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, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _________ to __________
Commission file number: 0-27840
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CELL ROBOTICS INTERNATIONAL, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1153295
--------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
2715 Broadbent Parkway N.E., Albuquerque, New Mexico 87107
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 343-1131
As of November 13, 2002, 16,153,203 shares of Common Stock of the Registrant
were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2002 (unaudited)
and December 31, 2001 4
Consolidated Statements of Operations for the Three Months
ended September 30, 2002 and September 30, 2001 (unaudited) 5
Consolidated Statements of Operations for the Nine Months
ended September 30, 2002 and September 30, 2001 (unaudited) 6
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 2002 and September 30, 2001 (unaudited) 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operation 12
Item 3. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
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ITEM 1. FINANCIAL STATEMENTS
The interim unaudited consolidated financial statements contained in this report
have been prepared by Cell Robotics International, Inc. (the "Company") and, in
the opinion of management, reflect all material adjustments which are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented. Such adjustments consisted only of
normal recurring items. Certain information and footnote disclosures made in the
Company's annual report on Form 10-KSB for the year ended December 31, 2001 have
been condensed or omitted for the interim statements. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 2001.
The results of the interim periods are not necessarily indicative of results
which may be expected for any other interim period or for the full year.
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,678 $ 5,633
Accounts receivable, net of allowance for
doubtful accounts of $4,991
in 2002 and 2001 186,590 287,482
Inventory 619,063 911,421
Other 38,321 49,009
------------- -------------
Total current assets 847,652 1,253,545
Property and equipment, net 300,827 386,914
Other assets, net 66,624 19,279
------------- -------------
Total assets $ 1,215,103 $ 1,659,738
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
Accounts payable $ 380,725 $ 579,021
Notes payable - related party 1,664,794 1,608,989
Payroll related liabilities 165,820 145,952
Royalties payable 131,434 110,846
Other current liabilities 139,956 44,607
------------- -------------
Total current liabilities 2,482,729 2,489,415
------------- -------------
Stockholders' equity (deficit):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, no shares issued and outstanding
at September 30, 2002 and December 31, 2001 0 0
Common stock, $.004 par value. Authorized
50,000,000 shares, 11,636,999 and 9,965,137 shares
issued and outstanding at September 30, 2002
and December 31, 2001, respectively 46,548 39,825
Additional paid-in capital 26,303,135 25,223,575
Accumulated deficit (27,617,309) (26,093,077)
------------- -------------
Total stockholders' deficit (1,267,626) (829,677)
------------- -------------
$ 1,215,103 $ 1,659,738
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SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
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Product sales $ 477,277 $ 402,063
Research and development grants -- 88,923
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Total revenues 477,277 490,986
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Product cost of goods sold (380,217) (269,236)
SBIR direct expenses -- (88,923)
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Total cost of goods sold (380,217) (358,159)
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Gross profit 97,060 132,827
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Operating expenses:
General and administrative 327,390 198,478
Marketing and sales 190,344 308,917
Research and development 140,981 99,714
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Total operating expenses 658,715 607,109
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Loss from operations (561,655) (474,282)
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Other income (expense):
Interest income -- 284
Interest expense (34,986) (40,976)
Other income, net 29,453 15,000
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Total other expense (5,533) (25,692)
------------- -------------
Net loss $ (567,188) $ (499,974)
============= =============
Weighted average common shares
outstanding, basic and diluted 11,357,919 9,980,644
============= =============
Net loss per common share, basic and diluted $ (0.05) $ (0.05)
============= =============
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
Product sales $ 976,330 $ 1,007,453
Research and development grants -- 133,823
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Total revenues 976,330 1,141,276
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Product cost of goods sold (857,012) (821,049)
SBIR direct expenses -- (133,823)
------------- -------------
Total cost of goods sold (857,012) (954,872)
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Gross profit 119,318 186,404
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Operating expenses:
General and administrative 699,469 699,693
Marketing and sales 532,235 1,005,180
Research and development 339,106 414,137
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Total operating expenses 1,570,810 2,119,010
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Loss from operations (1,451,492) (1,932,606)
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Other income (expense):
Interest income 17 5,730
Interest expense (130,116) (78,865)
Other income, net 57,359 15,979
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Total other expense (72,740) (57,156)
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Net loss $ (1,524,232) $ (1,989,762)
============= =============
Weighted average common shares
outstanding, basic and diluted 10,748,007 9,980,203
============= =============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.14) $ (0.20)
============= =============
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net loss $(1,524,232) $(1,989,762)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 109,449 133,475
Beneficial conversion charge 19,884 --
Options and warrants issued for services 61,781 50,830
Common stock issued for services 71,573 8,907
Decrease in accounts receivable 100,892 54,317
Decrease (increase) in inventory 292,358 (187,536)
(Increase) decrease in other assets (51,096) 18,832
Decrease in current liabilities (62,491) (111,071)
------------ ------------
Net cash used in operating activities (981,882) (2,022,008)
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CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Net cash used in investing activities -
purchase of property and equipment (8,923) (6,900)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from notes payable and
warrants - related party 687,533 1,140,204
Repayments of notes payable - related party (221,328) (28,054)
Proceeds from exercise of stock options 2,932 --
Net proceeds from issuance of common stock 519,713 --
------------ ------------
Net cash provided by financing activities 988,850 1,112,150
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Net decrease in cash and cash equivalents: (1,955) (916,758)
Cash and cash equivalents:
Beginning of period 5,633 958,144
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End of period $ 3,678 $ 41,386
============ ============
SUPPLEMENTAL INFORMATION:
- -------------------------
Interest paid $ 8,545 $ 4,546
Non-cash - Conversion of debt to equity 410,400 --
============ ============
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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CELL ROBOTICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
1. Presentation of Unaudited Consolidated Financial Statements
-----------------------------------------------------------
These unaudited consolidated financial statements have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with accounting principles generally accepted in the United
States. However, the information furnished, in the opinion of management,
reflects all adjustments necessary to present fairly the Company's financial
position, results of operations and cash flows. The results of operations are
not necessarily indicative of results which may be expected for any other
interim period or for the year as a whole.
2. Issuance of Equity Securities
-----------------------------
In January 2001, the Company issued 15,000 shares of its Common Stock
to Pollet & Richardson as payment for legal services. The Company recorded a
charge of approximately $8,900, the fair value of the stock issued. The fair
value was calculated on the measurement date using the market price of the
Company's common stock on that date.
In October 2001 the Company issued a total of 37,375 shares of its
Common Stock as payment for services. The Company recorded charges of $15,000,
the fair value of the stock issued. The fair value was calculated on the
measurement dates using the market price of the Company's common stock on those
dates.
On January 25, 2002, the Company issued 424,208 shares of its Common
Stock in a private placement with William Hayman, a private investor, which
resulted in gross proceeds to the Company of $300,000. Additionally Mr. Hayman
was issued warrants to purchase 84,842 shares of the Company's Common Stock at a
price of $0.90 per share. The warrants expire on January 25, 2007. A success fee
of 8,333 shares of the Company's Common Stock was paid to Leof Strand, a finder,
after the close of the transaction.
On May 16, 2002, the Company issued 438,270 shares of its Common Stock
in a private placement with three private investors, one of whom included Mr.
Oton Tisch, a director of the Company. The gross proceeds to the Company were
$235,000. Additionally, the three investors were issued warrants to purchase a
total of 131,481 shares of the Company's Common Stock at a price of $0.87 per
share. The warrants expire on May 17, 2007.
On July 29, 2002, the Company issued 684,685 shares of its Common Stock
to convert all principal and interest owed of $410,400 under the August 2, 2001
convertible note to equity. As of July 29, 2002 no amounts remain outstanding
under the convertible note.
On August 2, 2002, the Company issued 70,000 shares of its Common Stock
to three consultants, of which 50,000 shares were issued to Mr. Oton Tisch and
5,000 shares were issued to Mr. Eutimio Sena, directors of the Company. The fair
value of these shares, as determined by the average trading prices for the
Company's Common Stock on August 2, 2002, was recorded as a non-cash charge of
$50,050 for the services provided by the consultants.
On September 12 and 18, 2002, the Company issued an aggregate of 47,442
shares of its Common Stock to two consultants. The fair value of these shares,
as determined by the average trading prices for the Company's Common Stock on
the issuance dates, was recorded as a non-cash charge of $21,523 for the
services provided by the consultants.
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3. Notes Payable
-------------
In December 1999, the Company issued a note payable for $250,000 to
Humagen Fertility Diagnostics, Inc. whose president, chief executive officer and
majority shareholder is Dr. Debra Bryant, a former member of the Company's board
of directors. The note accrued interest at six percent. In January 2001, the
Company used $45,000 of the proceeds of the loans by the Company's directors and
their affiliates described below as payment against the outstanding balance of
$250,000 plus accrued interest. The Company also paid monthly installments of
$10,000 each from February through April 2001. The remaining principal balance
and accrued interest of the note were paid in installments of $50,000 each month
at the end of January, February and March 2002 with a final payment at the end
of April 2002 of $43,828. Commencing January 1, 2002 through the date of
repayment, the Company accrued and paid approximately $2,900 of interest on this
note.
On January 31, 2001, certain members of the Company's board of
directors and affiliates of members or former members of its board of directors
agreed to make term loan advances to the Company in an aggregate amount of
$1,000,000. Loans in the amount of $100,000, $400,000 and $500,000 under this
$1,000,0000 commitment were made in February 2001, March 2001 and May 2001,
respectively. The loans are evidenced by unsecured promissory notes, bear
interest at the rate of ten percent per annum and were due on January 31, 2002.
As of the filing date of this report these loans are due and payable in full.
Additionally, the lenders were issued warrants to purchase an aggregate of
150,000 shares of Common Stock. The warrants are exercisable until January 31,
2004, for Common Stock at a price of $1.125 per share, the market price for the
Common Stock when the loan agreement was signed. The warrants are immediately
exercisable. The Company has allocated $32,540 in proceeds from the loan to the
warrants based on the fair value of the warrants. This amount was recorded as a
discount on the loans and was amortized over the life of the loans. As of
September 30, 2002 approximately $987,000 of principal was outstanding under the
loan agreement. During the nine-month period ended September 30, 2002 the
Company accrued approximately $75,000 of interest expense on these promissory
notes.
In August 2001, the Company signed a convertible note in the face
amount of $500,000 payable to Mr. Oton Tisch, one of the Company's directors.
Mr. Tisch, funded $190,000 after the signing of the convertible note in August
2001. Additional funds of $150,000 and $40,000 were provided by Mr. Tisch in
December 2001 and January 2002, respectively. All principal and accrued interest
evidenced by the note totaling $410,400 were converted into 684,685 shares of
the Company's Common Stock on July 29, 2002. The conversion price of the
convertible note was $0.5994 per share of the Company's Common Stock. Upon the
funding of the convertible note, warrants issued to Mr. Tisch to purchase 28,500
shares of the Company's Common Stock became exercisable. The warrants are
exercisable until August 2, 2004, for Common Stock at a price of $0.67 per
share.
On March 29, 2002, the Company signed a promissory note in the face
amount of $2,000,000 payable to one of the Company's directors, Mr. Oton Tisch.
This new promissory note allows Mr. Tisch to make one or more advances to the
Company at times and in amounts, as determined by Mr. Tisch in his discretion,
up to an aggregate principal sum of $2,000,000. Therefore, Mr. Tisch has no
obligation or commitment to make any loans under this note. This note bears
interest at 8% per annum and is secured by all the Company's assets. The
outstanding principal balance under this note was $537,300 on September 30,
2002. All principal and interest outstanding under the note is due on April 1,
2004. During the nine-month period ended September 30, 2002 the Company accrued
approximately $9,800 of interest under this promissory note.
4. Earnings Per Share
------------------
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the quarter. Diluted loss per share,
which is computed on the basis of the weighted average number of common shares
and all potentially dilutive common shares outstanding during the quarter, is
the same as basic loss per share for the periods ended September 30, 2002 and
2001, as all potentially dilutive securities were anti-dilutive.
Options to purchase 3,585,702 and 2,226,075 shares of common stock were
outstanding at September 30, 2002 and 2001, respectively. Warrants to purchase
2,182,649 and 1,691,326 shares of common stock were outstanding at September 30,
2002 and 2001, respectively. These were not included in the computation of
diluted earnings per share as the exercise of the options would have been
anti-dilutive because of the net losses incurred in the periods ended September
30, 2002 and 2001.
-9-
5. Operating segments
------------------
The Company has two operating segments: scientific research instruments
and laser-based medical devices. The scientific research instruments segment
produces research instruments for sale to universities, research institutes, and
distributors. The laser-based medical devices segment produces the Lasette for
home and clinical use for sale to clinics, individual consumers and to
distributors.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies in the Company's annual report
on Form 10-KSB. The Company evaluates segment performance based on profit or
loss from operations prior to the consideration of unallocated corporate general
and administration costs. The Company does not have intersegment sales or
transfers.
The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business utilizes different technologies and marketing strategies.
NINE MONTHS ENDED
SEPTEMBER 30, 2002
------------------
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)
NINE MONTHS ENDED
SEPTEMBER 30, 2001
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ------- --------- -----
Revenues from customers $ 714,770 292,683 - 1,007,453
Research and development
grants 133,823 - - 133,823
Profit (loss) from operations 80,944 (1,316,856) (696,694) (1,932,606)
THREE MONTHS ENDED
SEPTEMBER 30, 2002
------------------
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)
-10-
THREE MONTHS ENDED
SEPTEMBER 30, 2001
------------------
SCIENTIFIC LASER-BASED
RESEARCH MEDICAL
INSTRUMENTS DEVICES CORPORATE TOTAL
----------- ------- --------- -----
Revenues from customers $ 320,057 82,006 - 402,063
Research and development
grants 88,923 - - 88,923
Profit (loss) from operations 53,256 (330,135) (197,403) (474,282)
6. Capital Resources
-----------------
Since inception, the Company has incurred operating losses and other
equity charges which have resulted in an accumulated deficit of $27,617,309 at
September 30, 2002 and operations using net cash of $981,882 in the nine-month
period ended September 30, 2002.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Accordingly, the Company is manufacturing and marketing a sophisticated
laser-based medical device that leverages the Company's existing base of
patented technology. The Company believes the markets for this product are
broader than that of the scientific research instruments market and, as such,
offer a greater opportunity to significantly increase sales. In addition, the
Company is pursuing development and marketing partners for some of its new
medical products. These partnerships will enhance the Company's ability to
rapidly ramp-up its marketing and distribution strategy, and possibly offset the
products' development costs.
Although the Company is manufacturing and marketing its sophisticated
laser-based medical device and continues to market its scientific research
instrument line, it does not anticipate achieving profitable operations in the
foreseeable future. As a result, the Company expects its accumulated deficit to
increase in the near future.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
of America which contemplate continuation of the Company as a going concern.
There is substantial doubt that the Company will be able to continue as a going
concern. The ultimate continuation of the Company is dependent on attaining
additional financing and profitable operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CELL ROBOTICS INTERNATIONAL, INC.
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
report.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the nine-month periods ended September 30,
2002 and 2001 was $981,882 and $2,022,008, respectively. The primary reason for
the decrease in cash used in operations during the nine-month period ended
September 30, 2002, as compared to the same period in the prior year, was that
we had fewer cash resources. We have also taken steps to limit or reduce our
personnel and other costs through personnel reductions, limitation of travel
expenditures and other methods to achieve other administrative cost reductions.
Cash provided by financing activities for the nine-month periods ended
September 30, 2002 and 2001 was $988,850 and $1,112,150, respectively. The
decrease in net cash provided by financing activities resulted primarily from
fewer available sources of capital during the nine-month period ended September
30, 2002 when compared to the same period in 2001.
Total assets decreased to $1,215,103 at September 30, 2002 from
$1,659,738 at December 31, 2001, a decrease of $444,635, or 27%. This decrease
in total assets is primarily attributed to the following:
o Our current assets decreased $405,893, or 32%, as of September
30, 2002 compared to our current assets as of December 31,
2001. This decrease was primarily the result of decreases in
accounts receivable and inventory as described below.
o Accounts receivable decreased $100,892 from $278,482 at
December 31, 2001 to $186,590 at September 30, 2002. This
decrease occurred because we made an effort during the third
quarter of 2002 to collect as much cash as possible.
o Inventory decreased by $292,358, or 32%, to $619,063 at
September 30, 2002 from $911,421 at December 31, 2001. The
decrease was primarily due to the lack of financial resources
to purchase additional components.
Our current ratio at September 30, 2002 was 0.34 compared to 0.5 at
December 31, 2001. Our total current liabilities decreased $6,686 from
$2,489,415 at December 31, 2001 to $2,482,729 at September 30, 2002. Our working
capital decreased to a deficit of $1,635,077 at September 30, 2002 from a
deficit of $1,235,870 at December 31, 2001. The decrease in working capital was
primarily due to the use of cash resources to fund our ongoing operating losses,
as well as decreases in accounts receivable and inventory as described above.
COMMITMENTS - As of November 13, 2002, our outstanding indebtedness for
borrowed money includes the following:
o In January 2001, certain members of our board of directors and
affiliates of members or former members of our board of
directors 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. On November 13, 2002,
we issued 2,309,255 shares of our common stock to Mr. Oton
Tisch in repayment in full of $900,000 of principal and
$139,165 of accrued interest owing to Mr. Tisch under the loan
agreement. As of the filing date of this report, the remaining
principal balance of loans outstanding under the loan
agreement was approximately $87,000. These loans can be
demanded at any time. In connection with the January 2001 loan
commitment, each lender was issued a warrant in proportion to
-12-
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 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. Mr. Tisch has funded a
total principal amount of $537,300 under this note as of the
date of this report. On November 13, 2002, we issued 776,949
shares of our common stock to Mr. Tisch in repayment in full
of $337,300 of principal and $12,327 of accrued interest owing
to Mr. Tisch under the promissory note. As of the filing date
of this report, the remaining principal balance of loans
outstanding under the note was $200,000, of which $151,200 was
outstanding under the Loan A Facility and $48,800 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 the date of this
report, the remaining amount available under the Loan A
Facility and the Loan B Facility is $1,000,000 and $462,700,
respectively. All principal and interest outstanding under the
note are due on April 1, 2004.
CAPITAL SOURCES -- Our operating cash flows continue to be provided by
ongoing sales of the Lasette and the Cell Robotics Workstation. During the first
nine months of 2002, sales of our products generated revenues of approximately
$976,000. In July 2002, we received a commitment from our distributor that sales
the Lasette in China to order additional Lasettes. This commitment provides for
sales of an additional 750 Lasettes, of which 300 have been purchased as of the
date of this report, and 1.5 million clinical disposables through April 2003.
The distributor also committed to order an additional 1,500 Lasettes in the 12
months thereafter, plus approximately 15 million corresponding disposables.
Although the distributor has committed to purchase the above Lasettes and
related disposables, we have no control over the timing or the amount of any
order within the relevant periods discussed above. Further, the risks associated
with these international activities includes, but are not limited to, the
compliance by our distributor with its commitments. Although we are not aware of
any reason that the distributor will not fulfill its commitment, we cannot
assure you that it will remain in compliance with its agreement with us.
We are currently developing a modified version of the Lasette, called the Infant
Lasette, designed specifically for neonatal/pediatric heelstick applications. We
have also entered into an agreement with Sandstone Medical Technologies, LLC., a
private company located in Homewood, Alabama, to use our core laser technology
to develop a proprietary medical laser for aesthetic or skin rejuvenation
applications, which we call the Ultra Light Laser. On September 30, 2002, we
commenced our clinical trials of the Infant Lasette. After completing the
requisite tests in the clinical trial, we will submit the Infant Lasette for FDA
clearance. We anticipate that the FDA clearance will take at least three months
following this submission. However, FDA clearance will be delayed if the FDA
requests additional information based on the initial or subsequent submissions.
Although there can be no assurances, we expect that we will be ready to sell the
Infant Lasette in the second quarter of 2003. Additionally, we have received FDA
clearance of the Ultra Light Laser. We are in the process of obtaining certain
domestic and international safety clearances for this product, such as UL and CE
certifications. Although there can be no assurances, we anticipate that we will
be able to begin recognizing revenue for the Ultra Light Laser in the fourth
quarter of 2002.
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 the date of this
report, the remaining amount available under the Loan A Facility and the Loan B
Facility is $1,000,000 and $462,700, respectively.
-13-
In addition to the above sources, we have and may continue 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 and, to a lesser extent,
the proceeds of Small Business Innovative Research grants. Research and
development grants accounted for revenues of $137,597 in 2001. No research and
development grant revenue was received in the first nine months of 2002. We have
not been able to generate sufficient cash from operations and, as a consequence,
we must seek additional financing to fund ongoing operations.
We anticipate that our existing current working capital and expected cash flow
from operating activities will only be sufficient to allow us to meet
operational obligations through December 12, 2002, assuming the repayment of the
remaining amounts outstanding under our January 2001 loan agreement are not
demanded before that date. As of September 30, 2002, our net working capital was
a deficit $1,635,077 and our total cash and cash equivalents was less than
$4,000. Additionally, 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 $87,000 that are currently due
and payment of borrowed indebtedness in the principal amount of $27,000 that is
due on November 30, 2002. 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 will be approximately $150,000 each month for the
foreseeable future and will be a total of approximately $1,200,000 through June
30, 2003. Our operating requirements depend upon several factors, including the
rate of market acceptance of our products, particularly the Lasette, our level
of expenditures for manufacturing, marketing and selling our products, costs
associated with our staffing and other factors. If our operating requirements
vary materially from those currently planned, we may require more financing than
currently anticipated. Although we have had discussions with potential
investors, we have not been able to obtain financing on acceptable terms as of
the date of this report. We intend to continue to seek to raise equity or debt
financing. However, no assurance can be given that we will be able to obtain
additional financing on favorable terms, if at all. Borrowing money may involve
pledging some or all of our assets. Raising additional funds by issuing common
stock or other types of equity securities would further dilute our existing
shareholders. If we cannot obtain additional financing in a timely manner, we
will not be able to continue our operations. In addition, we have received a
report from our independent auditors covering our fiscal years ended December
31, 2001 and 2000 financial statements. The report contains an explanatory
paragraph that states that our recurring losses and negative cash flows from
operations raise substantial doubt about our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
To date, we have generated only limited revenues from the sale of our
products and have been unable to profitably market our products. We incurred net
losses applicable to common shareholders of $1,524,232 and $1,989,762 for the
nine-month periods ended September 30, 2002 and 2001, respectively, and net
losses of $2,723,844 and $5,036,182 in 2001 and 2000, respectively. Revenues
from the sale of our products were $976,330 and $1,007,453 for the nine-month
periods ended September 30, 2002 and 2001, respectively and were $1,461,447 and
$992,710 for the years ended December 31, 2001 and 2000, respectively. We expect
to experience operating losses and negative cash flow for the foreseeable
future. We do not have sufficient cash to sustain continuing operating losses
without additional financing. Even if we are able to obtain additional financing
to allow us to continue operations and repay indebtedness, we will still need to
generate significant revenues and improve our gross margins to fund anticipated
manufacturing and marketing costs and to achieve and maintain profitability. We
cannot assure you that we will ever generate sufficient revenues to achieve
profitability, which will have a negative impact on the price of our common
stock. If we do achieve profitability, we cannot assure you that we will be able
to sustain or increase profitability in the future.
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In October 2001, we were notified by the Center for Medicare and
Medicaid Services, or CMS, that a Healthcare Common Procedure Coding System, or
HCPCS, code had been assigned to our Lasette. In January 2002, CMS published the
allowable for our Lasette that was associated with the newly issued HCPCS code.
Generally, Medicare reimburses 80% of the published allowable. In March 2002, we
were notified by CMS that they have not established a medical criteria for our
Lasette and as a result CMS is reevaluating the amount of the allowable
previously assigned to our Lasette. The allowable actually set for the Lasette
will depend on the medical policy established by CMS for the Lasette, which is
largely outside our control. Based on CMS's present position, Medicare would
reimburse a minimal portion of the cost of the Lasette. We are currently working
with CMS to provide input into CMS's establishment of an appropriate medical
policy so that a higher allowable may be set. However, we can provide no
assurance as to whether a medical policy favorable to us will be established by
CMS, or when, if ever, an adequate allowable for the Lasette will be set or the
eventual amount of the allowable.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 2001
Sales of products for the three-month period ended September 30, 2002
increased $75,214, or 19%, to $477,277 from $402,063 in the same period of 2001.
The increase was primarily due to purchases by our new distributor who sells our
laser-based medical products into China. The purchases by the new distributor
were made for initial stocking purposes. Sales of our scientific research
instruments decreased $37,118 or 12% from $320,057 during the quarter ended
September 30, 2001 to $282,939 for the quarter ended September 30, 2002. Sales
of our laser-based medical products increased $112,332, or 137%, from $82,006
for the quarter ended September 30, 2001 to $194,338 for the quarter ended
September 30, 2002.
We generated no revenues from research and development grants in the
third quarter of 2002 because our final research grant expired in September
2001.
Our gross margin on product sales decreased to a margin of 20% for the
quarter ended September 30, 2002 from a gross margin of 33% for the quarter
ended September 30, 2001. A lack of efficiencies in the production of our
products contributed to the lower gross margin.
General and administrative expenses increased $128,912, or 65%, from
$198,478 for the quarter ended September 30, 2001 to $327,390 for the quarter
ended September 30, 2002. The increase is primarily due to non-cash charges
incurred in connection with the issuance of 117,442 shares of our common stock
in payment of consulting services. Marketing and sales expenses decreased
$118,573, or 38%, from $308,917 for the quarter ended September 30, 2001 to
$190,344 for the quarter ended September 30, 2002. The decrease was primarily
due to four sales positions that were staffed in 2001, but not in 2002. In the
latter part of 2001 four marketing and sales positions were eliminated.
Therefore, the salaries associated with these positions and the travel
expenditures were eliminated. The increase in research and development expenses
was primarily due to more engineering components being purchased in the third
quarter of 2002 when compared with the same period in 2001. These engineering
components were purchased for the development of the modified Lasette to perform
heelsticks on infants and the skin refreshening "Ultra-Light Laser" products.
Interest income decreased from $284 for the quarter ended September 30,
2001 to $0 in the quarter ended September 30, 2002. The reason for the decrease
is that we had no excess cash to invest in short-term securities during 2002.
Interest expense decreased $5,990 in the quarter ended September 30, 2002 when
compared with interest expense for the three-month period ended September 30,
2001. The reason for the decrease was due to a slightly lower amount of
outstanding debt in the third quarter of 2002 when compared with the same period
in 2001. Other income increased $14,453 in the third quarter of 2002 compared
with the third quarter of 2001. The reason for the increase was our receipt of a
royalty payment from Hamilton Thorne Research, who purchased our IVF technology
in 2000.
-15-
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 2001
Sales of products for the nine-month period ended September 30, 2002
decreased $31,123, or 3%, to $976,330 from $1,007,453 in the same period of
2001. The decrease can primarily be attributed to lower sales in the second
quarter of 2002. Sales in the second quarter of 2002 decreased primarily due to
a lack of financial resources to promote sales and to purchase inventory
components that were required to assemble products for orders.
Research and development grant revenue was $133,823 for the nine-month
period ended September 30, 2001 compared to no revenues in the same period of
2002. We generated no revenues from research and development grants in the
nine-month period ended September 30, 2002 because our final research grant
expired in September 2001.
Our gross margin on product sales decreased from 19% for the period
ended September 30, 2001 to 12% for the nine-month period ended September 30,
2002. A lack of efficiencies in the production of our products contributed to
the decline in gross margin.
Operating expenses decreased $548,200, or 26%, from $2,119,010 for the
nine-month period ended September 30, 2001 to $1,570,810 for the period ended
September 30, 2002. The decrease is primarily due to our efforts to reduce to
the extent possible all expenditures in 2002 because of the lack of financial
resources. Reductions in expenditures for personnel, advertising, travel and
engineering all contributed to the decrease in operating expenses. Marketing and
sales expenses decreased $472,945 mainly because of the elimination of four
positions in the September of 2001. No expenses associated with those positions
were incurred in 2002.
Interest income decreased in the nine-month period ended September 30,
2002 to $17 from $5,730 in the nine-month period ended September 30, 2001. The
decrease was due to us having practically no excess cash to invest in 2002.
Interest expense increased during the nine-month period ended September 30, 2002
over the same period in 2001 because of increased borrowings in 2002 over those
in 2001. Most of the increased borrowing is attributed to advances made under
the August 2, 2001 convertible note and advances made under the March 29, 2002
promissory note. Both notes were made by Mr. Oton Tisch, one of our directors.
CRITICAL ACCOUNTING POLICIES
High-quality financial statements require rigorous application of
high-quality accounting policies. The policies discussed below are considered by
management to be critical to an understanding of our financial statements
because their application places the most significant demands on management's
judgment, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, management cautions that future events rarely develop exactly
as forecast, and the best estimates routinely require adjustment.
REVENUE RECOGNITION - Sales to qualified distributors are recognized when the
products are shipped from the plant and ownership is transferred to the
customer. In certain instances where we are required to install its products at
a customer location, the revenue is deferred until the installation is complete.
We provide an allowance for returns based on historical experience.
LOSS CONTINGENCIES - Loss contingencies are recorded as liabilities when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. Disclosure is required when there is a reasonable
possibility that the ultimate loss will exceed the recorded provision.
Contingent liabilities are often resolved over long time periods. Estimating
probable losses requires analysis of multiple forecasts that often depend on
judgments about potential actions by third parties such as regulators.
-16-
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. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of our financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o our ability to manufacture and distribute our products.
Potential investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties. Actual results will differ and
could differ materially from these forward-looking statements. The factors that
could cause actual results to differ materially from those in the
forward-looking statements include the following: (1) industry conditions and
competition, (2) reforms in the health care industry or limitations imposed on
third party or Medicare reimbursement of health care costs, (3) the rate of
market acceptance of our products, particularly the Lasette, (4) operational
risks and insurance, (5) risks associated with operating in foreign
jurisdictions, (6) product liabilities which may arise in the future which are
not covered by insurance or indemnity, (7) the impact of current and future laws
and government regulation, as well as repeal or modification of same, affecting
the medical device industry and our operations in particular, (8) the ability to
retain key personnel, (9) renegotiation, nullification or breach of contracts
with distributors, suppliers or other parties and (10) the relationship with our
suppliers, particularly our supplier of crystals used in our Ebrium:YAG lasers.
In light of these risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained in this report
will in fact occur.
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Our principal executive officer and our principal financial officer,
based on their evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a -14 (c) of the Securities Exchange Act of 1934) as of a
date within 90 days prior to the filing of this Quarterly Report on Form 10-QSB,
have concluded that the company's disclosure controls and procedures are
adequate and effective for the purposes set forth in the definition in the rules
of the Securities Exchange Act of 1934.
(b) CHANGES IN INTERNAL CONTROLS.
There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
date of their evaluation.
-17-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGE IN SECURITIES
On July 29, 2002, we converted the outstanding
principal and interest of our August 2, 2001 note by issuing
to Mr. Tisch 684,685 shares of our common stock upon
conversion of the note. The conversion price of the
convertible note was $0.5994 per share of our common stock.
The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon
the exemption provided in Section 4(2) of the Securities Act.
On August 2, 2002, we issued 70,000 shares of our
common stock to three consultants for services rendered, of
which 50,000 shares were issued to Mr. Oton Tisch and 5,000
shares were issued to Mr. Eutimio Sena, directors of the
company. The securities, which were taken for investment and
were subject to appropriate transfer restrictions, were issued
without registration under the Securities Act in reliance upon
the exemption provided in Section 4(2) of the Securities Act.
On September 12 and 18, 2002, we issued and aggregate
of 47,442 shares of our common stock to two consultants for
services rendered. The securities, which were taken for
investment and were subject to appropriate transfer
restrictions, were issued without registration under the
Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 10.1 Amended and Restated Promissory Note dated
September 17, 2002 executed by the company and
payable to Oton Tisch.
Reports on Form 8-K: On August 14, 2002, we filed a Form 8-K with respect
to executive certifications required pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
-18-
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: November 14, 2002 By: /s/ Gary Oppedahl
----------------- ----------------------------------------
Gary Oppedahl, President & CEO
Dated: November 14, 2002 By: /s/ Paul C. Johnson
----------------- ----------------------------------------
Paul C. Johnson, Chief Financial Officer
-19-
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Oppedahl, Chief Executive Officer of Cell Robotics International, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cell Robotics
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statement made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filling date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Gary Oppedahl
----------------- ----------------------------------------
Gary Oppedahl
Chief Executive Officer
Cell Robotics International, Inc.
-20-
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Paul C. Johnson, Chief Financial Officer of Cell Robotics International,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cell Robotics
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statement made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filling date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 By: /s/ Paul C. Johnson
----------------- ---------------------------------
Paul Johnson
Chief Financial Officer
Cell Robotics International, Inc.
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