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, 1998
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 July 31, 1998, 5,192,434 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 Sheet at June 30, 1998 (unaudited) and
December 31, 1997 (audited)
Consolidated Statement of Operations for the Three Months ended
June 30, 1998 and June 30, 1997 (unaudited)
Consolidated Statement of Operations for the Six Months ended
June 30, 1998 and June 30, 1997 (unaudited)
Consolidated Statement of Cash Flows for the Six Months ended
June 30, 1998 and June 30, 1997 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
ITEM 1. FINANCIAL STATEMENTS
--------------------
The interim unaudited consolidated financial statements have been
prepared by Cell Robotics International, Inc. ("Cell" or 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
disclosure made in the Company's last annual report on Form 10-KSB have been
condensed or omitted for the interim statements. These statements should be
read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-KSB for the year ended December 31, 1997. The
results of the interim periods are not necessarily indicative of results which
may be expected for any other interim period or for the full year.
Forward-Looking Statements
- --------------------------
In addition to historical information, this Quarterly Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, competitive pressures, changing economic
conditions, those discussed in the Section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and other
factors, some of which will be outside the control of the Company. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should refer to and carefully review the information in future documents the
Company files with the Securities and Exchange Commission.
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Balance Sheets
As of As of
6-30-98 12-31-97
------------- -------------
(UNAUDITED)
Assets
- ------
Current assets:
Cash and cash equivalents $ 2,095,748 $ 623,572
Accounts receivable, net of allowance
for doubtful accounts of $1,841 343,286 223,856
Inventory 561,266 586,033
Other 83,191 36,089
------------- -------------
Total current assets 3,083,491 1,469,550
Property and equipment, net 181,761 194,654
Deferred offering costs 0 248,372
Other assets, net 52,951 67,271
------------- -------------
Total assets $ 3,318,203 $ 1,979,847
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 257,281 $ 603,153
Payroll related liabilities 147,375 149,726
Royalties payable 186,106 193,150
Other current liabilities 30,109 88,941
------------- -------------
Total current liabilities 620,871 1,034,970
Short-term loan refinanced subsequent to
balance sheet date 0 500,000
------------- -------------
Total liabilities 620,871 1,534,970
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Stockholders' equity:
Preferred stock, $.04 par value.
Authorized 2,500,000 shares, 502,033
and no shares issued and outstanding
at June 30, 1998 and December 31, 1997,
respectively 20,081 0
Common stock, $.004 par value.
Authorized 12,500,000 shares, 5,192,434
and 5,245,414 shares issued and
outstanding at June 30, 1998 and
December 31, 1997, respectively 20,770 20,982
Additional paid-in capital 17,328,999 14,037,243
Accumulated deficit (14,672,518) (13,613,348)
------------- -------------
Total stockholders' equity 2,697,332 444,877
------------- -------------
$ 3,318,203 $ 1,979,847
============= =============
See accompanying notes to consolidated financial statements
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
UNAUDITED
Three Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Product sales $ 244,375 $ 278,325
Research and development grants 83,243 0
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Total revenues 327,618 278,325
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Product cost of goods sold (160,093) (184,947)
SBIR direct expenses (83,243) 0
------------- -------------
Total cost of goods sold (243,336) (184,947)
------------- -------------
Gross profit 84,282 93,378
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Operating expenses:
General and administrative 216,951 197,026
Marketing & Sales 201,090 159,140
Research and development 219,748 371,652
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Total operating expenses 637,789 727,818
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Loss from operations (553,507) (634,440)
------------- -------------
Other income (deductions):
Interest income 26,889 10,876
Interest expense (340) (37)
Other 0 4,600
------------- -------------
Total other income 26,549 15,439
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Net loss $ (526,958) $ (619 ,001)
============= =============
Weighted average common shares
outstanding, basic and diluted 5,089,147 5,013,414
============= =============
Net loss per common share,
basic and diluted $ (0.10) $ (0.12)
============= =============
See accompanying notes to consolidated financial statements
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
UNAUDITED
Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Product sales $ 658,650 $ 534,843
Research and development grants 125,062 0
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Total revenues 783,712 534,843
------------- -------------
Product cost of goods sold (382,532) (357,397)
SBIR direct expenses (125,062) 0
------------- -------------
Total cost of goods sold (507,594) (357,397)
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Gross profit 276,118 177,446
------------- -------------
Operating expenses:
General and administrative 429,606 361,006
Marketing & Sales 358,078 318,317
Research and development 355,512 642,720
------------- -------------
Total operating expenses 1,143,196 1,322,043
------------- -------------
Loss from operations (867,078) (1,144,597)
------------- -------------
Other income (deductions):
Interest income 45,816 26,830
Interest expense (408) (473)
Other 0 11,800
------------- -------------
Total other income 45,408 38,157
------------- -------------
Net loss $ (821,670) $(1,106 ,440)
============= =============
Weighted average common shares
outstanding, basic and diluted 5,192,434 5,009,105
============= =============
Net loss per common share,
basic and diluted $ (0.16) $ (0.22)
============= =============
See accompanying notes to consolidated financial statements
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
UNAUDITED
Six Months Ended
June 30, 1998 June 30, 1997
------------- -------------
Cash flows from operating activities:
- -------------------------------------
Net loss $ (821,670) $ (1,106,440)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 62,866 63,789
Amortization of options issued
for service 31,081 0
Increase in accounts receivable (119,430) (359,428)
Decrease in inventory 24,767 47,698
Increase in other current assets (31,562) (52,043)
Increase (decrease) in current
liabilities (190,727) 200,964
------------- -------------
Net cash used in operating activities (1,044,675) (1,205,460)
------------- -------------
Cash flows from investing activities:
- -------------------------------------
Purchase of Fixed Assets (35,653) (15,524)
------------- -------------
Net Cash Used by Investing Activities (35,653) (15,524)
------------- -------------
Cash flows from financing activities:
- -------------------------------------
Proceeds from Sale of Units,
Net of Offering Costs 3,052,504 0
Proceeds from issuance of common stock 0 17,500
Repayment of short term loan (500,000) 0
------------- -------------
Net cash provided by financing activities 2,552,504 17,500
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 1,472,176 (1,203,484)
Cash and cash equivalents:
Beginning of Period 623,572 1,724,671
------------- -------------
End of Period $ 2,095,748 $ 521,187
============= =============
Supplemental information:
- -------------------------
Exchange of Units for common stock --
increase to accumulated deficit 237,500 0
Options issued for services to be
rendered 46,621 0
Interest paid $ 408 $ 473
============= =============
See accompanying notes to consolidated financial statements
CELL ROBOTICS INTERNATIONAL, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 1998
1. Presentation of Unaudited Consolidated Financial Statements
-----------------------------------------------------------
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary
for a fair presentation of financial position, results of operations and cash
flows, in conformity with generally accepted accounting principles. However,
the information furnished, in the opinion of management, reflects all
adjustments necessary to present fairly the financial position, results of
operations and cash flows. The results of operations are not necessarily
indicative of results which may be expected for any other interim period or
for the year as a whole.
2. Issuance of Equity Securities
-----------------------------
In February, 1998, the Company sold 460,000 Units (including
Underwriter's "Over-Allotment Option", which consisted of 60,000 Units), each
Unit consisting of one share of Series A Convertible Preferred Stock (the
"Preferred Stock"), convertible into four Common Shares, and two common stock
purchase warrants (the "Warrants"), in a registered offering to the public.
Each Unit was sold at a price to the public of $8.25 resulting in gross
proceeds of $3,795,000. After consideration of the Underwriter's commission
and discount and other offering costs, net proceeds to the Company were
approximately $3.0 million. The Company utilized $500,000 to repay a short-
term loan concurrent with the offering. Accordingly, such short-term loan has
been reclassified from current liabilities at December 31, 1997.
The Preferred Stock is convertible at any time at the option of the
holder. The Preferred Stock converts automatically upon the earlier of
February 2001 or the date upon which the sum of the closing bid prices of the
Preferred Stock and the Warrants included in the Units has been at least
$12.375 for ten consecutive trading dates. The Preferred Stock has a
liquidation preference of $8.25 per share and is entitled to a semiannual
dividend of four-tenths of one share of Common Stock for each share of
Preferred Stock.
Each Warrant entitles the holder thereof to purchase at any time prior to
February 2003, one share of Common Stock at a price of $2.40 per share. The
Warrants may be redeemed by the Company for a redemption price of $0.25 per
Warrant under certain conditions.
In connection with the offering, the Company issued options to purchase,
in the aggregate, 450,000 shares of the Company's Common Stock at an exercise
price of $2.0625 per share to the Chief Executive Officer of the Company. The
options are subject to vesting. Specifically, 150,000 options vested and
became exercisable on the closing of the offering and the balance will vest on
November 30, 2002; provided, however, (i) 150,000 options will vest and become
exercisable thirty days after the end of any quarter in which the Company
reports pre-tax income of at least $50,000; and (ii) 150,000 options shall
vest and become exercisable upon the Company reporting its first fiscal year
with net income of at least $500,000. The options are exercisable for a period
of 36 months from each respective vesting date, but in no event later than
December 31, 2002. Additionally, the Company granted the Underwriters a five-
year warrant that entitles the Underwriters to purchase up to 40,000 Units at
an exercise price of $9.90 per Unit.
In connection with the offering, the Company entered into a multi-year
employment agreement with the chief executive officer of the Company.
Finally, in February 1998, the Company allowed certain shareholders who
acquired 200,000 shares of Common Stock in August 1997 for $650,000 to
exchange such shares for 78,788 Units. In connection herewith, a charge to
accumulated deficit of $237,500 was recognized.
3. Earning Per Share
-----------------
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
in 1997. SFAS No. 128 establishes new standards for computing and presenting
earnings per share ("EPS"). Specifically, SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS, requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures, and requires a reconciliation of
the numerator and denominator of basic and diluted EPS computations to the
financial statements. Upon adoption, SFAS No.128 requires restatement of prior
period EPS information presented. As such, the EPS information for the 1997
periods presented has been restated. Adoption of SFAS No. 128 did not have a
material effect on the Company's consolidated financial statements.
Options to purchase 1,290,905 and 991,000 shares of common stock were
outstanding at June 30, 1998 and 1997, respectively. Preferred Stock
convertible into 2,008,132 shares of common stock and warrants to purchase
1,077,576 shares of common stock were outstanding at June 30, 1998. These
potentially dilutive securities were not considered in the computation of
diluted loss per share as the effect would have been anti-dilutive because of
the net losses incurred in the periods ended June 30, 1998 and 1997.
4. Contingency
-----------
In October 1997, a competitor filed a civil suit against the Company
claiming that one of the Company's medical devices, the Lasette(-TM-),
infringes a U.S. patent underlying its competitive laser skin perforator. The
Company and its patent counsel have conducted a comprehensive investigation of
the basis of the claims underlying such litigation, and believe that the
Lasette does not infringe upon such competitor's U.S. patent or any of its
related foreign patents. In March 1998, the Company's Motion to Dismiss for
lack of personal jurisdiction was granted. The competitor has appealed that
decision. The Company intends to vigorously defend any future claims asserted
in such litigation. Accordingly, while there can be no assurance of the
ultimate outcome of the litigation, the Company does not, at this time,
believe the claims will have a material adverse impact on the Company's
business, results of operations or financial condition.
5. Reclassification
----------------
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CELL ROBOTICS INTERNATIONAL, INC.
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
Liquidity and Capital Resources - June 30, 1998 compared to December 31, 1997
- -----------------------------------------------------------------------------
In February, 1998, the Company sold 460,000 Units (including the
Underwriter's "Over-Allotment Option", which consisted of 60,000 Units), each
Unit consisting of one share of Series A Convertible Preferred Stock (the
"Preferred Stock"), convertible into four Common Shares, and two common stock
purchase warrants (the "Warrants"), in a registered offering to the public
(the "Offering"). Each Unit was sold at a price to the public of $8.25
resulting in gross proceeds of $3,795,000. After consideration of the
Underwriter's commission and discount and other offering costs, net proceeds
to the Company were approximately $3.0 million. (See Note 2 of the Notes to
Unaudited Consolidated Financial Statements)
Primarily as a result of the foregoing, the Company's liquidity and
capital resources remained strong during the six month period ended June 30,
1998.
The Company's current ratio at December 31, 1997, was 1.4:1, compared to
a current ratio of 5.0:1 on June 30, 1998. This increase in liquidity is
primarily due to capital raised from the Offering. Total assets increased from
$1,979,847 at December 31, 1997 to $3,318,203 at June 30, 1998, an increase of
$1,338,356, or 67.6%.
The increase in the Company's current assets of $1,613,941, or 109.8%,
was driven by net offering proceeds of approximately $3.0 million. Cash and
cash equivalents therefore increased $1,472,176, or 236.1%. Accounts
receivable increased $119,430, or 53.4%, resulting from increased sales during
the six month period. Also resulting from the increased sales was a decrease
in inventory of $24,767, or 4.2%. Other current assets also increased, from
$36,089 to $83,191 an increase of 130.5%.
Property and equipment, net, decreased $12,893, or 6.6%, as a result of
depreciation, slightly offset by new fixed asset purchases of $35,653. Other
assets decreased from $67,271 to $52,951, or 21.3%.
During the six month period ended June 30, 1998, the Company's total
liabilities materially decreased from $1,534,970 to $620,871, or 59.6%. This
reduction was accomplished by applying net offering proceeds against
outstanding vendor payables and repaying a $500,000 short-term note. The
Company did not have any long term liabilities at June 30, 1998.
The Company's working capital increased from $434,580 at December 31,
1997 to $2,462,620 at June 30, 1998, an increase of $2,028,040, due almost
exclusively to the completion of the Offering.
Cash used in operations for the six month periods ended June 30, 1998 and
1997 was $1,044,675 and $1,205,460, respectively. The primary reason for the
decrease in cash used in operations during this period, as compared to the
prior period, was the decrease in operating expenses.
On July 30, 1998, the Company signed an agreement with Chronimed, Inc.
for worldwide distribution of its Lasette(-TM-) laser finger perforator for
the blood sampling for glucose testing market. The agreement includes a two-
year, multi-million dollar minimum purchase commitment by Chronimed as well as
a capital investment consisting of a staged purchase of $600,000 of the
Company's common stock, contingent upon achievement of certain milestones.
Chronimed's capital investment will be used for the development of a second
generation, smaller Lasette to meet the needs of the home blood sampling for
glucose testing market. The worldwide diabetic market is very large and
continues to grow, but there can be no assurance the Lasette product will
achieve market acceptance.
The Company expects that its cash used in operating activities will
continue at the current level through the remainder of 1998. The timing of
the Company's future capital requirements, however, cannot accurately be
predicted. The Company's capital requirements depend upon numerous factors,
including, most notably, the market acceptance of its new laser-based medical
devices. If capital requirements vary materially from those currently
planned, the Company may require additional financing, including but not
limited to, the sale of equity or debt securities. The Company has no
commitments for any additional financing and there can be no assurance that
such commitments can be obtained. Any additional equity financing may be
dilutive to the Company's existing stockholders and debt financing, if
available, may involve pledging some or all the Company's assets and may
contain restrictive covenants with respect to raising future capital and other
financial and operational matters. If the Company is unable to obtain
additional financing as needed, the Company may be required to reduce the
scope of its operations, which could have a material adverse effect upon the
Company's business, financial condition and results of operation. The Company
believes that the net proceeds from the Offering will be sufficient to meet
the Company's working capital requirements for at least the next nine months,
although there can be no assurance in this regard.
Other than the foregoing, management knows of no other trend, or other
demands, commitments, events or uncertainties that will result in, or that are
reasonably likely to result in, a material impact on the liquidity and capital
resources of the Company.
Results of Operations - Three months ended June 30, 1998 compared to the three
months ended June 30, 1997
- ------------------------------------------------------------------------------
The Company's total revenue increased $49,293, or 17.7% from $278,325 to
$327,618 for the three month period ended June 30, 1997 and 1998,
respectively. Revenues from the sale of products during the three months
ended June 30, 1998, were $244,375, as compared to $278,325 during the
comparable period in 1997. This represents a decrease in sales of 12.2% while
gross margin realized on product sales during this period improved slightly
from 33.5% in 1997, to 34.5% during 1998.
The Company also recognized $83,243 of revenue from "Small Business
Innovative Research" (SBIR) grants during the three months ended June 30,
1998. These SBIR grants have been issued by the National Institutes of Health
(NIH), an agency of the U.S. Department of Health and Human Services. The
highly competitive grants provide financial assistance for approved tasks of
high-risk research that can lead to future products for small businesses.
Normally, awards do not exceed $750,000 for a period ordinarily not to exceed
two years. The Company's current Phase II grant is scheduled to expire on
March 31, 1999. Additional Phase II grant applications will be submitted to
continue research efforts initiated in previously awarded Phase I grants.
The Company's loss from operations incurred during the three months ended
June 30, 1998, was $553,507, as compared to an operating loss of $634,440
incurred during the same period in 1997. Total operating expenses decreased
$90,029, or 12.4%, from $727,818 to $637,789. Research and development type
expenses accounted for the majority of this decrease, a reduction of $151,904
or 40.9%. General and administrative expenses increased $19,925, or 10.1%,
reflecting an increase in legal, accounting and insurance fees. Marketing and
sales expenses increased 26.4%, or $41,950, primarily due to efforts to
identify a marketing partner for the new laser-based medical products, obtain
regulatory clearances and secure distribution channels.
During the three months ended June 30, other income and expenses
increased from a $15,439 net contribution to income during the period in 1997,
to a $26,549 net contribution to income during the period in 1998.
As a result of the foregoing, the Company's net loss for the three months
ended June 30, 1998 was $526,958, as compared to a net loss of $619,001
incurred during the comparable period of 1997. On a per share basis, this
amounts to a $0.10 loss per weighted average outstanding share during the
second quarter of 1998, compared to a $0.12 loss per weighted average
outstanding share during the second quarter of 1997.
Results of Operations - Six months ended June 30, 1998 compared to the six
months ended June 30, 1997
- --------------------------------------------------------------------------
Total revenue increased $248,869, or 46.5%, during the six months ended
June 30, 1998 as compared to the same period in 1997. Revenues from the sale
of products during the six months ended June 30, 1998, were $658,650, as
compared to $534,843 during the comparable period in 1997. This represents an
increase of 23.1%. The Company also recognized $125,062 of revenue from
research and development grants during the six months ended June 30, 1998.
The gross margin realized on product sales during this period improved from
33.2% in 1997, to 41.9% during 1998.
The Company's loss from operations incurred during the six months ended
June 30, 1998, was $867,078, as compared to an operating loss of $1,144,597
incurred during the same period in 1997. Total operating expenses decreased
$178,847, or 13.5%, from $1,322,043 to $1,143,196. Research and development
type expenses accounted for the majority of this decrease, a reduction of
$287,208 or 44.7%. Principal development expenses associated with the FDA-
cleared RevitaLase(-TM-), an erbium:YAG laser for use in dermatological
applications, were incurred in the previous fiscal year. R&D efforts
associated with the development of the next generation Lasette, or Lasette II,
began in the later part of the second quarter. These scaled down development
activities for the first six months of 1998, combined with low first quarter
cash reserves, led to the reduction in research and development expenses.
General and administrative expenses increased $68,600, or 19.0%, reflecting an
increase in legal and accounting fees and the addition of Director and Officer
Liability Insurance. Marketing and sales expenses slightly increased 12.5%,
or $39,761, primarily due to the Company's efforts to identify a marketing
partner and secure worldwide distribution channels for its laser-based medical
products, as well as enhanced product literature and advertising expenses.
During the six months ended June 30, other income and expenses slightly
increased from a $38,157 net contribution to income during the period in 1997,
to a $45,408 net contribution to income during the period in 1998.
As a result of the foregoing, the Company's net loss for the six months
ended June 30, 1998 was $821,670, as compared to a net loss of $1,106,440
incurred during the comparable period of 1997. On a per share basis, this
amounts to a $0.16 loss per weighted average outstanding share during the
first six months of 1998, compared to a $0.22 loss per weighted average
outstanding share during the first six months of 1997.
The Company developed the FDA-cleared RevitaLase(-TM-), and Erbium:YAG
laser for use in dermatological applications, based on a letter of intent that
was signed with Laser Industries, Ltd. (a major medical laser company).
However, before the agreement was finalized, ESC Medical Lasers, Ltd. acquired
Laser Industries. Since ESC already had its own Erbium:YAG laser, the new
combined company did not honor the letter of intent. Because the dermatology
laser market is quite crowded, the Company has decided not to market the
RevitaLase without a marketing partner. Discussions continue with other laser
marketing companies; however, no additional capital is being spent on the
product at this time.
Other than the foregoing, management knows of no trends, or other
demands, commitments, events or uncertainties that will result in, or are
reasonably likely to result in, a material impact on the Company's results of
operations.
Year 2000 Issue
- ---------------
THE PROBLEM. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
As a result, any of the Company's computer programs that have date sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000, which, in turn, could result in system failures or miscalculations
causing disruptions in the operations of the Company and its suppliers and
customers.
THE COMPANY'S STATE OF READINESS. The Company has instituted a Year 2000
Project. As part of the Company's Year 2000 Project, the Company has
completed its initial evaluation of current computer systems, software and
embedded technologies. The evaluation revealed that the Company's network
hardware and operating system, voice mail system, e-mail system, and
accounting and manufacturing software are the major resources that do have
Year 2000 compliance issues. These resources will need to be either replaced
or upgraded. Fortunately, the identified systems and/or programs are "off-
the-shelf" products with Year 2000 compliant versions now available. The
Company's network, e-mail system and accounting and manufacturing software are
scheduled for upgrade by the end of September, 1998. The Company's voice mail
system is scheduled to be replaced during the first quarter of 1999. All
other relevant programs, including Microsoft Windows95(-Registered Mark-)
operating system, are scheduled for upgrade by the end of December, 1998.
The Company has determined that there should be no Year 2000 Issues for
the products it has already sold, excluding issues associated with the
Microsoft Windows95(-Registered Mark-) operating system which is incorporated
into the Company's Workstation products. Customers who have purchased the
Company's Workstation products will be notified about Microsoft Windows95(-
Registered Mark-) and problems will be addressed as incurred.
As part of the Company's Year 2000 Project, the Company has also
contacted its significant suppliers and large customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their Year 2000 compliance issues. To date, approximately ten
percent (10%) of the entities contacted have responded, and of those
responding, half have indicated that they have remediated their Year 2000
compliance issues. The Company will continue to contact its significant
suppliers and large customers as part of its Year 2000 Project. However,
there can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted or that failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company and its
operations.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Expenditures in
1997 for the Year 2000 Project amounted to less than $7,500.00. Management
expects that completion of its Year 2000 Project may result in additional
expenditures of approximately $35,000.00
THE RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES. The Company's
failure to resolve Year 2000 Issues on or before December 31, 1999 could
result in system failures or miscalculations causing disruption in operations,
including, among other things, a temporary inability to process transactions,
send invoices, send and/or receive e-mail and voice mail, or engage in similar
normal business activities. Additionally, failure of third parties upon whom
the Company's business relies to timely remediate their Year 2000 Issues could
result in disruptions in the Company's supply of parts and materials, late,
missed or unapplied payments, temporary disruptions in order processing and
other general problems related to the Company's daily operations. While the
Company believes its Year 2000 Project will adequately address the Company's
internal Year 2000 issues, until the company receives responses from a more
significant number of the Company's suppliers and customers, the overall risks
associated with the Year 2000 Issue remain difficult to accurately describe
and quantify, and there can be no guarantee that the Year 2000 Issue will not
have a material adverse effect on the Company and its operations.
THE COMPANY'S CONTINGENCY PLAN. The Company has not, to date,
implemented a Year 2000 Contingency Plan. It is the Company's goal to have
the major Year 2000 Issues resolved by the end of fiscal 1998, with the
exception of the Company's voice mail system which will be replaced during the
first quarter of fiscal 1999. As part of the Company's Year 2000 Project, the
Company plans to retain the services of an outside consultant to verify and
validate the Company's Year 2000 compliance. Final Year 2000 verification and
validation is scheduled to occur by the end of March, 1999. However, the
Company will develop and implement a contingency plan by the end of November,
1998, in the event the Company's Year 2000 Project should fall behind
schedule.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, in October 1997, a civil action was brought by
Venisect, Inc. ("Venisect") against the Company in the United States District
Court of the Eastern District of Arkansas, Case No. LR-C-97-877 (the "Venisect
Litigation") in which Venisect claims that the Company's Lasette(-TM-) product
infringes a U.S. patent, underlying its competitive laser skin perforator. The
Company and its advisors, including patent counsel, have conducted a
comprehensive investigation of the basis of the claims underlying the Venisect
Litigation and believe that the Lasette does not infringe upon the Venisect
U.S. patent or any of its related foreign patents. In March 1998, the Court
granted the Company's Motion to Dismiss for lack of jurisdiction. Venisect has
filed a notice that it will appeal that decision.
Item 2. Change in Securities
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
Exhibit 10.1 Development and Distribution Agreement
Exhibit 27 Financial Data Schedule
Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CELL ROBOTICS INTERNATIONAL, INC.
Dated: August 14, 1998 By: /s/ Ronald K. Lohrding
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Ronald K. Lohrding, President & CEO
Dated: August 14, 1998 By: /s/ Jean M. Scharf
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Jean M. Scharf, Chief Financial Officer