<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, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to ________
Commission file number: 0-27840
CELL ROBOTICS INTERNATIONAL, INC.
----------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1153295
- -------------------------- -----------------------------------
State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization)
2715 Broadbent Parkway N.E., Albuquerque, New Mexico 87107
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (505) 343-1131
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [ x ] No
[ ]
As of September 30, 1999, 8,221,091 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 Sheets at September 30, 1999 (unaudited) and
December 31, 1998 (audited)
Consolidated Statements of Operations for the Three Months ended
September 30, 1999 and September 30, 1998 (unaudited)
Consolidated Statements of Operations for the Nine Months ended September
30, 1999 and September 30, 1998 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months ended September
30, 1999 and September 30, 1998 (unaudited)
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
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
Cell Robotics International, Inc. prepared the interim unaudited
consolidated financial statements contained in this quarterly report. We
believe that these financial statements 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. In the interim
statements, we have condensed or omitted certain information and footnote
disclosure we made in our last annual report on Form 10-KSB. Because of this,
you should read these interim statements together with the financial
statements and notes in our annual report on Form 10-KSB for the year ended
December 31, 1998. The results of the interim periods in this quarterly
report may differ from the results of other interim periods or of the full
year.
Forward-Looking Statements
In addition to historical information, this quarterly report contains
prospective or "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995. Because of certain risks and
uncertainties, the results in the forward looking statements in this report
may differ materially from actual results and outcomes. Factors that might
cause actual results to differ include, but are not limited to, competitive
pressures, changing economic conditions, factors 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 of
our control. You should not place unreasonable reliance on these forward-
looking statements, since they reflect our analysis only as of the date of
this report. We are not required to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date of
this quarterly report. Therefore, you should read and carefully review all
future documents we file with the Securities and Exchange Commission.
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of As of
9-30-99 12-31-98
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 559,750 $ 1,375,575
Accounts receivable, net of allowance
for doubtful accounts of $1,841 in
1999 and 1998 255,414 246,573
Inventory 777,559 526,249
Other 28,648 123,271
------------ ------------
Total current assets 1,621,371 2,271,668
Property and equipment, net 500,415 272,894
Other assets, net 30,146 38,490
------------ ------------
Total assets $ 2,151,932 $ 2,583,052
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 516,139 $ 327,686
Payroll related liabilities 104,785 144,188
Royalties and commissions payable 96,801 33,510
Other current liabilities 8,800 27,945
------------ ------------
Total current liabilities 726,525 533,329
------------ ------------
Stockholders' equity:
Preferred stock, $.04 par value.
Authorized 2,500,000 shares, zero
shares and 465,533 shares issued
and outstanding at September 30, 1999
and December 31, 1998, respectively 0 18,622
Common stock, $.004 par value.
Authorized 12,500,000 shares,
8,221,091 and 5,739,248 shares
issued and outstanding at September
30, 1999 and December 31, 1998,
respectively 32,884 22,957
Additional paid-in capital 19,122,949 17,916,565
Accumulated deficit (17,730,426) (15,908,421)
------------ ------------
Total stockholders' equity 1,425,407 2,049,723
------------ ------------
$ 2,151,932 $ 2,583,052
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
UNAUDITED
Three Months Ended
Sept 30, 1999 Sept 30, 1998
------------ ------------
<S> <C> <C>
Product sales $ 205,744 $ 237,389
Research and development grants 58,732 36,502
------------ ------------
Total revenues 264,476 273,891
------------ ------------
Product cost of goods sold (185,785) (156,207)
SBIR direct expenses (56,938) (36,502)
------------ ------------
Total cost of goods sold (242,723) (192,709)
------------ ------------
Gross profit 21,753 81,182
------------ ------------
Operating expenses:
General and administrative 202,664 202,198
Marketing & Sales 150,944 84,795
Research and development 129,843 247,214
------------ ------------
Total operating expenses 483,451 534,207
------------ ------------
Loss from operations (461,698) (453,025)
------------ ------------
Other income (deductions):
Interest income 6,968 22,347
Interest expense (519) (538)
------------ ------------
Total other income 6,449 21,809
------------ ------------
Net loss (455,249) (431,216)
------------ ------------
Preferred stock dividends 0 (240,742)
------------ ------------
Net loss applicable to common
shareholders $ (455,249) $ (671,958)
============ ============
Weighted average common shares
outstanding, basic and diluted 8,202,785 5,289,277
============ ============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.06) $ (0.13)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
UNAUDITED
Nine Months ended
Sept 30, 1999 Sept 30, 1998
------------ ------------
<S> <C> <C>
Product sales $ 1,271,293 $ 896,039
Research and development grants 109,964 161,564
------------ ------------
Total revenues 1,381,257 1,057,603
------------ ------------
Product cost of goods sold (941,073) (538,739)
SBIR direct expenses (108,170) (161,564)
------------ ------------
Total cost of goods sold (1,049,243) (700,303)
------------ ------------
Gross profit 332,014 357,300
------------ ------------
Operating expenses:
General and administrative 757,235 628,900
Marketing & Sales 505,168 444,732
Research and development 397,701 603,772
------------ ------------
Total operating expenses 1,660,104 1,677,404
------------ ------------
Loss from operations (1,328,090) (1,320,104)
------------ ------------
Other income (deductions):
Interest income 22,024 68,163
Interest expense (659) (946)
------------ ------------
Total other income 21,365 67,217
------------ ------------
Net loss (1,306,725) (1,252,887)
------------ ------------
Preferred stock dividends (515,280) (240,742)
------------ ------------
Net loss applicable to common
shareholders $ (1,822,005) (1,493,629)
============ ============
Weighted average common shares
outstanding, basic and diluted 7,568,249 5,168,540
============ ============
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.24) $ (0.29)
============ ============
</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
Sept 30, 1999 Sept 30, 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,306,725) $ (1,252,887)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 61,096 89,271
Amortization of options issued for
services 7,279 42,490
Options and warrants issued for services 76,909 0
Increase in accounts receivable (8,841) (5,501)
Increase in inventory (251,310) (53,002)
Decrease (increase) in other current
assets 87,344 (68,767)
Increase (decrease) in current
liabilities 168,196 (383,115)
------------ ------------
Net cash used in operating activities (1,166,052) (1,631,511)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (280,273) (69,451)
------------ ------------
Net cash used in investing activities (280,273) (69,451)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 155,500 300,000
Proceeds from sale of units, net of
offering costs 475,000 3,052,504
Repayment of short term loan 0 (500,000)
------------ ------------
Net cash provided by financing
activities 630,500 2,852,504
------------ ------------
Net increase (decrease) in cash and cash
equivalents: (815,825) 1,151,542
Cash and cash equivalents:
Beginning of period 1,375,575 623,572
------------ ------------
End of period $ 559,750 $ 1,775,114
============ ============
Supplemental information:
Exchange of Units for common stock --
increase to accumulated deficit 0 237,500
Options issued for services to be
rendered 0 60,687
Accrued offering costs 25,000 0
------------ ------------
Interest paid 659 946
Issuance of preferred dividend $ 515,280 $ 240,742
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 1999
1. Presentation of Unaudited Consolidated Financial Statements
Because Cell Robotics International, Inc. prepared these unaudited
consolidated financial statements according to the rules of the Securities and
Exchange Commission, these financial statements do not include all information
and footnotes which are 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 our
opinion, reflects all adjustments necessary to present fairly our 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 whole year.
2. Issuance of Equity Securities
In February 1998, we sold 460,000 Units (including the Underwriter's
Over-Allotment Option, which consisted of 60,000 Units) in a registered
offering to the public. Each Unit consisted of one share of Series A
Convertible Preferred Stock (the "Preferred Stock"), convertible into four
common shares, and two common stock purchase warrants each exercisable to
acquire one share of common stock at an exercise price of $2.40 per share (the
"Warrants"). We sold each Unit at a price to the public of $8.25 resulting in
gross proceeds of $3,795,000. The Unit Price of $8.25 per Unit was based on
the public trading price of the four shares of Common Stock issuable upon
conversion of the Preferred Stock, which, on the effective date of the
Registration Statement, was $1.938 per share, or $7.75, with each Warrant
being valued at $0.25 per Warrant, resulting in the Unit price of $8.25. The
value of each Warrant was determined by the underwriter and was based on the
difference between the public trading price of four shares of Common Stock on
the Friday preceding the effective date of the Registration Statement, which
was $7.75, resulting in a Warrant value of $0.25 each. After consideration of
the Underwriter's commission and discount and other offering costs, net
proceeds to the Company were approximately $3.0 million.
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 us for a redemption price of $0.25 per Warrant
under certain conditions.
In February 1998, we allowed a principal shareholder, who acquired
200,000 shares of Common Stock in August 1997 for $600,000, to exchange these
shares for 78,788 Units. In connection therewith, a charge to accumulated
deficit of $237,500 was recognized.
In September 1998, we sold 200,000 shares of Common Stock for $300,000 to
Chronimed, Inc. This investment was made as part of the exclusive distribution
agreement entered into by us and Chronimed in July 1998 (the "Chronimed
Agreement"). In March 1999, we shipped prototypes of the Personal Lasette to
Chronimed. Pursuant to the terms of the Chronimed Agreement, Chronimed was
obligated to make an additional $150,000 investment in Cell Robotics upon
acceptance of the prototypes. This transaction was completed on June 14, 1999.
A final equity investment of $150,000 could be made based on us meeting
certain future conditions.
In January 1999, our Preferred Stock automatically converted into shares
of Common Stock, when the sum of closing bid prices of the Preferred Stock and
two Warrants was at least $12.375 for ten consecutive days. Due to the
automatic conversion, a final dividend in the form of 183,211 shares of our
Common Stock was accrued and subsequently paid with the issuance of shares of
Common Stock to all preferred shareholders of record on February 2, 1999.
In July 1999, we completed a private placement with four investors. We
sold 9.5 units, each unit consisting of 35,000 shares of common stock and
7,500 common stock purchase warrants each exercisable to acquire one share of
common stock at an exercise price of $2.40 per share. Each unit was sold at a
price of $50,000, resulting in gross proceeds of $475,000. After subtracting
offering costs, net proceeds to us were approximately $450,000. In connection
with this private placement, we issued 62,500 warrants to four placement
agents for services directly related to this private placement.
3. 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, is the same as basic loss per share for the periods ended September 30,
1999 and 1998, as all potentially dilutive securities were anti-dilutive.
Options to purchase 1,645,320 and 1,626,820 shares of common stock were
outstanding at September 30, 1999 and 1998, respectively. Warrants to purchase
1,911,326 and 1,762,576 shares of common stock were outstanding at September
30, 1999 and 1998, respectively. These were not included in the computation of
diluted loss 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,
1999 and 1998.
4. Operating segments
We have 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 medical
devices for sale to fertility clinics and to medical product distributors.
We evaluate segment performance based on profit or loss from operations
prior to the consideration of unallocated corporate general and administration
costs. At this time we do not have intersegment sales or transfers.
Our 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.
<TABLE>
<CAPTION>
Nine Months ended
September 30, 1999
--------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 677,987 593,306 - 1,271,293
Research and development
grants 109,964 - - 109,964
Profit (loss) from
operations 52,850 (640,260) (740,680) (1,328,090)
</TABLE>
<TABLE>
<CAPTION>
Nine Months ended
September 30, 1998
--------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 806,415 89,624 - 896,039
Research and development
grants 161,564 - - 161,564
Profit (loss) from
operations 196,861 (909,330) (607,635) (1,320,104)
</TABLE>
<TABLE>
<CAPTION>
Three Months ended
September 30, 1999
--------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 121,742 84,002 - 205,744
Research and development
grants 58,732 - - 58,732
Profit (loss) from
operations (34,195) (228,732) (198,771) (461,698)
</TABLE>
<TABLE>
<CAPTION>
Three Months ended
September 30, 1998
--------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues from customers $ 227,689 9,700 - 237,389
Research and development
grants 36,502 - - 36,502
Profit (loss) from
operations 119,355 (373,351) (199,029) (453,025)
</TABLE>
5. Capital Resources
Although we have begun manufacturing and marketing our laser-based
medical devices and continue to see market growth in our scientific research
instrument line, we do not anticipate achieving profitable operation until
some time in 2000. As a result, our working capital surplus is expected to
erode over the next several months. Nevertheless, we expect that our present
working capital, potential increased future product sales, the remaining
equity investment per the Chronimed Agreement, and a possible supplemental
equity, line of credit or debt financing will be sufficient to meet our
operational obligations through fiscal 1999.
Until we can realize profit from operations through product sales, we may
not be able to satisfy our cash requirements through other sources of capital.
Our capital requirements depend upon numerous factors, including, most
notably, the market acceptance of our new laser-based medical devices. If the
market demand for the new medical products is either greater or less than we
expect, we may require additional capital. In this case, we may seek
additional financing through the sale of equity or debt securities. If we are
unable to obtain additional financing as needed, we may need to reduce the
scope of our operations, which could have a material adverse effect upon our
business, financial condition and results of operation.
<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, 1999 compared to December 31,
1998
In February 1998, we sold 460,000 Units, in a registered offering to the
public. Each Unit consisted of one share of Series A Convertible Preferred
Stock, convertible into four common shares and two common stock purchase
warrants, each exercisable to acquire one share of common stock at an exercise
price of $2.40 per share. Each Unit was sold at a price to the public of
$8.25 resulting in gross proceeds of $3,795,000. The Unit Price of $8.25 per
Unit was based on the public trading price of the four shares of common stock
issuable upon conversion of the preferred stock, which, on the effective date
of the Registration Statement, was $1.938 per share, or $7.75, with each
warrant being valued at $0.25 per warrant, resulting in the Unit price of
$8.25. The value of each warrant was determined by the underwriter and was
based on the difference between the public trading price of four shares of
common stock on the Friday preceding the effective date of the Registration
Statement, which was $7.75, resulting in a warrant value of $0.25 each. After
consideration of the underwriter's commission and discount and other offering
costs, net proceeds to us were approximately $3.0 million.
On July 30, 1998, we signed an exclusive development and distribution
agreement with Chronimed, Inc. ("the Chronimed Agreement") for worldwide
distribution of our Lasette(-Registered Mark-) 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 devices
("Professional and/or Personal Lasette") during year one, and a minimum of
5,000 Lasette devices ("Professional and/or Personal Lasette") during year
two, subject to certain adjustments. The Chronimed Agreement also required
Chronimed to make a capital investment in Cell Robotics consisting of a staged
purchase of $600,000 of our common stock, contingent upon achievement of
certain milestones related to our development of the Personal Lasette device.
On September 11, 1998 Chronimed made its first $300,000 investment in us
in the form of a stock purchase of 200,000 shares of our common stock. In
March 1999, we shipped prototypes of the Personal Lasette to Chronimed. After
their acceptance of the prototypes, on June 14, 1999 Chronimed made an
additional $150,000 investment in us. The final equity investment of $150,000
could be made if we meet certain future conditions specified in the Chronimed
Agreement.
In July 1999, we completed a private placement with four investors. We
sold 9.5 units, each unit consisting of 35,000 shares of common stock and
7,500 common stock purchase warrants each exercisable to acquire one share of
common stock at an exercise price of $2.40 per share. Each unit was sold at a
price of $50,000, resulting in gross proceeds of $475,000. After payment of
offering costs, our net proceeds were approximately $450,000. In connection
with this private placement, we issued 62,500 warrants to four placement
agents for services directly related to this private placement.
Our current ratio at December 31, 1998, was 4.3:1, compared to a current
ratio of 2.2:1 on September 30, 1999. This decrease in liquidity is primarily
due to the use of capital raised from the Offering and Chronimed, Inc. stock
issuance to fund ongoing operating expenses. Total assets decreased from
$2,583,052 at December 31, 1998 to $2,151,932 at September 30, 1999, a
decrease of $431,120, or 16.7%.
The decrease in our current assets of $650,297, or 28.6%, was driven by
the use of cash to fund our operating expenses. As a result, cash and cash
equivalents decreased $815,825, or 59.3%. Accounts receivable increased
$8,841 or 3.6% as a result of higher sales in the month of September 1999
compared to September 1998. Because of increased sales during the nine month
period ended September 30, 1999 and preparation for a new product release,
product inventories were increased $251,310, or 47.8%, in preparation of
future product deliveries. Other current assets decreased from $123,271 to
$28,648 a decrease of 76.8%, due primarily to previously recorded deposits
being recorded as capitalized tooling and equipment.
Property and equipment, net, increased $227,521, or 83.4%, due primarily
to deposits for and purchase of product tooling and molding, while other
assets decreased from $38,490 to $30,146, a decrease of $8,344 or 21.7%.
During the nine month period ended September 30, 1999, our total
liabilities increased from $533,329 to $726,525, or 36.2%. This increase was
primarily a result of accrued distributor commissions, and accounts and
royalty payables. We did not have any long term liabilities at September 30,
1999.
Our working capital decreased from $1,738,339 at December 31, 1998 to
$894,846 at September 30, 1999, a decrease of $843,493, due primarily to the
use of cash for continued operating expenses.
We expect that cash used in operating activities will continue at the
current level through the remainder of 1999. We anticipate that current
working capital, potential future product sales, the final $150,000 equity
investment from Chronimed, and a supplemental equity, a line of credit, or a
debt financing will be sufficient to meet our operational obligations through
fiscal 1999. We are currently discussing a commercial line of credit with a
financial institution. However, we cannot accurately predict the timing of our
future capital requirements.
Until we can realize profit from operations through product sales, we may
not be able to satisfy our cash requirements through other sources of capital.
Our capital requirements depend upon numerous factors, including, most
notably, the market acceptance of our new laser-based medical devices. If the
market demand for the new medical products is either greater or less than we
expect, we may require additional capital. In this case, we may seek
additional financing through the sale of equity or debt securities. If we are
unable to obtain additional financing as needed, we may need to reduce the
scope of our operations, which could have a material adverse effect upon our
business, financial condition and results of operation.
Other than the factors mentioned above, we are not aware of other trends,
or other demands, commitments, events or uncertainties that will result in, or
that are reasonably likely to result in, a material impact on our liquidity
and capital resources.
Results of Operations - Three months ended September 30, 1999 compared to the
three months ended September 30, 1998
Our total revenue decreased $9,415, or 3.4% to $264,476 from $273,891 for
the three month periods ended September 30, 1999 and 1998, respectively.
Revenues from the sale of products during the three months ended September 30,
1999, were $205,744, as compared to $237,389 during the comparable period in
1998. This represents a decrease in product sales of 13.3%. Gross margin
realized on product sales during this period also declined from 34.2% in 1998,
to 9.7% during 1999. This reduction was caused primarily by rework expenses
associated with our laser-based medical devices which delayed third quarter
shipments. Current models of our laser-based medical products have a lower
margin than our scientific research instrument line which also affects gross
margin due to product mix.
We also recognized $58,732 of revenue from a "Small Business Innovative
Research" (SBIR) grant during the three months ended September 30, 1999. SBIR
grants are issued by the National Institutes of Health (NIH), an agency of the
U.S. Department of Health and Human Services. These highly competitive grants
are awarded to small businesses to fund aspects of high-risk research that
could lead to future products. Our current Phase II grant was scheduled to
expire on September 30, 1999, however, we have requested a no-cost schedule
extension through December 31, 1999. Additional Phase II grant applications
will be submitted to continue research efforts initiated under previously
awarded Phase I grants.
Our loss from operations incurred during the three months ended September
30, 1999, was $461,698, as compared to an operating loss of $453,025 incurred
during the same period in 1998. Total operating expenses decreased $50,756, or
9.5%, from $534,207 to $483,451. Research and development expenses decreased
$117,371 or 47.5% due primarily to new products moving through final design
into manufacturing. General and administrative expenses slightly increased by
0.2%. Marketing and sales expenses increased 78%, or $66,149 due to increased
promotion, travel, and distributor commission expenses associated with the
laser-based medical products and scientific research instrument segments.
During the three months ended September 30, 1999 other income and
expenses decreased from a $21,809 net contribution to income during the period
in 1998, to a $6,449 net contribution to income during the period in 1999.
As a result of the items mentioned above, our net loss applicable to the
common shareholders for the three months ended September 30, 1999 was
$455,249, as compared to a net loss of $671,958 incurred during the comparable
period of 1998. On a per share basis, this amounts to a $0.06 loss per
weighted average outstanding share during the three month period ended
September 30, 1999, compared to a $0.13 loss per weighted average outstanding
share during the same period of 1998.
Other than the foregoing, we know 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 our results of operations.
Results of Operations - Nine Months ended September 30, 1999 compared to the
Nine Months ended September 30, 1998
Our total revenue increased $323,654, or 30.6% to $1,381,257 from
$1,057,603 for the nine month periods ended September 30, 1999 and 1998,
respectively. Revenues from product sales during the nine months ended
September 30, 1999 were $1,271,293, as compared to $896,039 during the
comparable period in 1998. This represents an increase in product sales of
41.9%. However, gross margin realized on product sales during this period
declined from 39.9% in 1998, to 26.0% during 1999. This reduction is due
primarily to an introductory low margin associated with the laser-based
medical devices introduced into our product mix.
We also recognized $109,964 of revenue from a SBIR grant during the nine
months ended September 30, 1999.
Our loss from operations incurred during the nine months ended September
30, 1999, was $1,328,090, as compared to an operating loss of $1,320,104
incurred during the same period in 1998. Total operating expenses decreased
$17,300, or 1.0%, from $1,677,404 to $1,660,104. Research and development
expenses decreased $206,071or 34.1% due primarily to new products moving
through final design into manufacturing. General and administrative expenses
increased $128,335, or 20.4%, reflecting an increase in legal, accounting,
regulatory, investor relations and insurance fees. Marketing and sales
expenses increased by 13.6% or $60,436 due to increased promotion, travel, and
distributor commission expenses associated with the laser-based medical
products and scientific research instrument segments.
During the nine months ended September 30, 1999 other income and expenses
decreased from a $67,217 net contribution to income during the period in 1998,
to a $21,365 net contribution to income during the period in 1999.
As a result of the foregoing, our net loss for the nine months ended
September 30, 1999 was $1,306,725, as compared to a net loss of $1,252,887
incurred during the comparable period of 1998. Based on the foregoing, and
after including the payment of preferred stock dividends of $515,280, net loss
applicable to the common shareholders was $1,822,005 for the nine months ended
September 30, 1999. During the comparable period in 1998, and after including
the payments of preferred stock dividends of $240,742, the net loss applicable
to common shareholders was $1,493,629. On a per share basis, this amounts to a
$0.24 loss per weighted average outstanding share during the first nine months
of 1999, compared to a $0.29 loss per weighted average outstanding share
during the first nine months of 1998. See Note 2 of Notes to Unaudited
Consolidated Financial Statements for a discussion of conversion of Preferred
Stock in the first quarter of 1999.
Other than the foregoing, we know 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 our results of operations.
Year 2000 Issue
The Problem. The Year 2000 Issue exists because many computer programs,
embedded systems, and components were designed to refer to a year by the last
two digits of the year, such as "99" for "1999". Any of our computer programs
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions in our operations and the operations of
our suppliers and customers, including, among other things, our temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
The Company's State of Readiness. We have instituted a Year 2000 Project
and have completed an evaluation of our computer systems, software and
embedded technologies. The evaluation revealed that our network hardware and
operating system, voice mail system, e-mail system, and accounting and
manufacturing software had Year 2000 compliance issues. The identified systems
and/or programs are "off-the-shelf" products and Year 2000 compliant versions
are now available.
At present, our network, network operating system, e-mail system, voice
mail system and accounting and manufacturing software have either been
replaced or upgraded to Y2K compliant versions. We have also applied Y2K
updates to our personal computers. Some software and hardware companies are
still finding Y2K issues so we may need to incur additional remediation costs.
As part of our Year 2000 Project, we retained the services of an outside
consultant to verify and validate our Year 2000 compliance. We have completed
the verification and validation for our major systems. We have determined
that the network, accounting and manufacturing software and email are in
compliance and handled both the century date change and February 29, 2000
date.
We have determined that there should be no Year 2000 Issues for the
products we have already sold, excluding issues associated with the Microsoft
Windows95(-Registered Mark-) operating system which is part of our Workstation
products. We are advising customers who have purchased our Workstation
products with the Microsoft Windows95(-Registered Mark-) operating system to
apply a free Y2K upgrade provided from Microsoft.
We have also contacted our significant suppliers, product distributors,
and large customers to determine how third parties may affect us if they fail
to correct their Year 2000 compliance issues. Approximately ninety four
percent (94%) of the suppliers we contacted have responded. Of these
respondents, seventy one percent (71%) indicated that they have remediated
their Year 2000 compliance issues. Approximately sixty one percent (61%) of
our distributors and large customers have responded and of those, eighty one
percent (81%) indicated they are Year 2000 compliant. We will continue to
contact our significant suppliers, product distributors, and large customers
as part of our Year 2000 Project. However, we cannot guarantee that the
companies on which our business relies will be timely converted or that
another company's failure to convert, or a conversion that is incompatible
with our systems, will not have a material adverse effect on us and our
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. Expenditures in 1998
were approximately $16,000. In 1999 we have spent approximately $13,500 for
the Year 2000 Project. We expect that completion of our Year 2000 Project may
result in additional expenditures of approximately $5,000.
The Risks Associated with the Company's Year 2000 Issues. If we fail to
resolve Year 2000 Issues on or before December 31, 1999 we could face system
failures or miscalculations causing disruptions in normal business activities
including a temporary inability to process transactions, send invoices, send
and/or receive e-mail and voice mail. Additionally, if third parties upon
which we rely fail to timely remediate their Year 2000 Issues, we could
experience disruptions in the supply of parts and materials, late, missed or
unapplied payments, temporary disruptions in order processing and other
general problems related to our daily operations. While we believe our Year
2000 Project will adequately address our internal Year 2000 issues, and we
have received responses to our Year 2000 survey from a significant number of
our significant suppliers, product distributors, and large customers, we
cannot guarantee that the Year 2000 Issue will not have a material adverse
effect on our operations.
Our Contingency Plan. We have developed a Y2K contingency plan and are
currently refining it to reflect third party vendors status changes. These
contingency plans will address the possibilities of third party failures,
their effect on us and our ability to build our products and deliver services
to our customers. While the contingency plans will address issues under our
control, an infrastructure problem outside of our control or some combination
of several of these problems could result in a delay in product shipments,
depending on the nature and severity of the problems.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998, in October 1997, Transmedica, Inc. (formerly
"Venisect") commenced a patent infringement action (the "Venisect Litigation")
in which it claimed the Lasette(-Registered Mark-) infringed the United States
patent underlying Transmedica's competitive skin perforator. In March, 1998,
the United States District Court for the Eastern District of Arkansas (the
"Court") subsequently dismissed the Venisect Litigation, without prejudice,
due to lack of personal jurisdiction and improper venue. This ruling was
appealed by Transmedica in the United States Court of Appeals for the Federal
Circuit in Washington, D.C. However, on December 1, 1998, Transmedica withdrew
their appeal. The Court's ruling and Transmedica's withdrawal of their appeal
of this ruling does not prevent Transmedica from re-filing in a proper
jurisdiction at a later date. We have investigated the Transmedica patent with
our advisors, and believe that there is no basis for any infringement claim.
Accordingly, while there can be no assurance regarding any future litigation,
we do not believe that any future Transmedica litigation will have a material
adverse effect upon our business, results of operations or financial
condition.
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 12, 1999 By: /s/ Ronald K. Lohrding
-----------------------------------
Ronald K. Lohrding, President & CEO
Dated: November 12, 1999 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
PABES 4 THROUGH 8 OF THE COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, 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-30-1999
<CASH> 559,750
<SECURITIES> 0
<RECEIVABLES> 257,255
<ALLOWANCES> (1,841)
<INVENTORY> 777,559
<CURRENT-ASSETS> 58,795
<PP&E> 1,200,414
<DEPRECIATION> (700,000)
<TOTAL-ASSETS> 2,151,932
<CURRENT-LIABILITIES> 726,525
<BONDS> 0
0
0
<COMMON> 32,884
<OTHER-SE> 1,392,523
<TOTAL-LIABILITY-AND-EQUITY> 2,151,932
<SALES> 1,271,293
<TOTAL-REVENUES> 1,381,257
<CGS> (941,073)
<TOTAL-COSTS> (1,049,243)
<OTHER-EXPENSES> 1,328,090
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 659
<INCOME-PRETAX> (1,328,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,328,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 515,280
<CHANGES> 0
<NET-INCOME> (1,822,005)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
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