
outstanding balance of the notes into the our common stock at a rate of
$0.30 per share. We recorded a beneficial conversion charge during the
quarter ended June 30, 2003 of $6,833 in connection with these two notes.
o On August 29, 2003 we entered into a loan and security agreement that
provides for a non-affiliated party to loan us, at the lender's sole
discretion, up to $750,000. As of September 30, 2003 we had borrowed
$325,000 under this facility. For each advance under the loan and security
agreement we must pay a 4% origination fee and advanced interest of 2% per
month. Subsequent to September 30, 2003 we borrowed additional amounts of
$225,000, of which $125,000 was used to repay other notes mentioned above
totaling $125,000.
Capital Sources - Our operating cash flows continue to be provided by ongoing
sales of the Lasette and the Cell Robotics Workstation. During the first nine
months of 2003 and during 2002, sales of our products generated revenues of
approximately $564,000 and $1,584,000, 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. Also given
our cash position we may have to revert to using production loan facilities,
that are very expensive, or we cannot make any assurances that we will have the
capital resources necessary to purchase the raw materials needed to manufacture
the products required by our customer. Further, the risks associated with these
international activities include, but are not limited to, the compliance by our
distributor with its commitments. Although 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. On
September 30, 2002, we commenced our clinical trials of the Infant Lasette. Now
that we have completed the requisite tests in the clinical trial, we will submit
the Infant Lasette for FDA clearance. We anticipate that we will be able to make
our submission to the FDA in the fourth quarter of 2003. 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 correct our liquidity issues, we
expect that we will be ready to sell the Infant Lasette in the second quarter of
2004.
As discussed above, on September 17, 2002, we entered into an amended and
restated promissory note payable to Mr. Tisch. Under this promissory note, Mr.
Tisch may, in his discretion, make one or more advances to us under the Loan A
Facility. Additionally, Mr. Tisch must make requested advances under this note
under the Loan B Facility so long as he remains satisfied, in his reasonable
credit judgment, with our capital raising activities. As of September 30, 2003,
the remaining amount available at Mr. Tisch's sole discretion under the Loan A
Facility is $1,000,000. As of September 30, 2003, the remaining amount available
under the Loan B Facility is approximately $294,000.
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 financing to fund ongoing operations.
As of September 30, 2003, our net working capital was a deficit of $1,342,399
and our total cash and cash equivalents was $109,945. 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 principal amount
of approximately $849,000 of which approximately $652,000 is currently due. 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 and will be a total
of approximately $1,200,000 from September 30, 2003 through March 31, 2004. 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, particularly with financings with Mr. Oton Tisch, one of our
directors, 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. Mr. Tisch's
obligation to fund our Company under his September 2002 note is discretionary in
the case of the Loan A facility and is limited and subject to, in the case of
the Loan B facility and may not be available at all if Mr. Tisch determines that
he is not satisfied with our capital raising activities. Consequently we cannot
ensure that Mr. Tisch will make any further advances under this note. 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, 2002 and 2001 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 $2,646,862 and $3,007,246 for the
nine-month period ended September 30, 2003 and the year ended December 31, 2002,
respectively. Revenues from the sale of our products were $564,187 and
$1,584,359 for the nine-month period ended September 30, 2003 and for the year
ended December 31, 2002, 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 September 30, 2003 compared to the
three months ended September 30, 2002
Revenues from our product sales decreased 45% to $263,970 for the quarter ended
September 30, 2003 from $477,277 for the quarter ended September 30, 2002. Sales
of our laser-based medical devices during the quarter ended September 30, 2003
were $23,242, a decrease of 88% from sales of $194,338 in the comparable quarter
of 2002. Sales of our scientific research instruments during the quarter ended
September 30, 2003 were $240,728, a decrease of $42,211, or 15% over sales of
$282,939 in the comparable quarter of 2002. The decrease in sales was primarily
due to a lack of financial resources available to market and sell our products.
Our gross margin declined to 5% for the quarter ended September 30, 2003 from
20% for the quarter ended September 30, 2002. The low sales in the quarters
ended September 30, 2003 and September 30, 2002 and a lack of efficiencies in
the production of our products primarily contributed to the low gross margins.
Additionally in the quarter ended September 30, 2003 we made an inventory
adjustment for certain obsolete parts that resulted in an additional charge to
cost of goods sold of approximately $83,000.
Operating expenses decreased $6,612 from $561,655 for the quarter ended
September 30, 2002 to $555,043 for the quarter ended September 30, 2003. The
change in our operating expenses was not material.
During the three months ended September 30, 2003 interest expense increased to
$89,994 from $34,986 during the quarter ended September 30, 2002. The increase
in interest expense occurred because we had more borrowings in the third quarter
of 2003 when compared with the same period in 2002. Other income decreased to
zero in the third quarter of 2003 from $29,453 in the third quarter of 2002.
During the third quarter of 2003 we did not receive any royalty payments as was
the case in 2002 nor did we have any excess cash to invest in interest bearing
facilities.
Results of Operations - Nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002
Sales of products for the nine-month period ended September 30, 2003 decreased
$412,143, or 42%, to $564,187 from $976,330 in the same period of 2002. As was
explained in our previous reports, basically the decrease in sales occurred
because of a lack of financial resources available to market and sell our
products.
Our gross margin on product sales decreased from 12% for the nine-month period
ended September 30, 2002 to a negative margin of 47% for the nine-month period
ended September 30, 2003. A lack of efficiencies in the production of our
products contributed to the decline in gross margin. These inefficiencies were
primarily due to low volume of sales that occurred during the first nine months
of 2003. Additionally as explained above we recorded a charge of approximately
$83,000 in the quarter ended September 30, 2003 for obsolete parts in inventory.
Operating expenses increased $718,286 or 46% from $1,570,810 for the nine-month
period ended September 30, 2002 to $2,289,096 for the period ended September 30,
2003. General and administrative expenses increased $274,764, or 39%, from
$699,469 in the first nine months of 2002 to $974,233 in the first nine months
of 2003. The increase was primarily attributable to three items. First, we
recorded non-cash charges to recognize the value stock provided to consultants
and the value of options granted to a business consultant totaling approximately
$91,000. Second, our salaries were approximately $154,000 higher in 2003 when
compared to the 2002. The increase in salaries resulted from our hiring of a new
President in June of 2003 and retaining our former president as our new chief
operating officer. Additionally, our salaries were higher in 2003 because we had
a human resource director in 2003 but not in 2002. Third, in 2003 we experienced
an increase of approximately $30,000 for professional legal and accounting fees,
which was primarily attributed to additional costs associated with the filing of
our registration statements. We did not have comparable filings in 2002. Our
sales and marketing expenses increased $323,175, or 61%, from $532,235 in the
first nine months of 2002 to $855,410 in the first half of 2003. The increase
was primarily due to fees charged for sales consultants of approximately
$363,000 in 2003. No comparable expenses were incurred in the similar period of
2002. Our research and development expenses increased $120,347, or 35%, from
$339,106 in the first nine months of 2002 to $459,453 in the first nine months
of 2003. The increase in our research and development expenses occurred
primarily as a result of work performed on our two new products, the UltraLight
Laser, that is useful in aesthetic or skin rejuvenation applications, and the
Infant Lasette, that will be used for heel-stick applications.
Other income decreased in the nine-month period ended September 30, 2003 to
$10,000 from $57,376 in the nine-month period ended September 30, 2002. The
decrease was primarily due to the Company receiving more in royalty payments in
2002 than in 2003. The royalty payments were in connection with the IVF
workstation technology that the Company sold in 2000. During the nine-months
ended September 30, 2003 interest expense decreased to $103,609 from $130,116
during the nine-month period ended September 30, 2002. The decrease in interest
expense occurred because we had a lower average outstanding balance of debt in
the nine-month period ended September 30, 2003 when compared with the same
period in 2002.
Critical Accounting Policies and Estimates
High-quality financial statements require rigorous application of high-quality
accounting policies. Our policies are discussed in the Company's annual report
on Form 10-KSB for the year ended December 31, 2002, 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 nine-month period ended
September 30, 2003, 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.
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. These units often required our scientist to complete
complex configurations and customization during installation. 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. Revenue, if
applicable, related to the installation and training will be recognized after
the installation and training are completed.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology, for instance the
terms "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms or
other comparable terminology. These forward-looking statements include, but are
not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of the Company's financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o the Company's ability to manufacture and distribute its products.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking statements
are based largely on our current expectations and are subject to a number of
risks and uncertainties. Actual results will differ and could differ materially
from these forward-looking statements. The factors that could cause actual
results to differ materially from those in the forward-looking statements
include the following: (i) industry conditions and competition, (ii) reforms in
the health care industry or limitations imposed on third party reimbursement of
health care costs, (iii) the rate of market acceptance of the Company's
products, particularly the Lasette, (iv) operational risks and insurance, (v)
risks associated with operating in foreign jurisdictions, (vi) product
liabilities which may arise in the future which are not covered by insurance or
indemnity, (vii) the impact of current and future laws and government
regulation, as well as repeal or modification of same, affecting the medical
device industry and the Company's operations in particular, (viii) the ability
to retain key personnel, (ix) renegotiation, nullification, or breach of
contracts with distributors, suppliers or other parties, (x) the relationship
with the Company's suppliers, particularly its supplier of crystals used in our
Ebrium: YAG lasers and (xi) the risks described elsewhere, herein and from time
to time in the Company's other reports to and filings with the Securities and
Exchange Commission. In light of these risks and uncertainties, there can be no
assurance that the matters referred to in the forward-looking statements
contained in this Report will in fact occur. The Company does not intend to
update any of the forward-looking statements after the date of this Report.
ITEM 3. CONTROLS AND PROCEDURES
Based upon an evaluation completed within 90 days prior to the filing of this
quarterly report with the SEC, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective for gathering and disclosing information on a timely
basis as required for reports filed under the Securities and Exchange Act of
1934. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of this evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
The Company's disclosure controls and procedures and internal controls provide
reasonable, but not absolute, assurance that all deficiencies in design or
operation of these control systems, or all instances of errors or fraud, will be
prevented or detected. These control systems are designed to provide reasonable
assurance of achieving the goals of these systems in light of the Company's
resources and nature of the Company's business operations. These control systems
remain subject to risks of human error and the risk that controls can be
circumvented for wrongful purposes by one or more individuals in management or
non-management positions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Change in Securities and Use of Proceeds
On February 20, 2003, we issued 375,000 shares of our Common
Stock in a private placement transaction with an investor,
which resulted in gross proceeds to the Company of $150,000.
Additionally, the investor was issued warrants to purchase
112,500 shares of the Company's Common Stock at a price of
$0.55 per share. The warrants expire in 2008. The proceeds
were used for working capital in the Company's day-to-day
operations.
On February 24, 2003, we issued 250,000 shares of our Common
Stock in a private placement transaction with an investor,
which resulted in gross proceeds to the Company of $100,000.
Additionally, the investor was issued warrants to purchase
50,000 shares of the Company's Common Stock at a price of
$0.58 per share. The warrants expire in 2008. The proceeds
were used for working capital in the Company's day-to-day
operations.
On April 7, 2003, we issued 543,150 shares of our Common Stock
in a private placement transaction with Mr. Eutimio Sena, one
of our directors. The shares were issued as payment of amounts
owing to Mr. Sena of $151,725. Additionally, Mr. Sena was
issued warrants to purchase 135,788 shares of the Company's
Common Stock at a price of $0.60 per share. The warrants
expire in 2008.
On June 5, 2003, we issued 28,572 shares of our Common Stock
in a private placement transaction with an investor, which
resulted in gross proceeds to the Company of $10,000.
Additionally, the investor was issued warrants to purchase
5,750 shares of the Company's Common Stock at a price of $0.60
per share. The warrants expire in 2008. 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 Certificate of the Chief Executive Officer of Cell
Robotics International, Inc. pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certificate of the Chief Financial Officer of Cell
Robotics International, Inc. pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certificate of the Chief Executive Officer of Cell
Robotics International, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certificate of the Chief Financial Officer of Cell
Robotics International, Inc. pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K:
None.
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: November 14, 2003 By: Eutimio L. Sena
---------------------------------
Eutimio L. Sena, President, Chief
Executive Officer and Director
Dated: November 14, 2003 By: Paul Johnson
--------------------------------
Paul C. Johnson, Chief Financial
Officer, Director and Secretary