<PAGE>
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, 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.
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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
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 September 30, 1998, 5,561,732 shares of Common Stock of the Registrant
were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X]
<PAGE>
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1998 (unaudited) and
December 31, 1997 (audited)
Consolidated Statement of Operations for the Three Months ended
September 30, 1998 and September 30, 1997 (unaudited)
Consolidated Statement of Operations for the Nine Months ended
September 30, 1998 and September 30, 1997 (unaudited)
Consolidated Statement of Cash Flows for the Nine Months ended
September 30, 1998 and September 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
<PAGE>
<PAGE>
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/A-1 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/A-1 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.
<PAGE>
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CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of As of
9-30-98 9-30-98
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,775,114 $ 623,572
Accounts receivable, net of allowance for
doubtful accounts of $1,841 229,357 223,856
Inventory 639,035 586,033
Other 123,055 36,089
------------- ------------
Total current assets 2,766,561 1,469,550
Property and equipment, net 194,580 194,654
Deferred offering costs 0 248,372
Other assets, net 47,525 67,271
------------- ------------
Total assets $ 3,008,666 $ 1,979,847
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 257,446 $ 603,153
Payroll related liabilities 91,052 149,726
Royalties payable 76,052 193,150
Other current liabilities 3,933 88,941
------------- ------------
Total current liabilities 428,483 1,034,970
Short-term loan refinanced subsequent to
balance sheet date 0 500,000
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Total liabilities 428,483 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 September 30,
1998 and December 31, 1997, respectively 20,081 0
Common stock, $.004 par value. Authorized
12,500,000 shares, 5,561,732 and 5,245,414
shares issued and outstanding at September
30, 1998 and December 31, 1997,
respectively 22,247 20,982
Additional paid-in capital 17,882,331 14,037,243
Accumulated deficit (15,344,476) (13,613,348)
------------- ------------
Total stockholders' equity 2,580,183 444,877
------------- ------------
$ 3,008,666 $ 1,979,847
============= ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
UNAUDITED
Three Months Ended
9-30-98 9-30-97
------------- -------------
<S> <C> <C>
Product sales $ 237,389 $ 188,003
Research and development grants 36,502 105,720
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Total revenues 273,891 293,723
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Product cost of goods sold (156,207) (133,961)
SBIR direct expenses (36,502) (105,941)
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Total cost of goods sold (192,709) (239,902)
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Gross profit 81,182 53,821
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Operating expenses:
General and administrative 202,198 203,235
Marketing & Sales 84,795 168,863
Research and development 247,214 397,480
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Total operating expenses 534,207 769,578
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Loss from operations (453,025) (715,757)
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Other income (deductions):
Interest income 22,347 3,237
Interest expense (538) (207)
Other 0 0
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Total other income 21,809 3,030
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Net loss (431,216) (712,727)
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Preferred stock dividends (240,742) 0
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Net loss applicable to common
shareholders (671,958) (712,727)
============== =============
Weighted average common shares
outstanding, basic and diluted 5,289,277 5,142,403
============== =============
Net loss per common share, basic and diluted $ (0.13) $ (0.14)
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
UNAUDITED
Nine Months Ended
9-30-98 9-30-97
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<S> <C> <C>
Product sales $ 896,039 $ 722,846
Research and development grants 161,564 105,720
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Total revenues 1,057,603 828,566
------------- -------------
Product cost of goods sold (538,739) (491,358)
SBIR direct expenses (161,564) (105,941)
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Total cost of goods sold (700,303) (597,299)
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Gross profit 357,300 231,267
------------- -------------
Operating expenses:
General and administrative 628,900 537,686
Marketing & Sales 444,732 497,471
Research and development 603,772 1,056,464
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Total operating expenses 1,677,404 2,091,621
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Loss from operations (1,320,104) (1,860,354)
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Other income (deductions):
Interest income 68,163 30,066
Interest expense (946) (680)
Other 0 11,800
------------- -------------
Total other income 67,217 41,186
Net loss (1,252,887) (1,819,168)
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Preferred stock dividends (240,742) 0
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Net loss applicable to common
shareholders (1,493,629) (1,819,168)
============== =============
Weighted average common shares
outstanding, basic and diluted 5,168,540 5,054,026
============== =============
Net loss per common share, basic and diluted $ (0.29) $ (0.36)
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
UNAUDITED
Nine Months Ended
9-30-98 9-30-97
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,252,887) $ (1,819,168)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 89,271 94,567
Amortization of options issued for service 42,490 0
Increase in accounts receivable (5,501) (282,179)
Increase in inventory (53,002) (114,837)
Increase in other current assets (68,767) (44,699)
Increase (decrease) in current liabilities (383,115) 363,030
------------- -------------
Net cash used in operating activities (1,631,511) (1,803,286)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (69,451) (31,834)
Net Cash Used by Investing Activities (69,451) (31,834)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Units, Net of
Offering Costs 3,052,504 0
Proceeds from issuance of common stock 300,000 669,509
Repayment of short term loan (500,000) 0
------------- -------------
Net cash provided by financing activities 2,852,504 669,509
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS: 1,151,542 (1,165,611)
Cash and cash equivalents:
Beginning of Period 623,572 1,724,671
------------- -------------
End of Period $ 1,775,114 $ 559,060
============== =============
SUPPLEMENTAL INFORMATION:
Exchange of Units for common stock --
increase to accumulated deficit 237,500 0
Preferred stock dividend paid in common
stock 240,742 0
Options issued for services to be
rendered 60,687 0
Interest paid $ 946 $ 680
============== =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Notes to Unaudited Consolidated Financial Statements
September 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. On September 2, 1998 the Company paid its first scheduled
dividend to shareholders of record for the Preferred Stock totaling 169,298
shares of Common Stock, valued at $240,742.
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. During September 1998, the
Company issued 200,000 shares of common stock at $1.50 per share to Chronimed,
Inc.
3. EARNINGS 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 1,326,820 and 1,032,000 shares of common stock were
outstanding at September 30, 1998 and 1997, respectively. Preferred Stock
convertible into 2,008,132 shares of common stock and warrants to purchase
1,004,066 shares of common stock were outstanding at September 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 September 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 appealed that
decision on April 15, 1998. 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.
<PAGE>
<PAGE>
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 - SEPTEMBER 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)
On July 30, 1998, the Company signed an agreement with Chronimed, Inc.
("the Chronimed Agreement") for worldwide distribution of its Lasette(-TM-)
laser finger perforator for the blood sampling for glucose testing market.
The Chronimed Agreement includes a two-year, multi-million dollar minimum
purchase commitment by Chronimed, pursuant to which Chronimed must purchase a
minimum of 1,500 Lasette(-TM-) I devices during year one, and a minimum of
5,000 Lasette(-TM-) II devices (defined below) during year two, subject to
certain adjustments. The Chronimed Agreement also requires Chronimed to make
a capital investment in the Company consisting of a staged purchase of
$600,000 of the Company's common stock, contingent upon achievement of certain
milestones related to the development, by the Company, of the Lasette(tm) II
device. Chronimed's capital investment will be used for the development of a
second generation, smaller Lasette(tm) to meet the needs of the home blood
sampling for glucose testing market (the "Lasette(tm) II"). The worldwide
diabetic market is very large and continues to grow, but there can be no
assurance the Lasette product will achieve market acceptance.
In accordance with the terms and conditions of the Chronimed Agreement,
Chronimed made its first equity investment in the Company on September 11,
1998. The $300,000 investment was made in the form of a stock purchase of
200,000 shares of the Company's common stock.
Primarily as a result of the proceeds received from the Offering and the
sale of common stock to Chronimed, the Company's liquidity and capital
resources remained strong during the nine month period ended September 30,
1998.
The Company's current ratio at December 31, 1997, was 1.4:1, compared to
a current ratio of 6.5:1 on September 30, 1998. This increase in liquidity is
primarily due to capital raised from the Offering and Chronimed, Inc. stock
issuance. Total assets increased from $1,979,847 at December 31, 1997 to
$3,008,666 at September 30, 1998, an increase of $1,028,819, or 52.0%.
The increase in the Company's current assets of $1,297,011, or 88.3%, was
driven by net offering proceeds of approximately $3.0 million. Cash and cash
equivalents therefore increased $1,151,542, or 184.7%. Resulting from
increased sales during the nine month period, product inventories were
increased $53,0012 or 9.0%, in preparation of future product deliveries.
Other current assets also increased from $36,089 to $123,055 an increase of
241.0%, due primarily to vendor required deposits for specialized product
tooling and molding.
Property and equipment, net, remained even while other assets decreased
from $67,271 to $47,525, a decrease of 29.4%.
During the nine month period ended September 30, 1998, the Company's
total liabilities materially decreased from $1,534,970 to $428,483, or 72.1%.
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 September 30, 1998.
The Company's working capital increased from $434,580 at December 31,
1997 to $2,338,078 at September 30, 1998, an increase of $1,903,498, due
almost exclusively to the completion of the Offering.
Cash used in operations for the nine month periods ended September 30,
1998 and 1997 was $1,631,511 and $1,803,286, respectively. The primary reason
for the decrease in cash used in operations during this period, as compared to
the prior period, was a decrease in operating expenses.
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 firm
commitments for any additional financing and there can be no assurance that
such commitments can be obtained. However, the Company has a contingent
commitment for an additional $300,000 from Chronimed, Inc. 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 and the
Chronimed, Inc. stock purchase 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 SEPTEMBER 30, 1998 COMPARED TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------
The Company's total revenue decreased $19,832, or 6.8% from $293,723 to
$273,891 for the three month period ended September 30, 1997 and 1998,
respectively. However, revenues from the sale of products during the three
months ended September 30, 1998, were $237,389, as compared to $188,003 during
the comparable period in 1997. This represents an increase in sales of 26.3%
while gross margin realized on product sales during this period improved from
28.7% in 1997, to 34.2% during 1998.
The Company also recognized $36,502 of revenue from "Small Business
Innovative Research" (SBIR) grants during the three months ended September 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 under previously awarded Phase I grants.
The Company's loss from operations incurred during the three months ended
September 30, 1998, was $453,025, as compared to an operating loss of $715,757
incurred during the same period in 1997. Total operating expenses decreased
$235,371, or 30.6%, from $769,578 to $534,207. Decreases in research and
development type expenses accounted for the majority of this decrease,
representing a reduction of $150,266 or 37.8%. General and administrative
expenses decreased $1,037, or 0.5%, while marketing and sales expenses
decreased 49.8%, or $84,068, primarily due to a renegotiated royalty agreement
with Lucent Technologies which waived a previously recorded royalty expense
of $62,500.
During the three months ended September 30, other income and expenses
increased from a $3,030 net contribution to income during the period in 1997,
to a $21,809 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 September 30, 1998 was $431,216, as compared to a net loss of $712,727
incurred during the comparable period of 1997. Net loss applicable to the
common stockholders was $671,958 for the three months ended September 30,
1998. During 1997 there were no preferred stock dividends to increase the net
loss applicable to the common stockholders. On a per share basis, this amounts
to a $0.13 loss per weighted average outstanding share during the third
quarter of 1998, compared to a $0.14 loss per weighted average outstanding
share during the third quarter of 1997. This represents a 7.1% improvement on
a per weighted average outstanding share basis for the reporting quarter.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------
Total revenue increased $229,037, or 27.6%, during the nine months ended
September 30, 1998 as compared to the same period in 1997. Revenues from the
sale of products during the nine months ended September 30, 1998, were
$896,039, as compared to $722,846 during the comparable period in 1997. This
represents an increase of 24.0%. The Company also recognized $161,564 of
revenue from research and development grants during the nine months ended
September 30, 1998. The gross margin realized on product sales during this
period improved from 32.0% in 1997, to 39.9% during 1998.
The Company's loss from operations incurred during the nine months ended
September 30, 1998, was $1,320,104, as compared to an operating loss of
$1,860,354 incurred during the same period in 1997. Total operating expenses
decreased $414,217, or 19.8%, from $2,091,621 to $1,677,404. A decrease in
research and development type expenses accounted for the majority of this
decrease, representing a reduction of $452,692 or 42.8%. Scaled down
development activities for the first nine months of 1998, combined with low
first quarter cash reserves, led to the reduction in research and development
expenses. General and administrative expenses increased $91,214, or 17.0%,
reflecting an increase in legal and accounting fees and the addition of
Director and Officer Liability Insurance. Marketing and sales expenses
slightly decreased 10.6%, or $52,739, primarily due to the Company's
renegotiation of a royalty agreement with Lucent Technologies which waived a
previously recorded royalty of $62,500.
During the nine months ended September 30, other income and expenses
slightly increased from a $41,186 net contribution to income during the period
in 1997, to a $67,217 net contribution to income during the period in 1998.
As a result of the foregoing, the Company's net loss for the nine months
ended September 30, 1998 was $1,252,887, as compared to a net loss of
$1,819,168 incurred during the comparable period of 1997. Net loss applicable
to the common stockholders was $1,493,629 for the nine months ended September
30, 1998. During 1997 there were no preferred stock dividends to increase the
net loss applicable to the common stockholders. On a per share basis, this
amounts to a $0.29 loss per weighted average outstanding share during the
first nine months of 1998, compared to a $0.36 loss per weighted average
outstanding share during the first nine months of 1997. This represents a
19.4% improvement on a per weighted average outstanding share basis for the
nine month reporting period.
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 and network operating system has been replaced. The
e-mail system and accounting and manufacturing software have been installed
and implementation will begin in November 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(r) 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(r) 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(r) 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
twenty-four percent (24%) 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. The expenditures so
far in 1998 have been approximately $16,000. Management expects that
completion of its Year 2000 Project may result in additional expenditures of
approximately $25,000.
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.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
As disclosed in the Company's Annual Report on Form 10-KSB/A1 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 Venisect's
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. On April 15, 1998, Venisect filed a notice of appeal
regarding 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 27 Financial Data Schedule
Reports on Form 8-K:
None.
<PAGE>
<PAGE>
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 9, 1998 By: /s/ Ronald K. Lohrding
---------------- -----------------------------------
Ronald K. Lohrding, President & CEO
Dated: November 9, 1998 By: /s/ Jean M. Scharf
---------------- -----------------------------------
Jean M. Scharf, Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 4-6 OF THE COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,775,114
<SECURITIES> 0
<RECEIVABLES> 231,198
<ALLOWANCES> 1,841
<INVENTORY> 639,035
<CURRENT-ASSETS> 2,766,561
<PP&E> 821,834
<DEPRECIATION> 627,254
<TOTAL-ASSETS> 3,008,666
<CURRENT-LIABILITIES> 428,483
<BONDS> 0
0
20,081
<COMMON> 22,247
<OTHER-SE> 2,537,855
<TOTAL-LIABILITY-AND-EQUITY> 3,008,666
<SALES> 896,039
<TOTAL-REVENUES> 1,057,603
<CGS> 538,739
<TOTAL-COSTS> 700,303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 946
<INCOME-PRETAX> (1,252,887)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,252,887)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,493,629)
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</TABLE>
