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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission file number: 0-27840
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CELL ROBOTICS INTERNATIONAL, INC.
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(Name of Small Business Issuer in its Charter)
Colorado 84-1153295
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(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)
Issuer's telephone number, including area code: (505) 343-1131
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class
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Common Stock, $.004 par value
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's total revenues for the fiscal year ended December 31, 1999 were
$1,417,317.
As of March 27, 2000, the aggregate market value of the Common Stock of the
Registrant based upon the closing bid price of the Common Stock as quoted on the
OTC Electronic Bulletin Board held by non-affiliates of the Issuer was
approximately $39,552,639. As of March 27, 2000, 8,968,763 shares of Common
Stock of the Issuer were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant hereby incorporates herein by reference the following
documents:
Part III
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Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The foregoing are incorporated by reference from the Registrant's
definitive Proxy Statement relating to its annual meeting of stockholders, which
will be filed in an amendment within 120 days of December 31, 1999.
Part IV - Exhibits
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1. Incorporated by reference from the Company's Pre-Effective Amendment No. 2
to Registration Statement on Form SB-2 which was declared effective by the
Commission on February 2, 1998, SEC File No. 333-40895.
2. Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996, as filed with the Commission
on April 15, 1997.
3. Incorporated by reference from the Company's Post-Effective Amendment No. 1
to Registration Statement on Form SB-2 filed with the Commission on July
15, 1996, SEC File No. 33-80347.
4. Incorporated by reference from the Company's Pre-Effective Amendment No. 1
to Registration Statement on Form SB-2, which was declared effective by the
Commission on February 14, 1996, SEC File No. 33-80347.
5. Incorporated by reference from the Company's Current Report on Form 8-K
dated February 23, 1995, as filed with the Commission on March 10, 1995,
SEC File No. 33-26467.
6. Incorporated by reference from the Company's Pre-Effective Amendment No. 2
to Registration Statement on Form S-3, SEC File No. 333-55951, as filed
with the Commission on November 18, 1998.
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PART I
ITEM 1. BUSINESS
Overview
Cell Robotics International, Inc., (referred to as the "Company") is a
medical products company striving to enhance the quality-of-life through
technology. As a pioneer in the development of optical trapping technology, the
Company has evolved from being a developer of laser-based laboratory instruments
to a supplier of novel medical laser products. The Company's product lines
include laser-based scientific research instruments, in vitro fertilization
(IVF) workstations, and the Personal and Professional Lasette(R), which utilizes
a laser-based medical device to sample blood for diabetics to measure their
glucose. New projects being considered include laser-based diagnostic
applications.
In 1999, the Company continued to focus its efforts primarily on the large
diabetic market and developing the award-winning Lasette(R), a compact, portable
laser skin perforator. This groundbreaking product provides diabetics with
nearly painless sampling of capillary blood and little residual soreness. The
Lasette is the only FDA cleared alternative to the steel lancet or needle for
diabetics for both home-use and clinical-use to be able to sample their blood
for glucose testing to determine their subsequent insulin injections. The
Lasette is also cleared for all blood screening test applications for clinical
and home settings.
The Company believes that blood sampling will provide the Company with
unique opportunities based on the following trends:
. An increasing demand for less painful alternatives for capillary blood
sampling;
. Desire to eliminate the risk of cross-contamination from accidental
needle or lancet sticks in hospitals and clinics;
. A growing number of diagnosed diabetics seeking better blood glucose
control;
. A widening understanding of the need to provide testing methods for
needle-phobic individuals.
To capitalize on these opportunities, the Company's strategy is focused on
introducing the Lasette and positioning the Company as a leader in the
development of technologically advanced and innovative medical devices that
offer more effective, safer and less painful solutions than conventional
procedures.
Other products and technology include: IVF Workstation to increase
pregnancy rates, Cell Robotics Research Workstation which uses laser light for
manipulating and cutting cells, chromosomes and DNA molecules, and a new broad-
based patent for "laser initiated PCR" for single cell diagnostics.
History
Cell Robotics Inc. ("CRI") was organized in 1988 under the laws of the
State of New Mexico to develop and commercialize optical trapping technology.
Originally discovered at AT&T Bell Laboratories, the simplest optical trapping
structure embodies the discoveries in the Lucent Patent as well as related
technologies (see "Intellectual Property-Patents and Licenses"). In 1991,
funded by Mitsui Engineering & Shipbuilding Co., Ltd. ("Mitsui"), a Japanese
corporation, the Company licensed the Lucent Patent and began developing
instruments using optical trapping technologies.
In February 1995, Intelligent Financial Corporation ("IFC"), the shares of
which were publicly traded, acquired 100% of CRI's issued and outstanding shares
of Common Stock in a reverse merger. IFC subsequently changed its name to "Cell
Robotics International, Inc."
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Business Strategy
The Company's business strategy is to capitalize on its core technologies
to develop unique products targeted at large markets in which the Company can
compete effectively. Key components of the Company's business strategy include:
Develop Unique Technology. Through know-how and core technology, the
Company strives to stay ahead of its competition by offering the best products
within a given price range. The Company backs this aggressive development
strategy with patents, licenses and collaboration where appropriate.
Develop Market Recognition. The Company is positioning its laser-based
medical devices as preferred technological solutions to clearly-defined medical
needs. The Company has developed a marketing strategy to create significant
brand awareness for the Lasette, its signature product. To accomplish this, the
Company is implementing a marketing effort that includes advertising in diabetes
related publications, direct mailings, tradeshows, print, radio, television and
Internet media. The Company will further develop market recognition by using
trademarked product names that can be clearly recognized by customers, such as
Lasette(R) and LaserTweezers(R).
Distribution Channels. Currently, the Company is marketing and selling the
Lasette directly to the end user. Although several drug stores, supermarket and
superstore chains have inquired about distribution of the Personal Lasette, the
Company has not entered into any formal discussions. However, as production
capacity increases sufficiently to supply product demand, the Company will look
for non-exclusive distribution agreements with well-established distributors of
medical products to take advantage of their existing distribution channels and
name recognition. The Company sells the Cell Robotics Research Workstation
directly in the United States and internationally through distributors and
manufacturers' representatives. In order to focus efforts on the Lasette
technology and product line, the Company is in discussion with Hamilton Thorne
Research, the world's leading provider of sperm analysis equipment, for the sale
and transfer of the IVF Workstation product line.
Expand Capacity to Assemble Products. The Company is increasing
manufacturing capacity to produce the Personal Lasette while continuing to
manufacture the Cell Robotics Workstation at its Albuquerque, New Mexico
facility. In addition, the Company has an OEM (Original Equipment Manufacturer)
relationship with Big Sky Laser Technologies, Inc., ("BSLT") for the
manufacturing and the development of the Professional Lasette. Currently, a
dispute has arisen under the OEM agreement between BSLT and the Company. The
parties have entered into discussions regarding the restructuring of the OEM
relationship and/or arriving at an amicable resolution under the existing
agreement. See Item 3 - Legal Proceedings.
Through the implementation of the foregoing strategy, the Company hopes to
become a leader in the development and sale of technologically advanced and
innovative laser-based medical devices that respond to the rapidly increasing
market demand for products that offer more effective, safer and less painful
solutions than conventional procedures.
Products
Laser-based Medical Devices
Lasette(R)
General Product Description. The Company's Lasette product line is a
portable crystal laser that utilizes laser light to create a small hole in the
finger for capillary blood sampling. The Lasette has received 510(k) clearance
from the FDA for drawing capillary blood samples to be used by patients with
diabetes to test their glucose levels in both home and clinical settings. In
addition, the Lasette is also cleared for capillary blood sampling for all
clinical screening tests. The Professional Lasette has received the CE mark for
the distribution in the European Community. The Personal Lasette has met all CE
requirements and awaits submittal for the CE mark designation. The Lasette is a
better alternative than the steel lancet for capillary blood sampling for many
diabetics since the process of blood drawing from the Lasette is less painful
and has less residual soreness.
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Additionally, the Lasette is a better alternative for children with
diabetes, newly diagnosed diabetics and needle-phobic or needle-adverse
individuals.
The revolutionary Lasette technology development has been recognized by the
Laser Industry's Photonics Spectra journal in its "Circle of Excellence" award
as one of the 25 most significant worldwide laser developments in 1999. The
Lasette is also a recipient of the "R&D 100" award from R&D Magazine as one of
the 100 most significant overall technical worldwide developments in 1999.
Personal Lasette(R). The Personal Lasette is a compact, lightweight,
portable skin perforator. At 9 ounces, the Lasette is slightly larger than a
handheld cellular telephone and fits into a suit-coat pocket or a purse. The
Personal Lasette requires a disposable lens shield (patent pending), which is a
cassette of specialized plastic film. The film advances with each use of the
device and has the capacity for 120 applications. The disposable cassette has
been designed to provide a one-month supply of film for diabetic patients who
tests four times a day. The disposable retails for $15 and the Personal Lasette
retails for $995. The Personal Lasette was introduced on a limited basis during
December 1999. The Company encountered some problems with the laser cavity and
the laser rod coatings of the early units. However, most of the design and
quality control problems have since been resolved by using a new vendor for
laser rod coating and making other minor adjustments. The Company is now ramping
up manufacturing and has launched an advertising campaign to aggressively
promote the Personal Lasette.
Personal Lasette Markets. In the United States, it is estimated that over
15 million people have some form or variation of diabetes. However, only 10
million people in the United States have been diagnosed with diabetes.
Approximately 4.7 million of the patients diagnosed with diabetes must inject
insulin on a daily basis to survive. Further, approximately 800,000 new people
are annually diagnosed with diabetes in the United States. Most of the
insulin-injecting diabetic patients are required to test their glucose levels
approximately four times a day to determine when and how much insulin to inject.
Worldwide it is estimated that there are 100 million people with diabetes.
The Company's marketing efforts will focus primarily on children with
diabetes, newly diagnosed diabetics and needle-phobic patients although many
other categories of people suffering with diabetes have shown considerable
interest in the Lasette. The needle-phobic / needle-adverse market is an
especially attractive market for the Lasette. Currently a patient with diabetes
must stick himself or herself with a steel lancet or needle in order to draw a
sample of blood for glucose testing. Many diabetic patients do not test their
glucose levels on the regularly recommended basis because of their needle
phobia; still others dislike the pain of the steel lancet sticks and the
continual residual soreness in their finger tips from the multiple daily sticks.
The Personal Lasette is designed to draw blood in a way that eliminates the
effects of needle phobia, minimizes pain and particularly eliminates the long-
term finger soreness. Needle phobics are people who fear sticking a steel blade
or needle into their finger. In the medical literature, needle phobics are
estimated to number between 10% and 33% of the diabetic population.
Marketing and Distribution. On July 30, 1998, the Company signed an
exclusive worldwide agreement with Chronimed, Inc., ("Chronimed") for the
marketing and distribution of the Lasette product line. Due to differences
arising from product definition, on December 8, 1999, the Company and Chronimed
entered into a modification of the marketing and distribution agreement
from an exclusive to a non-exclusive arrangement. On or about the same time
that the new arrangement with Chronimed took effect, the Company independently
launched the new Personal Lasette into the marketplace. Currently, the Company
is selling the Lasette directly to home-use customers, eliminating distributor
costs. As the Lasette production capacity increases, the Company will seek to
enter into additional non-exclusive distribution agreements with well-
established distributors of diabetic products. This will allow the Company to
take advantage of existing distribution channels and name recognition. The
Company has been approached regarding distribution of the Personal Lasette by
several of the drug store, supermarket and superstore chains but has not entered
into any formal discussions or reached any definitive agreements. International
marketing and distribution will be accomplished through a collection of
international distributors of diabetic supplies or through manufacturers'
representatives. The Company has begun discussions with certain international
distributors, however no definitive agreements have been reached. The worldwide
diabetic market is very large and continues to grow, but there can be no
assurance the Lasette product will achieve domestic
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or international market acceptance. A lack of market acceptance could have a
material adverse effect on the Company's operations and future profitability.
Manufacturing. The Company currently manufactures the Personal Lasette at
its Albuquerque, New Mexico facility. The Company has met the CE requirements
established by the European Community and is awaiting submittal for the CE mark
designation. The Company has instituted the record keeping, quality control,
and production procedures needed to meet the manufacturing regulatory
requirements of the FDA, MDQSR, ISO 9001, and EN 46001. The Company is in the
process of increasing manufacturing capability for the Personal Lasette. There
can be no assurance that Lasette production will be able to meet domestic or
international market demand. A lack of large-scale production or market
acceptance could have a material adverse effect on the Company's operations and
future profitability.
Professional Lasette(R). The Professional Lasette is a compact,
lightweight, portable skin perforator. The Professional Lasette is approximately
the size of a videocassette and consists of a battery-driven primary perforator
unit with a charger. The Professional Lasette requires a single disposable lens
shield that inserts into the device for each use. The patented Professional
Lasette disposable is replaced after each use in a clinical setting which
prevents the patient's blood from contaminating the Professional Lasette unit
and therefore minimizes the risk for cross-contamination. The disposable also
uses a specialized plastic film to prevent any vapors from condensing on the
laser lens. Each disposable shield retails for $0.15 and the Professional
Lasette retails for $2,000.
Markets-Clinical. The Professional Lasette(R) addresses the collection of
capillary blood from fingertips, which according to industry data is a procedure
that is performed approximately one billion times a year in homes, hospitals,
clinics and doctors' offices. Capillary blood sampling is performed in
virtually all clinical settings, including hospitals, dialysis clinics, blood
banks, nursing facilities, home health agencies and physicians' offices. Data
indicates that in the United States alone, there are 7,500 hospitals and 46,000
other clinical sites performing routine daily capillary blood sampling.
Currently the most commonly used device for capillary blood sampling is the
stainless steel lancet. In the hospital setting, inadvertent transmission of
disease from accidental lancet sticks is a recognized problem. The Company
believes that the Professional Lasette can substantially reduce the pain and
trauma involved with this procedure and the risk of inadvertent cross-
contamination for both the clinician and the patient.
Marketing and Distribution. Since re-assuming the marketing and sales
responsibility from Chronimed, the Company is in the process of developing plans
to penetrate clinical markets. The worldwide diabetic market is large and
continues to grow, but there can be no assurance the Professional Lasette
product will achieve market acceptance or that the Professional Lasette market
will be large enough to merit moving marketing resources away from the Personal
Lasette.
Manufacturing. In August 1996, the Company established a strategic
development and production alliance with BSLT. BSLT is a recognized laser OEM
manufacturer and developer of laser-based medical devices that complies with
FDA, ISO 9001 and other regulatory requirements. In May 1998, the Company
entered into an OEM supplier agreement with BSLT whereby BSLT was granted
exclusive manufacturing rights for the current model of the Professional Lasette
product with the Company retaining exclusive distribution rights of the same,
subject to certain minimum order requirements. Under the agreement, either party
may terminate upon 90 days written notice in the event of a material breach that
is not cured within 30 days of receipt of such notice. In February 2000, a
dispute arose between the Company and BSLT regarding the obligations of the
parties under the agreement. Currently, the parties have entered into
discussions regarding the restructuring of the OEM relationship and/or arriving
at an amicable resolution under the agreement. See Item 3 - Legal Proceedings.
Competition. The Professional and Personal Lasette(R) represent a
technological alternative to the traditional stainless steel lancet for routine
capillary blood sampling. It eliminates the risk of cross-contamination and
attendant indirect costs, and has been designed to reduce the pain, fear and
anxiety associated with blood drawing. It also eliminates the cost and risk of
lancet waste disposal. While each stainless steel lancet costs may be minimal,
the Company believes that by eliminating the indirect costs associated, the
Professional Lasette can be successfully marketed at a retail price of $2,000
per unit and the Personal Lasette(R) at a retail price of $995.
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Currently the only other commercialized approach to laser-based capillary
blood sampling is a laser skin perforator developed by Transmedica (formerly
Venisect). According to industry sources, the Transmedica laser is substantially
larger and more costly than the Lasette(R). In October 1997, Transmedica
commenced a patent infringement action in which it claimed the Lasette infringed
the United States patent underlying Transmedica's skin perforator. A Federal
Court dismissed the suit without prejudice, based upon procedural grounds.
Transmedica appealed the Federal Court ruling, but subsequently withdrew its
appeal.
The development of new advanced non invasive and partially invasive
technologies for determining and/or controlling glucose levels in diabetic
patients are a focus of many corporate research and development efforts
throughout the world. Several companies are developing glucose testing products
based on non-invasive technologies, using skin patches and lasers. Two
technologies that have received the most attention are the GlucoWatch(R) by
Cygnus, Inc. and the Continuous Glucose Monitoring System (CGMS) by MiniMed.
However, the Company does not have any independent first-hand knowledge of these
technologies and all of the following information has been obtained from the two
companies' websites or from published reports or news accounts without
independent verification:
1. Cygnus, Inc.'s GlucoWatch(R) is under future consideration by the FDA
for detecting trends and tracking patterns in glucose levels in adult diabetics,
but not for use to determine insulin injections. Cygnus, Inc.'s website states
that "following a three-hour warm-up period, the device is capable of providing
up to three glucose readings per hour for 12 hours after a single point
calibration with the results from a traditional finger-stick and meter. The
GlucoWatch(R) monitor uses reverse ionophoresis to collect glucose samples
through intact skin. The glucose molecules are collected in gel collection discs
that are part of a single-use AutoSensor. The gel collection discs contain the
enzyme glucose oxidase. As glucose enters the discs, it reacts with the glucose
oxidase in the gel to form hydrogen peroxide. A biosensor in contact with each
gel collection disc detects the hydrogen peroxide, generating an electronic
signal. The monitor uses the calibration value previously entered by the patient
to convert the signal into a glucose measurement. The glucose measurement is
then displayed on the monitor and stored in memory.
2. MiniMed's CGMS has been cleared by the FDA to be used by physicians for
tracking patterns and trends in patients' glucose levels. The CGMS is only for
use by physicians and is not for determining the amount of insulin to inject
into a patient at a given time. MiniMed's website states that "the sensor
is a tiny electrode about as thick as a sliver of aluminum foil and less than
one millimeter wide. The sensor is located inside a small needle and, once
inserted into the skin, the sensor remains in the subcutaneous tissue while the
needle is removed and discarded. The sensor is attached to a small plastic disk
about the size of a dime and is taped to the skin to hold the sensor in place. A
thin wire connects the sensor to a pager-sized glucose monitor, which records
and stores glucose values in memory. The sensor, inserted just under the skin,
is designed to be used for up to 3 days. MiniMed recommends at least four finger
stick values be entered into the monitor each day to ensure accurate calibration
of the sensor output at the time of monitor download. After 3 days the patient
will return to their health care professional and the information will be
downloaded into a personal computer."
The GlucoWatch by Cygnus, Inc. and the CGMS by MiniMed are advancements in
studying the trends or tracking the patterns of diabetics who do not have their
diabetes under control. For those particular patients, either the GlucoWatch or
the CGMS is a good supplement to the Personal Lasette product line. Currently,
neither product is a substitute or a replacement of the Personal Lasette.
To the best of the Company's knowledge, no other similar product has
received FDA clearance for commercial marketing in the United States. However,
if competing products are cost effective, approved for sale and become
commercially available in the United States in the future, the competition could
have an effect on the sales of the Lasette(R) and, as a result, could represent
a material adverse effect upon the Company's future financial condition and
results of its operations. The Company's ability to compete successfully in
existing and future markets will depend on elements both within and outside its
control, including, but not limited to, the Company's success in market
penetration, protection of products by effective utilization of intellectual
property laws, including full exercise of our patent rights, improvements in
product quality and reliability, ease of use, price, diversity of product
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line, efficiency of high volume production and product introductions by
competitors and general domestic and international economic conditions.
Regulatory Status. The following regulatory clearances were obtained for
the Lasette(R):
Date Clearance
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August 7, 1997 Clearance for testing glucose and hematocrit in healthy
adult patients in a clinical setting.
October 28, 1997 Clearance for testing glucose and hematocrit in diabetic
adult patients in a clinical setting.
May 15, 1998 CE Mark testing complete for Professional Lasette.
June 29, 1998 Clearance for testing glucose and hematocrit in all
adolescent patients in a clinical setting.
September 12, 1998 ISO 9001 / EN 46001 / Medical Device Directive
Certification.
September 24, 1998 Clearance for use of all glucose meters with the Lasette.
October 30, 1998 Variance for Personal Lasette design.
December 7, 1998 Clearance for home-use of the Lasette for glucose
monitoring.
December 16, 1998 FDA agrees with Personal Lasette safety and efficacy.
January 15, 1999 Clearance for all screening blood tests in a clinical
setting.
Lasette(R) Intellectual Property. The Lasette product was originally
developed using the multifaceted crystal resonator ("MCR") patent acquired from
Tecnal Products, a subsidiary of Lovelace Scientific Resources, Inc., in January
1996. The technology resulted in a patent (the "MCR Patent # 5,432,811"), which
expires in 2014. The Company has also acquired from Tecnal Products, a foreign
patent application and a strategic license. These acquisitions comprised a
package of technological assets covering two laser products: a low-cost, high-
power solid-state laser that eliminates many of the delicate optical components
required by conventional solid-state lasers, and a laser perforator. The MCR
Patent was originally developed under the license agreement with the New
Technology Engineering Center ("NTEC") of Russia. However, new developments in
crystal laser coating technologies have decreased the value of the MCR patent.
The Company has since advanced the laser design of the Lasette and has
sought, or is preparing to seek, continuations of existing patents and/or new
patents protecting those designs. Certain technological foundations of the
current Lasette product line are covered by two issued United States patents.
US patent 5,554,153 (issued September 10, 1996) and US patent 5,908,416 (issued
June 1, 1999) include claims regarding mechanisms to create and control laser
energy distribution profiles that are essential for reducing pain in laser
lancing devices. The disposable finger shield used with the Professional
Lasette is the subject of US patent 5,993,439, which was granted in November
1999. The disposable finger shield mechanism used in the Personal Lasette is
the subject of a currently pending US patent application (US application
212,545). Other mechanisms for reducing the size and cost and improving
reproducibility and painlessness of laser lancing devices are regarded as trade
secrets, or are the subject of planned patent applications. Finally, the
Company has received trademark registration number 2,252,993 for the name
"Lasette(R)".
Lasette Trademark
<TABLE>
<CAPTION>
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Title App. # File date Status Registration Registration
No. Date
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<S> <C> <C> <C> <C> <C>
Lasette(R) 75/409,222 12/22/97 Registered 2,252,993 6/15/99
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</TABLE>
Lasette Patents
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<CAPTION>
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Title App. # File date Status Pat. # Issue date Exp. date
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<S> <C> <C> <C> <C> <C> <C>
Laser w/ Polyhedral Ends, "MCR" 08/204,560 3/1/94 Issued 5,432,811 7/11/95 3/1/2014
multifaceted crystal resonator
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Skin Perforator (Multimode beam with 08/297,295 8/29/94 Issued 5,554,153 9/10/96 8/29/2014
limited claims)
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Laser Dermal Perforator (Extended 08/675,080 7/3/96 Issued 5,908,416 6/1/99 8/29/2014
multimode claims)
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Lens Shield for Laser Skin 08/841,005 4/22/97 Issued 5,993,439 11/30/99 4/22/2017
Perforation for Professional Lasette
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Multi-Media Solid State Laser 08/879,909 6/20/97 *Re-assigned
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Renewable Lens Shield for Personal 09/212,545 12/16/98 Pending
Lasette
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</TABLE>
*reassigned back to the Russian inventor.
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A United States patent concerning the use of a laser for blood sample
collection is held by a former employee of the Russian Academy of Science now
residing in San Diego (the "Tankovich Patent", US 5165418, issued 24 Nov. 92,
priority date 02 Mar. 92). Becton Dickinson Corporation ("Becton Dickinson"), a
leading producer of blood collection products, had licensed this patent in
December of 1995. Becton Dickinson has participated with a San Diego laser
technology company, JMAR, in the reportedly now abandoned development of a
product for laser skin perforation. The Company has acquired a formal legal
opinion, which finds the Tankovich Patent invalid and unenforceable due to
public disclosure of the laser perforation concept in the international
scientific literature, as well as public commercialization of primitive
perforator products in the former USSR, as early as October 1990. The Tankovich
Patent is the subject of formal re-examination in the United States Patent and
Trademark Office as the result of a petition made by Transmedica in August 1996.
In Vitro Fertilization Workstation
Manufacturing, Marketing and Distribution. The Company is in the process of
transferring the IVF product line to Hamilton Thorne Research, a major producer
and marketer of sperm analysis equipment worldwide, for cash and royalty
payments on future net sales.
Description. The IVF Workstation is a computer-controlled multi-functional
workstation that combines, for the first time, a technological solution to both
the functional and informational requirements of clinicians working in the IVF
environment. The IVF Workstation has three basic applications: (i) to measure,
assess and store in computer memory the various properties of a human egg to
assess its suitability for fertilization; (ii) to mechanically inject sperm into
an egg with a third party micro-manipulator; and (iii) to score the outer shell
of a fertilized egg with a laser to facilitate "hatching" and promote embryo
development and a successful pregnancy.
Utilizing a microscope, computer-controlled motorized stage, video camera,
sophisticated laser-based technology and data storage and retrieval systems, the
IVF Workstation permits standardized evaluation, measurement and diagnosis of
eggs and embryos, sperm injection and laser-assisted embryo hatching in one
integrated system. With its computer hardware and software, the IVF Workstation
also permits the detailed cataloguing and documentation of each IVF procedure
and the organization and retrieval of data and other information. The Company
offers the IVF Workstation in various configurations.
In vitro fertilization is a rapidly-growing area of human fertility
treatment. However, success rates with current procedures vary significantly
from clinic to clinic. The IVF Workstation is designed to improve success rates
for clinics and IVF patients.
Markets. The market for the IVF Workstation consists of the more than
1,300 clinics worldwide that treat infertility, approximately 300 of which are
located in the United States. Worldwide, these clinics conduct approximately
100,000 IVF treatment cycles a year. At an average cost of $5,000 per treatment
cycle, it is estimated that over $500 million is spent annually for IVF
procedures. The Company believes that the IVF Workstation may substantially
increase success rates and reduce the time and cost required to successfully
complete a fertility treatment cycle, thereby increasing profits and revenue to
the clinician.
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Competition. The Company is not aware of any other product that combines
all of the features and performance specifications of the IVF Workstation.
Fertilase, a company in Switzerland, has introduced a product that provides
laser-assisted hatching, but does not offer all of the features found in
the IVF Workstation.
Regulatory Status. In the United States, FDA clearance is required for sale
of the IVF Workstation. The only functional component of the IVF Workstation
that requires FDA clearance is the laser module used for laser-assisted
hatching. Clinical trials of the IVF Workstation are being transferred to
Hamilton Thorne Research where, if the FDA approves the transfer, they will
proceed under an FDA-approved Investigational Device Exemption (IDE) that was
obtained by the Company. There can be no assurance whether FDA clearance for
sales of the IVF Workstation in the United States will be obtained.
Scientific Research Instruments
Applications of the Scientific Research Instruments. The Cell Robotics
Research Workstation allows scientists to manipulate objects in micro-space,
upgrading the microscope from simply an instrument for observation to an
interactive micro-laboratory. The scientific research instruments are designed
to enhance the usefulness and importance of the conventional laboratory
microscope as a tool in medical, biological and genetic applications in the life
sciences. The technology can be used for cell separation, cell to cell
interaction, micro-dissection, and intercellular manipulation of living cells.
Third parties for cancer research and immunology, neurobiology, assisted
reproductive techniques and genome research is currently using the Cell Robotics
Research Workstation.
Description. In 1996, the Company introduced the computer-controlled Cell
Robotics Research Workstations for optical trapping, micromanipulation and
microsurgery. These workstations are based on the Company's core
LaserTweezers(R), LaserScissors(TM), CellSelector(TM) and SmartStage(R)
technologies. Computer control provides powerful, user-friendly features such as
interactive software with mouse or keyboard control, unique motorized stage and
motorized focus drive providing motion in three directions. The Cell Robotics
Research Workstation integrates the Company's research instruments into a
complete computer-controlled optical trapping and ablation workstation.
Markets. Principal markets for the Cell Robotics Research Workstation
research instruments are colleges, universities, research laboratories,
biotechnology and pharmaceutical companies, and commercial laboratories
conducting biological research. The Company's marketing strategy is to identify
key scientists who are engaged in specific research applications for which the
Company's instruments are particularly well suited.
In the United States, the research market consists of approximately 108,000
research biologists working in 2,400 institutions. The Company targets users of
inverted microscopes, for which there were approximately 10,000 existing users
in 1996 and approximately 1,000 new purchases were made annually in the United
States and Canada. Worldwide, the installed base of inverted microscopes was
approximately 33,000 in 1996, with 3,000 additional new sales annually.
Marketing and Distribution. While the intention is to focus marketing
efforts on the distribution and sale of laser-based medical devices, the Company
will continue to promote and market the scientific research instruments through
direct sales, dealers, representatives and distribution arrangements. The
Company currently has an agreement with Mitsui granting exclusive distribution
rights for the Company's products in Japan for a term of ten years expiring in
September 2005. Mitsui has assigned its distribution rights to the Cell
Robotics Research Workstation in Japan to Meiwa Shoji Company Ltd. The Company
has also expanded domestic and international distribution channels to include
distributors in 17 countries.
Manufacturing. The Company's manufacturing approach for the Cell Robotics
Research Workstation attempts to minimize capital outlay by outsourcing parts to
machine shops and circuit board companies. Final assembling and testing is
completed at the Albuquerque, New Mexico facility to ensure the quality of the
final products. The Company plans to continue this approach with new and current
products.
-10-
<PAGE>
Competition. Competitors for the Cell Robotics Research Workstation, which
include P.A.L.M., and S&L Microtest, both German companies, and Sigma Koki, a
Japanese company, are making multi-trap and custom trapping instruments.
Arcturus, a United States company offers a laser micro-dissection system.
Regulatory Status. The Company received the CE Mark for the Cell Robotics
Research Workstation in September 1997. This product line does not currently
require other regulatory clearances.
Competition in General
The industry for the Company's laser-based medical devices is characterized
by rapidly evolving technology and intense competition. Many companies,
including both large organizations as well as several specialized laser-based
medical device companies are engaged in similar activities. In addition,
colleges, universities, governmental agencies and other public and private
research institutions will continue to conduct research and to protect
technologies that they have developed, some of which will be directly
competitive. Most of the Company's competitors have substantially greater
resources, including financial and human resources.
The Company believes it has a competitive advantage in producing the
compact, low-cost laser design utilized in the Lasette. However, part of this
cost advantage depends in part upon the ability to maintain a relationship with
the supplier of the crystals used in the manufacture of the lasers. Alternative
sources of supply for the crystals, while available, would increase the
production cost of the product and somewhat reduce the Company's competitive
advantage.
The development of new advanced technologies for determining and/or
controlling glucose levels in diabetic patients is a focus of many corporate
research and development efforts throughout the world. Several companies are
developing glucose testing products based on non-invasive technologies, using
skin patches and lasers. To the best of the Company's knowledge, none of the
products have been successfully commercialized or has received FDA clearance for
monitoring for insulin injections in the United States. However, if these
products are approved for sale and become commercially available in the United
States in the future, they could have a material adverse effect on the potential
sales of the Lasette, and, as a result, on the Company's business, financial
condition and its results of operations.
The Company's success is highly dependent upon its ability to manufacture,
distribute and sell the new laser-based medical devices. The Company's products
are targeted towards very large markets that may attract large and well-funded
competitors. There can be no assurance that the Company can achieve its
production and sales goals.
The principal factor affecting the Company's competitive position is the
suitability of its instruments for, and performance in, a particular
application. Due to the highly specialized nature of the markets, such
traditional competitive factors as price, delivery, upgradability and support
are less significant. The Company faces potential competition from a number of
established domestic and international companies, all of which have
substantially greater engineering, manufacturing, marketing and financial
capabilities. The Company's ability to compete successfully in existing and
future markets will depend on elements both within and outside its control,
including, but not limited to, success in market penetration, protection of
products by effective utilization of intellectual property laws, including full
exercise of the Company's patent rights, improvements in product quality and
reliability, ease of use, price, diversity of product line, efficiency of
production, the rate at which customers incorporate the Company's instruments
into their products, product introductions by our competitors and general
domestic and international economic conditions.
Intellectual Property
The Company relies primarily on the ability to rapidly develop new
generations of technology from its core technology and a combination of patent,
trade secret, copyright and trademark laws, confidentiality procedures and other
intellectual property protection methods to protect its proprietary technology.
The Company's laser-based medical devices currently do not have absolute patent
protection and the scientific research instruments have only limited patent
protection. There can be no assurance that other patent holders or other third
parties will not assert a claim of intellectual property infringement by the
Company or by its licensors with respect to current and future technology.
Competitors, in the United States and in foreign countries, many of which have
substantially greater resources, and have made substantial investments in
competing technologies, may apply for and obtain patents that will prevent,
limit or interfere with the Company's ability to make and sell its products. The
Company is aware of several patents held by third parties that relate to certain
aspects of the Company's products. There can be no assurance that these patents
would not be used as a basis to challenge the Company's current or future
patents, to limit the scope of its patent rights or to limit the Company's
ability to obtain additional or broader patent rights.
Cell Robotics Research Workstation, IVF Workstation and Laser Initiated PCR
Intellectual Property. Bell Laboratories of Lucent Technologies patented the
basic concept of optical trapping which is central to the use of the
LaserTweezers(R) in the Cell Robotics Research Workstation. In 1991, the
Company obtained a non-exclusive license covering the Lucent Patent. In 1994,
the license with Lucent was converted from non-exclusive to exclusive, however
in 1998, to reduce the minimum payments required under the Lucent agreement,
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that agreement was converted back to non-exclusive arrangement. The Company has
also been issued two (2) United States patents, which expire July 23, 2012,
related to the Cell Robotics Research Workstation, but which are not used in the
current products. One patent covers a three-dimensional mechanical staging for
microscopes and the other a specialized chamber for the LaserTweezers. In
addition, a patent associated with the IVF Workstation regarding the shape of
the laser beam associated with "laser assisted hatching" was submitted to the
United States Patent and Trademark Office on June 17, 1998 and is currently
pending.
TRADEMARKS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Title Docket ID App. # File date status Registration Registration
No. Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LASERSCISSORS D-2081-20 74/483,382 1/27/94 Pending -
- -------------------------------------------------------------------------------------------------------------------------------
SMART STAGE D-2080-20 74/483,347 1/27/94 Registered 1,909,528 8/1/95
- -------------------------------------------------------------------------------------------------------------------------------
CELLSELECTOR D-2079-20 74/483,349 1/27/94 Pending - -
- -------------------------------------------------------------------------------------------------------------------------------
LASERTWEEZERS D-2039-20 74/433,636 9/8/93 Registered 1,916,039 9/5/95
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PATENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Title Docket ID App # file date Status pat. # Issue date Exp. date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Flexure Structure for 3-D GC-149 07/919,361 7/23/92 Issued 5,374,556 12/20/94 7/23/2012
microscope stage
- ------------------------------------------------------------------------------------------------------------------
Manipulation Chamber for GC-150 07/919,183 7/23/92 Issued 5,364,744 11/15/94 7/23/2012
LaserTweezers
- ------------------------------------------------------------------------------------------------------------------
Providing Uniform CER006 09/098,902 6/17/98 Pending
Distribution of Energy to
Microscopic Targets for IVF
Workstation
- ------------------------------------------------------------------------------------------------------------------
Activating Thermo-Enzyme CER007 09/082,124 5/19/98 Issued 5,972,667 10/26/99 5/19/2018
Reactions w/ EM Energy
(Laser initiated PCR
reaction)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Laser PCR patent describes a method and apparatus for activating a
thermo-enzyme reaction, such as polymerase chain reaction (PCR) or other
temperature-sensitive transformation of biological systems. Electromagnetic
energy such as from a laser is applied to a microscopic target to produce a
rapid elevation of temperature of at least a portion of the target. The laser
beam can have a wavelength in the infrared range greater than 750 nm. The
source of electromagnetic energy can be used in association with a microscope
and/or objective lens to irradiate single cells or molecules. Because a laser
is used, the proposed apparatus can be made compact and transportable to meet
requirements for single cell analysis for clinical use.
The proposed laser PCR instrument would embody the amplification of genetic
material in a volume that could be as small as or even smaller than a single
cell. The envisioned device would make use of existing technologies developed
and currently in use in the Company's product lines. These include the means to
focus the laser beam precisely and control the laser energy delivered. This
approach to work with biological systems is protected by U.S. patent Number
5,972,667, issued October 1999. Although not reduced to practice, a protocol
will soon be examined, and a prototype instrument is under development.
The amplification of genetic material with the unique properties of a laser
beam could find widespread application in the routine diagnosis of diseases
including exotic diseases. The patented technology should offer means to allow
research scientist the prospective molecular identification of pathogens before
the onset of disease.
The commercial success of the laser-based medical devices will depend, in
part, upon the Company's ability to protect and defend its intellectual property
rights and the competitive advantages that those rights offer to the Company's
products. There can be no assurance that the Company will be successful in these
efforts.
Due to the rapid technological developments in the industry in which the
Company competes and the broad and rapidly developing patent coverage, the
Company's patent position is subject to uncertainties and may involve
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complex legal and factual issues. Consequently, although the Company holds
certain patents, license and is currently applying for additional patent
applications, there can be no assurance that patents will be issued from any
pending or future applications or that claims allowed by any existing or future
patents issued or licensed to the Company will not be challenged, invalidated or
circumvented, or that any rights granted thereunder will provide the Company
with adequate protection. Moreover, the Company may be required to participate
in interference proceedings to determine the priority of inventions, which could
result in substantial costs. There can be no assurance that the Company will not
be required to defend itself against future infringement claims of third
parties. Such additional litigation could represent a substantial commitment of
the Company's limited capital resources, including both funds and human
resources, without any assurance that the Company will ultimately prevail on the
merits. As a result, the potential of such litigation could represent a material
adverse effect upon the Company's future financial condition and results of
operations.
Other Intellectual Property
In addition to the patent and trademark rights, the Company relies upon
certain proprietary know-how in product development and manufacturing processes
and has entered into employee and third party nondisclosure agreements to
protect its proprietary technology. In addition, the Company has developed
distinctive trademarks for both the laser-based medical devices and the
scientific research instruments, which it believes, constitutes valuable
intellectual property rights. The Company has obtained federal trademark
registrations for LaserTweezers(R) and SmartStage(R), both modules of the Cell
Robotics Research Workstation and Lasette(R).
Research and Development
The Company's success will depend in large part upon its ability to enhance
existing products and to continue developing new products incorporating the
latest improvements in laser technology. Accordingly, the Company is committed
to investing resources in research and development activities.
During the years ended December 31, 1999, and December 31, 1998, $551,486
and $849,166 was spent, respectively, on internal research and development
programs. As of December 31, 1999, three of the Company's scientists and
engineers were engaged primarily in research and development activities. The
majority of funds expended for internal research and development activities were
derived from equity financing and short-term borrowings from the Company's
principal stockholder, Mitsui, and the sale of securities in 1995, 1996, 1997,
1998 and 1999. The Company does not have any research arrangements with outside
R&D firms and at this time it does not anticipate future development
arrangements with third parties. The Company does not currently perform any
research and development under contract to third parties except for Small
Business Innovative Research ("SBIR") grants from the federal government. These
include a Phase II grant from the National Cancer Institute (NCI) of the
National Institutes of Health (NIH). The grant award funds two years of
development of a proprietary laser instrument for semi-automated single cell
sorting. The total grant award over two years is approximately $727,000, of
which approximately $522,052 has been received to date. The receipt of this
award should facilitate the Company's goal of developing a single cell analysis
workstation, which could aid in the understanding of cancer cells and viruses.
Proceeds from this award will be used to expand the current capabilities of the
Cell Robotics Research Workstation and LaserTweezers technology.
While the Company is actively engaged in the development of potential
future products from its core technology, these products are essentially
extensions of the current product lines. There can be no assurance that any of
these programs will be continued or completed. Even if these products are
successful, the Company at this time does not expect to introduce any resulting
new products in the near short term future, and there can be no assurance that
any such products will be commercially successful.
Government Regulation-Product Approval Process
The Company is subject to a variety of government regulations pertaining to
various aspects of its marketing, sales and manufacturing processes. The Company
has successfully obtained many of the regulatory clearances that are required to
market and sell its products, however additional clearances for broader markets
may be required, and there can be no assurance these will be obtained.
For research applications, the Company's products are subject only to FDA
safety regulations. However, the European Community ("EC") requires that
research instruments receive the CE Mark before they can be exported
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<PAGE>
to the EC. The Company has received the CE Mark for the Cell Robotics Research
Workstation and all of its modules in September 1997 and has also received the
CE Mark for the Professional Lasette and IVF Workstation.
In the United States, the Company's laser-based medical devices are subject
to rigorous regulation under federal and state statutes and regulations
governing the testing, manufacture, safety and efficacy, labeling, record
keeping, approval, advertising and promotion of the Company's products. Product
development and approval within this regulatory framework may take many months
and may involve the expenditure of substantial resources. In addition to
obtaining FDA clearances for each product, each manufacturing establishment must
be registered with, and approved by the FDA and is required to be certified to
meet ISO 9001 and EN 46001 requirements.
The FDA has a separate review processes for medical devices that must be
followed before such products can be commercially marketed in the United States.
There are two basic review procedures for medical devices in the United States.
Certain products may qualify for a Section 510(k) procedure, under which the
manufacturer gives the FDA a Pre-Market Notification ("510(k) Notification") of
the manufacturer's intention to commence marketing of the product at least 90
days before the product will be introduced for clinical use. The manufacturer
must obtain written clearance from the FDA before it can commence marketing.
Among other requirements, the manufacturer must establish in the 510(k)
Notification that the product to be marketed is "substantially equivalent" to
another legally-marketed, previously existing product. If a device does not
qualify for the 510(k) procedure, the manufacturer must file a Pre-Market
Approval Application ("PMA"). The PMA requires more extensive pre-filing testing
than the 510(k) procedure and involves a significantly longer FDA review
process.
FDA clearance for use of the Professional Lasette for adult patients with
diabetes in clinical settings was issued to the Company in October 1997; for use
by adolescents in clinical settings was issued on June 29, 1998; for home use
for testing glucose on December 7, 1998; and for all blood screening tests used
in a clinical setting on January 15, 1999. The Company can now market the
Professional and Personal Lasette for essentially all applications in the United
States, which require capillary blood draw for blood screening and/or sampling.
The IVF Workstation, as a Class III device insofar as laser-assisted hatching is
concerned, was not eligible for the Section 510(k) procedure and requires the
submission of a PMA application. The IVF Workstation was granted an
Investigational Device Exemption (IDE) and is in the process of completing
detailed clinical trials. Although marketing in the United States must await FDA
clearance, the Company has received the CE Mark in 1998, which enables it to
market the IVF Workstation in Europe and most foreign countries.
For marketing outside of the United States, the Company will be subject to
foreign regulatory requirements governing clinical trials and marketing approval
for the products. Requirements governing the conduct of clinical trials,
product licensing, pricing, and reimbursement vary widely from country to
country. Although the Company has employees who are experienced in the EC and
other regulatory procedures, the Company does not currently have any facilities
or employees outside of the United States. In some cases the Company will rely
on its strategic partners in foreign markets to satisfy the regulatory
requirements imposed by those jurisdictions.
Employees
At March 27, 2000, the Company had 17 full-time employees and 1 part-time
employee. Of the full-time employees, 4 were principally engaged in product
development, 6 in manufacturing, including quality control, 3 in marketing and
sales and the balance in administration and finance. The Company's employees are
not represented by a labor organization or covered by a collective bargaining
agreement. The Company has not experienced work stoppages and believes that the
relation between the Company and its employees is good. The Company's will
depend, in part, on a continued ability to attract and retain qualified
technical, marketing and management personnel.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's facilities are located in approximately 12,000 square feet in
Albuquerque, New Mexico. This facility contains the Company's executive and
administrative offices, as well as facilities for the performance of its
assembly, production, testing, storage and inventory functions. The lease
covering the facility requires monthly payments of $8,409, subject to a 3%
annual increase, and has recently been renegotiated to terminate in 2002. The
Company believes that this facility is adequate for its present and near-term
requirements. The equipment, fixtures and other assets of the Company located
within the facility are insured against loss.
ITEM 3. LEGAL PROCEEDINGS
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Paradigm Group, LLC ("Paradigm"), an investment and financial consulting
company, has alleged that the Company agreed to issue 185,000 shares of the
Company's common stock to Paradigm for $2.40 per share as part of a proposed
private placement offering. The allegation is based upon an alleged oral
agreement between the Company and Paradigm. The Company denies that any binding
agreement was reached, that any and all discussions between the two parties were
preliminary discussions about a proposed private placement offering. Further, a
proposed private placement offering was to be at all times, subject to the
authorization and approval by the Company's Board of Directors, which did not
occur and a material condition precedent to the consummation of any agreement
between the parties. Currently, no action has been filed for this claim to the
Company's knowledge.
Big Sky Laser Technologies, Inc., ("BSLT"), an OEM manufacturer and
developer of laser-based medical devices, has alleged that the Company is in
breach of contract under an exclusive OEM supplier agreement dated May 20, 1998
entered into by the parties (the "Agreement"). Under the terms of the
Agreement, BSLT was granted exclusive manufacturing rights to the Professional
Lasette product while the Company maintained the exclusive distribution rights
to the same, subject to certain minimum order requirements. BSLT has given the
Company notice of termination and notice of breach of the Agreement, alleging in
pertinent part that the Company (i) failed to take delivery of 1,012 units of
the Professional Lasette product; (2) failed to provide laser rods and other
components necessary in the manufacture of 1,000 units ordered by the Company;
and (3) failed to make the required payment for certain products already
delivered to the Company. The Company disagrees with these allegations. BSLT
and the Company are currently in discussions seeking to restructure their
relationship and/or reach an amicable resolution involving the Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security holders
during the fourth quarter of its fiscal year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
The Company's Common Stock is traded over-the-counter and quoted on the OTC
Electronic Bulletin Board ("Bulletin Board") on a limited and sporadic basis
under the symbol "CRII." The reported high and low bid and asked prices for the
Common Stock are shown below for the period through March 27, 2000. The prices
presented are bid and asked prices, which represent prices between broker-
dealers and do not include retail mark-ups and mark-downs or any commission to
the broker-dealer. The prices do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Bid Ask
--------------- ---------------
Low High Low High
------ ------ ------ ------
<S> <C> <C> <C> <C>
1998
First Quarter $ 1.938 $ 2.797 $1.938 $ 3.00
Second Quarter 1.375 2.469 1.391 2.75
Third Quarter 0.844 1.625 0.844 1.75
Fourth Quarter 0.688 3.00 0.766 3.844
1999
First Quarter $ 1.813 $ 2.813 $1.938 $ 3.00
Second Quarter 1.500 2.188 1.656 2.531
Third Quarter 1.531 2.125 1.625 2.438
Fourth Quarter 1.563 2.125 1.750 2.313
2000
First Quarter (through 3/27/00) $1.5313 $8.6878 $2.248 $7.968
</TABLE>
The bid and ask prices of the Common Stock on March 27, 2000 were, $5.5625
and $5.656 respectively, as quoted on the Bulletin Board. As of March 27, 2000
there were approximately 165 stockholders of record of the Common Stock.
Dividends
The Company has not paid any cash dividends on its Common Stock and does
not expect to do so in the foreseeable future. It is anticipated that any
earnings generated from operations of the Company will be used to finance its
ongoing operations. No restrictions exist upon the Company's ability to pay
dividends.
The Company's Series A Convertible Preferred Stock (the "Preferred Stock")
automatically converted into shares of Common Stock in January 1999, 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 shares of the Company's Common Stock was accrued and
paid to all shareholders of record on February 2, 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this Report.
Results of Operations - Year ended December 31, 1999 compared to the Year ended
December 31, 1998
During the year ended December 31, 1999 the Company's operating activities
included continuing efforts to complete the development of its laser-based
medical devices and marketing of the Lasette. Product sales for the period were
generated from sales of its scientific research instruments and its clinical
laser-based medical devices. Total revenues from product sales and grant revenue
decreased .8% from $1,429,001 during the 1998 period to
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$1,417,317 during 1999. Research and development grant revenue decreased 31.7%
from $179,298 during 1998 to $122,381 during 1999. The gross profit realized by
the Company on product sales generated during fiscal 1999 was $230,806, or
17.8% compared to a gross profit of $401,463, or 32.1%, realized during fiscal
1998. This decrease was driven by a reduction in retail selling prices due to
competitive pricing pressures as well as increased warranty expenses associated
with newly released products.
Operating expenses incurred during fiscal 1999 were $2,165,551, a decrease
of $103,712, or 4.6%, below fiscal 1998 operating expenses of $2,269,263. This
decrease was principally attributable to a reduction in research and development
expenses.
Research and development expenses decreased by $297,680, or 35.1%, due
primarily to a reduction in professional design and engineering consulting fees
required by the Company's laser-based medical devices. Marketing and sales
related expenses incurred during fiscal 1999 were $625,777, an increase of
$16,489, or 2.7%, above fiscal 1998 marketing and sales expenses of $609,288.
Expenses related to the marketing introduction of the Company's new Personal
Lasette product were primarily responsible for this increase.
General and administrative expenses associated with the conduct of the
Company's business increased, from $810,809 during the year ended December 31,
1998 to $988,288 for the year ended December 31, 1999, an increase of $177,479
or 21.9%. This increase was driven by the effort of the Company to maintain ISO
9001 certification, increased product liability premiums, increased SEC
reporting activity and enhanced investor relations' activities.
During the fiscal period ended December 31, 1999, other income and expenses
decreased from an $84,454 net contribution to income for the year ended December
31, 1998 to a $25,395 net contribution to income. This decrease was due almost
exclusively to the reduction of interest earned on declining cash balances.
As a result of the foregoing, the Company's net loss applicable to common
shareholders for the year ended December 31, 1999 increased by $367,057, or
17.8%, from a net loss applicable to common shareholders of $2,057,573 for the
year ended December 31, 1998 to a net loss applicable to common shareholders of
$2,424,630 for the comparable period ended December 31, 1999. This resulted in a
net loss of $0.31 per share on 7,734,762 weighted average shares outstanding for
the year ended December 31, 1999 compared to a net loss of $0.39 per share on
5,278,347 weighted average shares outstanding for the comparable period ended
December 31, 1998.
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.
See additional discussion regarding the BSLT agreement in Item 3 - Legal
Proceedings.
Liquidity and Capital Resources
Since its inception, the Company has relied principally upon the proceeds
of both debt and equity financing to provide working capital for its product
development and marketing activities and, to a lesser extent, the proceeds of
two small SBIR grants. The Company has not been able to generate sufficient cash
from operations and, as a consequence, additional financing has been required to
fund ongoing operations. In 1995, the Company completed a private offering of
equity in which it raised approximately $2.875 million. As part of that private
offering, the Company issued a series of warrants, whose exercise during the
third quarter of 1996 resulted in an additional capital infusion of
approximately $2 million. In connection with that private offering, the Company
issued to Paulson Investment Company, Inc., who served as placement agent,
warrants exercisable for a period of five years to purchase 11.5 units at a
price of $25,000 per unit, each unit consisting of 20,000 shares of Common Stock
and 10,000 Class A Warrants. In August 1997, the Company completed a private
sale of 200,000 shares of Common Stock for gross proceeds of $650,000. The
Company agreed to exchange the 200,000 shares of Common Stock for 78,788 of the
Units as offered in the secondary offering (the "Secondary Offering") completed
in February 1998. In December 1997, the Company obtained a short-term loan from
Paulson in the principal amount of $500,000 that was repaid, without interest,
out of the proceeds of the Secondary Offering.
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. Each
Unit was sold at a price to the public of $8.25. The Units were traded over-the-
counter and quoted on the Bulletin Board under the symbol "CRIIU" for a period
of thirty (30)
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<PAGE>
days through March 4, 1998 (the "Unit Trading Period"). At the end of the Unit
Trading Period, the Units automatically separated and, as a result, the
Preferred Stock and Warrants traded separately over-the-counter, and were quoted
on the Bulletin Board under the symbols "CRIIP" and "CRIIW," respectively.
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of Common
Stock and 7,500 common stock purchase warrants. Each warrant is exercisable
through February 2, 2003 to purchase one share of common stock for a price of
$2.40 per share. In connection with this private placement, the Company granted
15,000 warrants to two placement agents. In connection with legal services the
Company granted an additional 15,000 warrants to one of the investors for those
services unrelated to this private placement. These 30,000 warrants are
exercisable through February 2, 2003 to purchase shares of Common Stock for a
price of $2.40 per share. Gross proceeds received from this private placement
totaled $475,000.
Cash used in operations for the years ended December 31, 1999 and 1998 was
$ 1,584,722 and $1,935,800 respectively. The primary reasons for the decrease in
cash used in operations during the year ended December 31, 1999, as compared to
the prior period, are the decrease in product development and marketing expenses
during that period, and an increase level of account payable and accrued
liabilities.
Cash provided by financing activities for the years ended December 31, 1999
and 1998 were $887,551 and $2,852,504 respectively. These figures reflect the
equity financing discussed above and a note payable to a member of the Company's
Board of Directors.
The Company's liquidity and capital resources continued to decrease during
the year ended December 31, 1999, due primarily to the Company's ongoing
operating losses.
The Company's current ratio at December 31, 1999 was 1.6:1, compared to a
current ratio of 4.3:1 on December 31, 1998. This decrease in liquidity is
primarily due to the use of proceeds raised from the Secondary Offering
completed in February 1998 and the July 1999 Private Placement for continued
operating activities. Total assets decreased from $2,583,052 at December 31,
1998 to $2,013,666 at December 31, 1999, a decrease of $569,386 or 22%.
The decrease in the Company's current assets of $772,497, or 34%, was the
result of a decrease in cash and cash equivalents, which declined from
$1,375,575 at December 31, 1998, to $358,379 at December 31, 1999, a decrease of
$1,017,196 or 73.9%. This decrease in cash and cash equivalents was primarily
the result of using cash for continued operating activities and the purchase of
product component inventory. A decrease in accounts receivable of $40,295, from
$246,573 at the end of 1998, to $206,278 at December 31, 1999 was primarily due
to an increase in bad debt allowance, but also reflects a more timely accounts
receivable collection process. Inventory increased in the amount of $371,722 or
70.6%, due to manufacturing ramp up of our laser-based medical devices.
At December 31, 1999, the Company's total current liabilities increased
$375,504, from $533,329 at December 31, 1998 to $908,833 at December 31, 1999.
Increases in accounts payable of $356,717, or 108.9%, and royalties payable of
$34,009, or 101.5 %, were directly related to the purchase of manufacturing
inventory and increased delivery of royalty bearing products.
As a result of the foregoing, the Company's working capital decreased from
$1,738,339 at December 31, 1998 to $590,338 at December 31, 1999, a decrease of
$1,148,001. This decrease was due almost exclusively to the Company's use of
cash for continued operations discussed above.
Corporate management expects that its cash used in operating activities
during fiscal year 2000 will be less than the cash used in 1999. The timing of
the Company's future capital requirements, however, cannot accurately be
predicted. 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; however, there can be no assurance that additional
funding will be obtained. Further additional equity financing may have a
dilutive effect on the Company's existing stockholders and debt financing, if
available, may involve pledging some or all of the Company's assets and may
contain restrictive covenants with respect to raising future capital and other
financial and operational matters. At this time, the Company does not have
available other sources of capital to satisfy its cash requirements until
revenues from operations can be realized through future product sales. If the
Company is unable to obtain additional financing as needed, the Company may be
required to reduce the scope of its operations, which
-18-
<PAGE>
could have a material adverse effect upon the Company's business, financial
condition and results of operation. Corporate management anticipates that its
current working capital, proceeds from financing activities (see "Subsequent
Events") and increased product sales are sufficient to meet the Company's
operational deficits through fiscal 2000.
Net Operating Loss Carryforwards
At December 31, 1999, the Company had a net operating loss carryforward for
income tax purposes of approximately $15,800,000, which expires beginning in
2006. Under the Tax Reform Act of 1986, the amounts of and the benefits from net
operating loss carryforwards are subject to certain limitations in the amount of
net operating losses that the Company may utilize to offset future taxable
income. The ownership changes in 1995 in connection with the IFC acquisition
will limit the use of this net operating loss carryforward under applicable
Internal Revenue Service Regulations.
Year 2000 Disclosure
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date field used by many systems. Most reports
to date, however, are that computer systems are functioning normally and the
compliance and remediation work accomplished during the years leading up to 2000
was effective to prevent most problems. The Company has not experienced any such
computer difficulty; however, computer experts have warned that there may still
be residual consequences of the change in centuries and say such difficulties,
depending upon their pervasiveness and severity, may have a material adverse
effect on the Company's business, financial condition and results of operations.
Any of the following could have a material adverse effect on the Company's
business, financial condition and results of operations:
. a failure to fully identify all year 2000 dependencies in the Company's
systems;
. a failure to fully identify all year 2000 dependencies in the systems of
third parties with whom the Company does business;
. a failure of any third party with whom the Company does business to
adequately address their year 2000 issues;
. the failure of any contingency plans developed to protect the Company's
business and operations from year 2000-related interruptions; and
. delays in the implementation of new systems resulting from year 2000
problems.
Subsequent Events
In January 2000, the Company terminated its public and investor relations
agreement with RCG Capital Markets Group, Inc. effective January 1, 2000. In
lieu of payment for three additional months of service retainer fees, options
for an additional 25,000 shares at an exercise price equal to the closing price
of the Company's common stock on February 15, 2000 were granted. Due to early
termination of this agreement, 50,000 unvested options were cancelled.
Additionally, in January 2000, the Company issued a total of 40,000 common
stock purchase warrants to an investment research firm and its new public
relations firm. The Company is also committed under the terms of the agreement
with the new public relations firm to issue an additional 30,000 warrants if
representation continues beyond six months. The warrants are exercisable
through February 2, 2003 to purchase one share of common stock for a price of
$2.40 per share. Of the additional 30,000 warrants, 15,000 vest after three
months of services and the remaining 15,000 vest after six months of services.
The fair value of these performance-based options will be measured upon vesting
and charged to operations at such time.
In February 2000, and subsequently amended in March 2000, the Company
executed a secured convertible promissory note from a private investor. The
principal amount of $1,200,000 will be paid in full with 500,000 shares of the
Company's common stock at the time such shares are registered with the SEC. The
private investor paid $250,000 on March 3, 2000; $250,000 on March 9, 2000;
$200,000 on March 28, 2000; and the remaining $500,000 will be paid on or before
April 21, 2000. If the $500,000 payment is not made by April 21, 2000, a
-19-
<PAGE>
financial institution will make the payment to the Company subject to an
irrevocable payment guarantee on April 28, 2000. The note will bear interest
from July 25, 2000 at the Bank of America prime rate as of March 3, 2000 plus
500 basis points with no interest accruing until July 25, 2000. The principal
amount and any accrued unpaid interest are due and payable on any date after
February 25, 2001 but before February 25, 2002. This note is secured by accounts
receivable and inventory of the company. In connection with the beneficial
conversion feature of this note, the Company will record a charge of $1,200,000
upon registration of the common stock with the SEC and conversion of the note
into common stock.
Additionally, in February 2000, an underwriter in a previous offering
exercised a portion of its Placement Agent's Warrants to purchase a total of
10.9825 private units at a price of $25,000 per unit. Each unit consists of
20,000 shares of common stock and 10,000 Class A Common Stock Purchase Warrants.
Proceeds to the Company were approximately $467,000.
In March 2000, a previous distributor of the Company exercised its common
stock purchase warrant to purchase 100,000 shares of common stock at a price of
$2.25 per share.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as a separate section of this
Report and attached hereto:
1. Independent Auditors' Report;
2. Consolidated Balance Sheets - December 31, 1999 and December 31, 1998;
3. Consolidated Statements of Operations - for the years ended December
31, 1999 and 1998;
4. Consolidated Statements of Stockholders' Equity - for the years ended
December 31, 1999 and 1998;
5. Consolidated Statements of Cash Flows - for the years ended December
31, 1999 and 1998; and
6. Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III, Items 9, 10, 11 and 12 are incorporated herein by reference from
the Registrant's definitive proxy statement relating to its Annual Meeting of
Shareholders which will be filed in an amendment within 120 days of December 31,
1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibits
<S> <C> <C>
** 3.2 Amended and Restated Bylaws
*** 3.3(a) Amended and Restated Articles of Incorporation
** 3.3(b) Amended and Restated Articles of Incorporation dated May
23, 1995
** 4.1 Specimen Certificate of Common Stock
***** 4.2 Representatives' Common Stock Purchase Warrant
**** 4.3 Warrant Agreement
**** 4.3.1 Warrant Agreement (revised)
***** 4.4 Lohrding Option Agreement
</TABLE>
-20-
<PAGE>
<TABLE>
<C> <C> <S>
***** 4.5 Certificate of Designation of Rights and Preferences of Series
A Convertible Preferred Stock
***** 4.6 Specimen Certificate of Series A Preferred Stock
***** 4.7 Specimen Unit Certificate
***** 4.8 Specimen Common Stock Purchase Warrant Certificate
* 10.1 Agreement and Plan of Reorganization between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel, Inc.,
Bridgeworks Investors I, L.L.C., and Ronald K. Lohrding
* 10.2 Employment Agreement of Ronald K. Lohrding
* 10.3 Employment Agreement of Craig T. Rogers
**** 10.4 Employment Agreement of Travis Lee
* 10.5 Financing and Capital Contribution Agreement between and among
Cell Robotics, Inc., Intelligent Financial Corporation, MiCel,
Inc., and Bridgeworks Investors I, L.L.C.
* 10.6 Irrevocable Appointment of Voting Rights by Dr. Lohrding to
MiCel, Inc.
* 10.7 Stock Pooling and Voting Agreement
** 10.8 Royalty Agreement dated September 11, 1995 between the
Registrant, Cell Robotics, Inc., and Mitsui Engineering &
Shipbuilding Co., Ltd.
** 10.9 Agreement of Contribution and Mutual Comprehensive Release
dated September 11, 1995 between the Company, Cell Robotics,
Inc. and Mitsui Engineering & Shipbuilding Co., Ltd.
** 10.10 Distribution Agreement dated April 6, 1995, between Carl Zeiss,
Inc. and the Registrant
** 10.11 Distribution Agreement dated December 15, 1994, between MiCel,
Inc. and the Registrant
** 10.12 Revised License Agreement dated January 5, 1996 between the
Registrant and the Regents of the University of California
** 10.13 Purchase Agreement with Tecnal Products, Inc.
** 10.14 License Agreement with NTEC
*** 10.15 License Agreement dated May 13, 1996, between the Registrant
and GEM Edwards, Inc.
***** 10.16 Termination Agreement and Release between the Registrant and
GEM Edwards, Inc.
***
**** 10.17 Employment Agreement of Dr. Ronald K. Lohrding dated February
2, 1998
****** 10.18 Patent License Agreement between American Telephone and
Telegraph Company and Cell Robotics, Inc.
****** 10.19 Amendment to AT&T License Agreement
****** 10.20 Manufacturing Agreement between Big Sky Laser Technologies,
Inc. and Cell Robotics International, Inc. dated May 20, 1998.
** 21.0 Subsidiaries
****
**** 23.0 Consent of KPMG LLP
****
**** 24.0 Power of Attorney
****
**** 27 Financial Data Schedule
</TABLE>
-21-
<PAGE>
____________________________________
* Incorporated by reference from the Registrant's Current Report on Form
8-K dated February 23, 1995, as filed with the Commission on March 10,
1995.
** Incorporated by reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2, which was declared
effective by the Commission on February 14, 1996.
*** Incorporated by reference from the Registrant's Post-Effective Amendment
No. 1 to Registration Statement on Form SB-2, filed with the Commission
on July 15, 1996.
**** Incorporated by reference from the Company's Annual Report on Form 10-
KSB, for the fiscal year ended December 31, 1996, as filed with the
Commission on April 15, 1997.
***** Incorporated by reference from the Company's Pre-Effective Amendment No.
2 to Registration Statement on Form SB-2 which was declared effective by
the Commission on February 2, 1998, SEC File No. 333-40895.
****** Incorporated by reference from the Company's Pre-Effective Amendment No.
2 to Registration Statement on Form S-3, SEC File No. 333-55951, as
filed with the Commission on November 18, 1998.
***
**** Incorporated by reference from the Company's Annual Report on Form 10-
KSB, for the fiscal year ended December 31, 1997, as filed with the
Commission on May 2, 1998.
****
**** Filed herewith
Current Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the
quarter ended December 31, 1999.
-22-
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Cell Robotics International, Inc.
We have audited the accompanying consolidated balance sheets of Cell Robotics
International, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cell Robotics
International, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
March 28, 2000
F-1
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 358,379 $ 1,375,575
Accounts receivable, net of allowance for
doubtful accounts of $23,841 in 1999 and
$1,841 in 1998 (note 12) 206,278 246,573
Inventory (note 12) 897,971 526,249
Other 36,543 123,271
------------ ------------
Total current assets 1,499,171 2,271,668
Property and equipment, net (note 3) 485,556 272,894
Other assets, net (note 4) 28,939 38,490
------------ ------------
Total assets $ 2,013,666 $ 2,583,052
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 684,403 $ 327,686
Payroll related liabilities 116,617 144,188
Royalties payable 67,519 33,510
Other current liabilities 40,294 27,945
------------ ------------
Total current liabilities 908,833 533,329
Note payable (note 10) 250,000 0
------------ ------------
Total liabilities 1,158,833 533,329
------------ ------------
Stockholders' equity (notes 5 and 9):
Preferred stock, $.04 par value. Authorized
2,500,000 shares, zero and 465,533 shares
issued and outstanding at December 31, 1999
and 1998, respectively 0 18,622
Common stock, $.004 par value. Authorized
12,500,000 shares, 8,244,121 and 5,739,248
shares issued and outstanding at December 31,
1999 and 1998, respectively 32,976 22,957
Additional paid-in capital 19,154,908 17,916,565
Accumulated deficit (18,333,051) (15,908,421)
------------ ------------
Total stockholders' equity 854,833 2,049,723
------------ ------------
Commitments and contingencies (notes 6 and 8)
$ 2,013,666 $ 2,583,052
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Product sales $ 1,294,936 $ 1,249,703
Research and development grants 122,381 179,298
----------- -----------
Total revenues 1,417,317 1,429,001
----------- -----------
Product cost of goods sold (1,064,130) (848,240)
SBIR direct expenses (122,381) (179,298)
----------- -----------
Total cost of goods sold (1,186,511) (1,027,538)
----------- -----------
Gross profit 230,806 401,463
----------- -----------
Operating expenses:
General and administrative 988,288 810,809
Marketing & Sales 625,777 609,288
Research and development 551,486 849,166
----------- -----------
Total operating expenses 2,165,551 2,269,263
----------- -----------
Loss from operations (1,934,745) (1,867,800)
----------- -----------
Other income (deductions):
Interest income 26,111 85,429
Interest expense (716) (975)
Other 0 0
----------- -----------
Total other income 25,395 84,454
----------- -----------
Net loss (1,909,350) (1,783,346)
----------- -----------
Preferred stock dividends (515,280) (274,227)
----------- -----------
Net loss applicable to common shareholders $(2,424,630) $(2,057,573)
=========== ===========
Weighted average common shares
outstanding, basic and diluted 7,734,762 5,278,347
=========== ===========
Net loss applicable to common shareholders
per common share, basic and diluted $ (0.31) $ (0.39)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- ---------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - $ - 5,245,414 $20,982 $14,037,243 $(13,613,348)
Issuance of units at $8.25, less
costs of offering 460,000 18,400 - - 3,009,104 -
Exchange of outstanding
common shares for units 78,788 3,152 (200,000) (800) 235,148 (237,500)
Options issued for services - - - - 60,688 -
Conversion of series A preferred stock (73,255) (2,930) 293,020 1,172 1,758 -
Stock dividend paid on
series A preferred stock - - 200,614 803 273,424 (274,227)
Issuance of shares at $1.50 - - 200,000 800 299,200 -
Net loss for 1998 (1,783,346)
-------- -------- --------- ------- ----------- ------------
Balance at December 31, 1998 465,533 $ 18,622 5,739,248 $22,957 $17,916,565 $(15,908,421)
Conversion of series A preferred stock (465,533) (18,622) 1,862,132 7,449 11,173 -
Stock dividend paid on
series A preferred stock - - 183,211 732 514,548 (515,280)
Options and warrants issued for services - - - - 76,909 -
Issuance of shares at $1.50 - - 100,000 400 149,600 -
Exercise of stock options - - 27,030 108 37,058 -
Issuance of units at $8.25, less
costs of offering - - 332,500 1,330 449,055 -
Net loss for 1999 - - - - - (1,909,350)
-------- -------- --------- ------- ----------- ------------
Balance at December 31, 1999 - $ - 8,244,121 $32,976 $19,154,908 $(18,333,051)
======== ======== ========= ======= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,909,350) $(1,783,346)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 116,914 115,242
Amortization of options issued for services 7,279 53,409
Options and warrants issued for services 76,909 -
Decrease (increase) in accounts receivable 40,295 (22,717)
Decrease (increase) in inventory (371,722) 59,784
Decrease (increase) in other current assets 79,449 (79,903)
Increase (decrease) in accounts payable
and payroll related liabilities 329,146 (57,633)
Increase (decrease) in other current
liabilities and royalties payable 46,358 (220,636)
----------- -----------
Net cash used in operating activities (1,584,722) (1,935,800)
----------- -----------
Cash flows from investing activities - purchase of
property and equipment (320,025) (164,701)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of units, net of offering costs 450,385 3,052,504
Proceeds from (repayment of) loans 250,000 (500,000)
Proceeds from issuance of common stock 187,166 300,000
----------- -----------
Net cash provided by financing activities 887,551 2,852,504
----------- -----------
Net increase (decrease) in cash and cash equivalents: (1,017,196) 752,003
Cash and cash equivalents:
Beginning of year 1,375,575 623,572
----------- -----------
End of year $ 358,379 $ 1,375,575
=========== ===========
Supplemental information:
Stock options and warrants issued in exchange for services $ 76,909 $ 60,688
Exchange of common stock for units $ - $ 237,500
Stock dividends on Series A Preferred Stock $ 515,280 $ 274,227
----------- -----------
Interest paid $ 716 $ 975
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Business and Activities
The Company has developed and is manufacturing and marketing a series of
laser-based medical devices with applications in the blood sample and
glucose collection and in vitro fertilization markets. The Company also
develops, produces and markets a line of advanced scientific instruments
that increase the usefulness and importance of the conventional laboratory
microscope. The Company markets its scientific instruments in both domestic
and international markets. In 1999, approximately 50 percent of the
Company's product sales were domestic, with Asia, Germany, Brazil and South
Africa being the Company's principal international markets.
The Company's customers consist primarily of research institutes,
universities, the diabetic patient and diabetic nurse educator as well as
the physician community, medical clinics, and distributors.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of Cell
Robotics International, Inc. and it's wholly owned subsidiary (the
Company). All significant intercompany accounts and transactions have
been eliminated in consolidation.
(b) Financial Statement Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all short-term investments with original maturities of three months or
less to be cash equivalents.
(d) Inventory
Inventory is recorded at the lower of cost, determined by the first-
in, first-out method, or market.
Inventory at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 78,358 $ 3,003
Parts and components 741,841 394,215
Sub-assemblies 77,772 129,031
-------- --------
$897,971 $526,249
======== ========
</TABLE>
F-6
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the
assets, which range from five to seven years. Leasehold improvements
are amortized over the life of the lease.
(f) Earnings Per Share
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year. 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 year, is the same as basic loss per share for
1999 and 1998, as all potentially dilutive securities were anti-
dilutive.
Options to purchase 1,618,123 and 1,631,820 shares of common stock
were outstanding at December 31, 1999 and 1998, respectively.
Additionally, warrants to purchase 1,878,826 and 1,762,576 shares of
common stock were outstanding at December 31, 1999 and 1998
respectively. These were not included in the computation of diluted
earnings per share as the exercise of these options and warrants would
have been anti-dilutive because of the net losses incurred in 1999 and
1998.
(g) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, royalties payable and accrued
liabilities in the consolidated financial statements approximate fair
value because of the short-term maturity of these instruments. The
fair value of the note payable at December 31, 1999 cannot be
determined without excessive costs due to its related party nature.
(h) Income Taxes
The Company follows the asset and liability method for accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing
assets and liabilities.
(i) Revenue
The Company recognizes revenue on sales of its products when the
products are shipped from the plant and ownership is transferred to
the customer. Appropriate allowances are made for returns.
(j) Research and Development
Research and development costs related to both present and future
products are expensed as incurred. Research and development costs
consist primarily of salaries, materials and supplies.
F-7
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(k) Warranties
The Company warrants their products against defects in materials and
workmanship for one year. The warranty reserve is reviewed
periodically and adjusted based upon the Company's historical warranty
costs and its estimate of future costs.
(l) Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense is recorded on the date
of grant only if the current market price of the underlying stock
exceeds the exercise price. SFAS No. 123, "Accounting for Stock Based
Compensation," permits entities to recognize as an expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(3) Property and Equipment
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Furniture and fixtures $ 10,687 $ 9,279
Computers 350,059 344,059
Equipment 830,458 517,843
Leasehold improvements 48,961 48,961
---------- ---------
1,240,167 920,142
Accumulated depreciation (754,611) (647,248)
---------- ---------
Net property and equipment $ 485,556 $ 272,894
========== =========
</TABLE>
F-8
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Other Assets
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Patents 48,246 48,246
Non-compete agreements 8,116 8,116
-------- --------
56,362 56,362
Accumulated amortization (27,423) (17,872)
-------- --------
Net other assets $ 28,939 $ 38,490
======== ========
</TABLE>
(5) Stock Options, Warrants and Employee Stock Purchase Plan
(a) Stock Options
The Company has adopted a Stock Incentive Plan (the Plan) pursuant to
which the Company's Board of Directors may grant to eligible
participants options in the form of Incentive Stock Options (ISO's)
under Section 422 of the Internal Revenue Code of 1986, as amended, or
options which do not qualify as ISO's (Non-Qualified Stock Options or
NQSO's). An aggregate of 1,500,000 shares of the Company's common
stock is authorized for issuance under the Plan. Generally, stock
options granted under the Plan have five-year terms and become fully
exercisable after three or four years from the date of grant.
Following is a summary of activity in the Company's options for
employees, directors, outside consultants, and technical advisors:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
---------------------- ----------------------
Weighted- Weighted-
average average
exercise exercise
price Number price Number
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year $1.81 1,631,820 $2.03 1,000,905
Issued $1.81 20,000 $2.11 745,000
Exercised $1.38 (27,030) - -
Forfeited $1.38 (6,667) $2.50 (75,000)
Expired - - $1.78 (39,085)
Repriced - - $2.16 (500,850)
Repriced - - $1.38 500,850
Outstanding at end of year $1.82 1,618,123 $1.81 1,631,820
Exercisable at end of year $1.73 1,119,565 $1.72 994,595
</TABLE>
F-9
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following summarizes certain information regarding outstanding
stock options at December 31, 1999:
<TABLE>
<CAPTION>
Total Exercisable
------------------------------------ -----------------------
Weighted-
Weighted- average Weighted-
average remaining average
Exercise exercise contractual exercise
price Number price life (years) price Number
- ---------------- --------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.843 35,000 $0.843 3.7 $0.843 35,000
1.375 472,153 1.375 2.3 1.375 379,095
1.750 419,970 1.750 2.1 1.750 419,970
1.813 20,000 1.813 4.3 1.813 -
1.875 25,000 1.875 2.0 1.875 25,000
2.000 40,000 2.000 3.7 2.000 40,000
2.063 450,000 2.063 3.0 2.063 150,000
2.500 75,000 2.500 3.7 2.500 -
2.810 60,000 2.810 .92 2.810 60,000
3.563 21,000 3.563 1.8 3.563 10,500
--------- ------ --- ------ ---------
Total 1,618,123 $ 1.82 2.5 $1.730 1,119,565
========= ====== === ====== =========
</TABLE>
During 1998, the Company granted 450,000 options outside of the Plan,
for the purchase of the Company's common stock to an officer of the
Company. Of the options, 150,000 options vested in 1998 upon closing
of the offering described in Note 9, and the remaining 300,000 options
vest on November 30, 2002, provided, however, (i) 150,000 options will
vest and become exercisable thirty days after any quarter in which the
Company reports pre-tax income of at least $50,000; and (ii) 150,000
options will 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.
At December 31, 1999, there were 481,877 additional shares available
for grant under the Plan. The weighted-average fair value of employee
and director stock options granted in 1999 and granted and modified
during 1998 was $1.08 and $.76, respectively, calculated on the date
of grant or amendment using the Black Scholes option-pricing model
with the following weighted-average assumptions:
F-10
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 5.250% 4.767%
Expected life of option 4 years 4 years
Expected volatility 75.2% 75.2%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its employee
and director stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value
at the date of grant for its employee and director stock options under
SFAS No. 123, the Company's net loss would have been increased to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Reported net loss applicable to common
shareholders $(2,424,630) $(2,057,573)
Pro forma net loss applicable to common
shareholders (2,828,058) (2,461,001)
Pro forma net loss per share applicable to
common shareholders - basic and diluted $ (.37) $ (.47)
=========== ===========
</TABLE>
(b) Warrants
The Company has a Placement Agent's Warrant outstanding that was
granted to an underwriter. The Placement Agent's Warrant is
exercisable through September 30, 2000 to acquire up to 11.5 private
units at a price of $25,000 per unit. Each unit consists of 20,000
shares of the Company's common stock. The Placement Agent's Warrant
also includes 115,000 Class A Common Stock Purchase Warrants
exercisable through December 31, 2000 to purchase 115,000 shares of
common stock for a price of $1.75 per share (see note 12 - "Subsequent
Events").
The Company also has a Representative's Warrant outstanding that was
granted to the same underwriter. The Representative's Warrant is
exercisable through February 2, 2002 to purchase 160,000 shares of
common stock at a price of $2.35 per share. The Representative's
Warrant also includes 80,000 Common Stock Purchase Warrants
exercisable through February 2, 2003 to purchase 80,000 shares of
common stock for a price of $2.40 per share.
The Company also has a common stock purchase warrant outstanding that
was granted to a previous distributor of the Company. The warrant is
exercisable through June 12, 2000 to purchase 100,000 shares of common
stock for a price of $2.25 per share. (See note 12 - " Subsequent
Events")
In conjunction with the offering completed in February 1998, and the
exchange of common shares for Units in February 1998, the Company has
an additional 1,077,576 warrants outstanding exercisable through
February 2, 2003 to purchase 1,077,576 shares of common stock for a
price of $2.40 per share.
In connection with the private placement completed in July 1999, (see
note 9 -"Equity Transactions"), the Company has an additional 101,250
warrants outstanding exercisable through February 2, 2003 to purchase
101,250 shares of common stock for a price of $2.40 per share.
In consideration for services received, the Company issued 15,000
warrants to a provider of corporate legal services. The warrants are
exercisable through February 2, 2003 to purchase
F-11
<PAGE>
15,000 shares of common stock for a price of $2.40 per share. (See
note 9 - "Equity Transactions").
(c) Employee Stock Purchase Plan
The board of directors and stockholders have approved an Employee
Stock Purchase Plan (ESPP). As of December 31, 1999 and 1998, no
shares of common stock have been issued under the ESPP and there have
been no subscriptions of employees to participate in the ESPP.
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Royalty Agreements
The Company is party to several royalty agreements under which it must make
payments to the original holders of patents on components used in its
products. Such royalties, equal to 1 to 2 percent of the net sales of the
products containing patented components, are generally due upon sale of the
products.
Additionally, one royalty agreement requires a royalty payment equal to 7
percent of revenue generated from sales of the Company's products and
pertains to the Company's worldwide, non-exclusive license agreement that
continues until March 31, 2016. Beginning with the year 1999, the minimum
royalty payable each year is $35,000 payable as follows: $17,500 sixty days
after the end of each semiannual period ending June 30 and December 31.
(7) Income Taxes
No provision for federal or state income tax expense has been recorded due
to the Company's losses. The Company has net operating loss carryforwards
and temporary differences that give rise to the following deferred tax
assets and liabilities:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,375,500 $4,825,000
Inventory capitalization 150,000 97,000
Vacation and sick leave payable 30,000 30,000
Allowance for doubtful accounts 7,500 -
Depreciation - 18,000
Accrued expenses 48,000 48,000
----------- ----------
5,610,500 5,018000
Less valuation allowance (5,573,500) (4,986,000)
----------- ----------
Net deferred tax asset $ 37,000 32,000
=========== ==========
Deferred tax liabilities:
Amortization $ 31,000 32,000
Depreciation 6,000 -
----------- -----------
Net deferred income taxes $ - -
=========== ===========
</TABLE>
The net deferred taxes have been fully offset by a valuation allowance
since the Company cannot currently conclude that it is more likely than not
that the benefits will be realized. The net operating loss carryforward for
income tax purposes of approximately $15,800,000 expires beginning in 2006
through 2019. Ownership changes resulting from the Company's reorganization
in 1995 will limit the use of this net operating loss under applicable
Internal Revenue Service regulations.
F-12
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Commitments and Contingencies
The Company is obligated under a non-cancelable operating lease for
building facilities, which is subject to 3 percent annual increases and
expires on November 30, 2002. Rent expense for 1999 and 1998 was $112,939
and $105,987, respectively. Minimum annual lease commitments for all
building facilities at December 31, 1999 are: $102,162 for 2000; $105,195
for 2001 and $98,977 for 2002.
Paradigm Group, LLC ("Paradigm"), an investment and financial consulting
company, has alleged that the Company agreed to issue 185,000 shares of the
Company's common stock to Paradigm for $2.40 per share as part of a
proposed private placement offering. The allegation is based upon an
alleged oral agreement between the Company and Paradigm. The Company denies
that any binding agreement was reached, that any and all discussions
between the two parties were preliminary discussions about a proposed
private placement offering, which was at all times subject to the
authorization and approval by the Company's Board of Directors, which did
not occur and a material condition precedent to the consummation of any
agreement between the parties. Currently, no action has been filed for
this claim to the Company's knowledge.
Big Sky Laser Technologies, Inc., ("BSLT"), an OEM manufacturer and
developer of laser-based medical devices, has alleged that the Company is
in breach of contract under an exclusive OEM supplier agreement dated May
20, 1998 entered into by the parties (the "Agreement"). Under the terms of
the Agreement, BSLT was granted exclusive manufacturing rights to the
Professional Lasette product while the Company maintained the exclusive
distribution rights to the same, subject to certain minimum order
requirements. BSLT has given the Company notice of termination and notice
of breach of the Agreement, alleging in pertinent part that the Company (1)
failed to take delivery of 1,012 units of the Professional Lasette product;
(2) failed to provide laser rods and other components necessary in the
manufacture of 1,000 units ordered by the Company; and (3) failed to make
the required payment for certain products already delivered to the Company.
The Company disagrees with these allegations. BSLT and the Company are
currently in discussions seeking to restructure their relationship and/or
reach an amicable resolution involving the Agreement.
(9) Equity Transactions
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 each exercisable to acquire one share of
common stock at an exercise price of $2.40 per share (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. 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. The Company utilized $500,000 to repay a short-
term loan concurrent with the offering.
The Preferred Stock was convertible at any time at the option of the
holder. The Preferred Stock was convertible 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 had been at
least $12.375 for ten consecutive trading dates. The Preferred Stock had a
liquidation preference of $8.25 per share and was entitled to a semiannual
dividend of four-tenths of one share of common stock for each share of
Preferred Stock. In January 1999, the Preferred Stock automatically
converted to common stock based on the provisions detailed above.
F-13
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
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 February 1998, the Company allowed a principal shareholder 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.
In September 1998, the Company sold 200,000 shares of common stock for
$300,000 to Chronimed, Inc. This investment by Chronimed was made as part
of the exclusive distribution agreement entered into by the companies in
August 1998. In March 1999, the Company shipped prototypes of the Personal
Lasette to Chronimed. As part of, what was then, an exclusive distribution
agreement, Chronimed was obligated to make an additional $150,000
investment in the Company upon acceptance of the prototypes. Chronimed
made that investment in April 1999. In December 1999, the Company and
Chronimed mutually agreed to convert their exclusive distribution
agreement to a non-exclusive distribution agreement with no further equity
or other commitments on behalf of either party.
In July 1999, the Company sold 9.5 units to four investors in a private
placement of its securities. Each unit consisted of 35,000 shares of
common stock and 7,500 common stock purchase warrants. Each warrant is
exercisable through February 2, 2003to purchase one share of common stock
for a price of $2.40 per share. In connection with this private placement,
the Company granted 15,000 warrants to two placement agents. In connection
with other investment banking services the Company granted an additional
15,000 warrants to one of the placement agents for those services
unrelated to this private placement. These 30,000 warrants are exercisable
through February 2, 2003 to purchase one share of common stock for a price
of $2.40 per share.
(10) Note Payable
In December 1999 the Company obtained a note payable for $250,000, from a
member of its Board of Directors. The note does not bear interest if the
note is paid in full at the end of six months. However, at the end of six
months, any unpaid balance will begin to accrue interest at 6% .The
balance as of January 15, 2001 is payable in 6 monthly installments
beginning on that date.
(11) Capital Resources
Since inception, the Company has incurred operating losses and other
equity, which have resulted in an accumulated deficit of $18,333,051 and
operations that used net cash of $1,584,722 in 1999.
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 series of laser-
based medical devices, which leverage the Company's existing base of
patented technology. The Company believes the markets for these new
products are broader than that of the scientific instrumentation market
and, as such, offer a greater opportunity to significantly increased
sales. In addition, the Company is pursuing development and marketing
partners for several 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 has begun manufacturing and marketing its laser-based
medical devices and continues to market its scientific instrument line, it
does not anticipate achieving profitable operations any sooner than the
fourth quarter of fiscal 2000. As a result, the Company's working capital
surplus is expected to erode over the next twelve months. Nevertheless,
the Company expects that its present working capital surplus, increased
sales, and the proceeds from private convertible debt and equity
placements (see note 12 - "Subsequent Events") will be sufficient to cover
its expected operational deficits through 2000.
F-14
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12) Subsequent Events
In January 2000, the Company terminated its public and investor relations
agreement with RCG Capital Markets Group, Inc. effective January 1, 2000.
In lieu of payment for three additional months of service retainer fees,
options for an additional 25,000 shares at an exercise price equal to the
closing price of the Company's common stock on February 15, 2000 were
granted. Due to early termination of this agreement, 50,000 unvested
options were cancelled.
Additionally, in January 2000, the Company issued a total of 40,000 common
stock purchase warrants to an investment research firm and its new public
relations firm. The Company is also committed under the terms of the
agreement with the new public relations firm to issue an additional 30,000
warrants if representation continues beyond six months. The warrants are
exercisable through February 2, 2003 to purchase one share of common stock
for a price of $2.40 per share. Of the additional 30,000 warrants, 15,000
vest after three months of services and the remaining 15,000 vest after
six months of services. The fair value of these performance-based options
will be measured upon vesting and be charged to operations at such time.
In February 2000 and subsequently amended in March 2000, the Company
executed a secured convertible promissory note from a private investor.
The principal amount of $1,200,000 will be paid in full with 500,000
shares of the Company's common stock at the time such shares are
registered with the SEC. The private investor paid $250,000 on March 3,
2000; $250,000 on March 9, 2000; $200,000 on March 28, 2000; and the
remaining $500,000 will be paid on or before April 21, 2000. If the
$500,000 payment is not made by April 21, 2000 by the private investor, a
financial institution will make the payment to the Company subject to an
irrevocable payment guarantee on April 28, 2000. The note will bear
interest from July 25, 2000 at the Bank of America prime rate as of March
3, 2000 plus 500 basis points with no interest accruing until July 25,
2000. The principal amount and any accrued unpaid interest is due and
payable on any date after February 25, 2001 but before February 25, 2002.
This note is secured by accounts receivable and inventory of the Company.
In connection with the beneficial conversion feature of this note, the
Company will record a charge of $1,200,000 upon registration of the common
stock with the SEC and conversion of this note into common stock.
Additionally, in February 2000, an underwriter in a previous offering
exercised a portion of its Placement Agent's Warrants to purchase a total
of 10.9825 private units at a price of $25,000 per unit. Each unit
consists of 20,000 shares of common stock and 10,000 Class A Common Stock
Purchase Warrants. Proceeds to the Company were approximately $467,000.
In March 2000, a previous distributor of the Company exercised its common
stock purchase warrant to purchase 100,000 shares of common stock at a
price of $2.25 per share.
(13) 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 medical devices for sale to fertility clinics, diabetic patients
and diabetic nurse educators as well as the physician community, medical
clinics, and to distributors.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
segment performance based on profit or loss from operations prior to the
consideration of unallocated corporate general and administrative costs.
The Company does not have intersegment sales or transfers.
F-15
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
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.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- -------------- --------- -----------
<S> <C> <C> <C> <C>
Revenues from customers $736,616 558,320 - 1,294,936
Research and development grants 122,381 - - 122,381
Profit (loss) from operations (3,416) (953,230) (978,099) (1,934,745)
Segment assets 397,050 1,095,976 520,640 2,013,666
<CAPTION>
December 31, 1998
-----------------------------------------------------------
Scientific Laser-Based
Research Medical
Instruments Devices Corporate Total
----------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues from customers 895,993 353,710 - 1,249,703
Research and development grants 179,298 - - 179,298
Profit (loss) from operations 226,921 (1,311,430) (783,291) (1,867,800)
Segment assets 465,564 307,258 1,804,230 2,583,052
</TABLE>
Segment assets for scientific research instruments and laser-based
medical devices represent accounts receivable, inventory and specifically
identifiable manufacturing equipment. The remaining assets are not
allocated among the segments, as there is no practical method to allocate
those assets between the segments.
The Company has no foreign operations. However, total export sales for the
year ended December 31, 1999 were primarily to Asia, Germany, Brazil and
South Africa and totaled $643,957. For the year ended December 31, 1998
export sales totaled $490,892 and were primarily to Germany, Asia and
Australia. Export sales are attributed to the country where the product is
shipped. Sales revenue to individual customers, each of which accounted
for 10 percent or more of total sales, are as follows for the years ended
December 31:
1999 1998
------- -------
Customer A, a related party 324,217 234,800
Customer B, a related party 167,160 -
Customer C - 195,518
F-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant: CELL ROBOTICS INTERNATIONAL, INC.
Dated: March 30, 2000 By: /s/ Ronald K. Lohrding
------------------------------------
Ronald K. Lohrding, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 30, 2000 */s/ Ronald K. Lohrding
-------------------------------------------
Ronald K. Lohrding, Chairman of the Board,
President, and Chief Executive Officer
(Attorney in fact)
Dated: March 30, 2000 /s/ Jean Scharf
-------------------------------------------
Jean Scharf, Chief Financial Officer, Chief
Accounting Officer and Controller
Dated: March 30, 2000 */s/ Mark Waller
-------------------------------------------
Mark Waller, Director
Dated: March 30, 2000 /s/ Raymond Radosevich
-------------------------------------------
Raymond Radosevich, Director
Dated: March 30, 2000 */s/ Debra Bryant
-------------------------------------------
Debra Bryant, Director
Dated: March 30, 2000 */s/ Ron Ainsworth
-------------------------------------------
Ron Ainsworth, Director
Dated: March 30, 2000 */s/ Oton Tisch
-------------------------------------------
Oton Tisch, Director
<PAGE>
EXHIBIT 23.0
The Board of Directors
Cell Robotics International, Inc.
We consent to incorporation by reference in the registration statement No.
333-55951 on Form S-3 of Cell Robotics International, Inc. of our report dated
March 28, 2000, relating to the consolidated balance sheets of Cell Robotics
International, Inc. and subsidiary as of December 31, 1999, and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1999,
which report appears in the December 31, 1999, annual report on Form 10-KSB of
Cell Robotics International, Inc.
KPMG LLP
Albuquerque, New Mexico
March 29, 2000
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF CELL ROBOTICS INTERNATIONAL, INC.
The undersigned director of Cell Robotics International, Inc., a Colorado
corporation (the "Corporation"), which proposes to file a Form 10-KSB under the
provisions of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission, Washington D.C., hereby constitutes and appoints Dr. Ronald
K. Lohrding, with full power of substitution and resubstitution, as attorney to
sign for the undersigned in any and all capacities such Form 10-KSB and any and
all amendments thereto, and any and all applications or other documents to be
filed pertaining to such Form 10-KSB with the Securities and Exchange Commission
and with full power and authority to do and perform any and all acts and
things whatsoever required and necessary to be done in the premises, as fully
to all intents and purposes as the undersigned could do if personally present.
The undersigned hereby ratifies and confirms all that said attorney-in-fact and
agent, or any of his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Executed this 28th day of March, 2000.
/s/ Mark T. Waller
----------------------------
Mark T. Waller
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF CELL ROBOTICS INTERNATIONAL, INC.
The undersigned director of Cell Robotics International, Inc., a Colorado
corporation (the "Corporation"), which proposes to file a Form 10-KSB under the
provisions of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission, Washington D.C., hereby constitutes and appoints Dr. Ronald
K. Lohrding, with full power of substitution and resubstitution, as attorney to
sign for the undersigned in any and all capacities such Form 10-KSB and any and
all amendments thereto, and any and all applications or other documents to be
filed pertaining to such Form 10-KSB with the Securities and Exchange Commission
and with full power and authority to do and perform any and all acts and
things whatsoever required and necessary to be done in the premises, as fully
to all intents and purposes as the undersigned could do if personally present.
The undersigned hereby ratifies and confirms all that said attorney-in-fact and
agent, or any of his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Executed this 30th day of March, 2000.
/s/ Debra Bryant
----------------------------
Debra Bryant
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF CELL ROBOTICS INTERNATIONAL, INC.
The undersigned director of Cell Robotics International, Inc., a Colorado
corporation (the "Corporation"), which proposes to file a Form 10-KSB under the
provisions of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission, Washington D.C., hereby constitutes and appoints Dr. Ronald
K. Lohrding, with full power of substitution and resubstitution, as attorney to
sign for the undersigned in any and all capacities such Form 10-KSB and any and
all amendments thereto, and any and all applications or other documents to be
filed pertaining to such Form 10-KSB with the Securities and Exchange Commission
and with full power and authority to do and perform any and all acts and
things whatsoever required and necessary to be done in the premises, as fully
to all intents and purposes as the undersigned could do if personally present.
The undersigned hereby ratifies and confirms all that said attorney-in-fact and
agent, or any of his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Executed this 30 day of March, 2000.
/s/ Ron Ainsworth
----------------------------
Ron Ainsworth
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF CELL ROBOTICS INTERNATIONAL, INC.
The undersigned director of Cell Robotics International, Inc., a Colorado
corporation (the "Corporation"), which proposes to file a Form 10-KSB under the
provisions of the Securities Exchange Act of 1934 with the Securities and
Exchange Commission, Washington D.C., hereby constitutes and appoints Dr. Ronald
K. Lohrding, with full power of substitution and resubstitution, as attorney to
sign for the undersigned in any and all capacities such Form 10-KSB and any and
all amendments thereto, and any and all applications or other documents to be
filed pertaining to such Form 10-KSB with the Securities and Exchange Commission
and with full power and authority to do and perform any and all acts and
things whatsoever required and necessary to be done in the premises, as fully
to all intents and purposes as the undersigned could do if personally present.
The undersigned hereby ratifies and confirms all that said attorney-in-fact and
agent, or any of his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Executed this 29 day of March, 2000.
/s/ Oton Tisch
----------------------------
Oton Tisch
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES F-2 AND F-3 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 358,379
<SECURITIES> 0
<RECEIVABLES> 230,119
<ALLOWANCES> (23,841)
<INVENTORY> 897,971
<CURRENT-ASSETS> 1,499,171
<PP&E> 1,240,167
<DEPRECIATION> (754,611)
<TOTAL-ASSETS> 2,013,666
<CURRENT-LIABILITIES> 908,833
<BONDS> 0
0
0
<COMMON> 32,976
<OTHER-SE> 821,857
<TOTAL-LIABILITY-AND-EQUITY> 2,013,666
<SALES> 1,294,936
<TOTAL-REVENUES> 1,417,317
<CGS> 1,064,130
<TOTAL-COSTS> 1,186,511
<OTHER-EXPENSES> 2,165,551
<LOSS-PROVISION> (1,934,745)
<INTEREST-EXPENSE> (716)
<INCOME-PRETAX> (1,909,350)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,909,350)
<DISCONTINUED> 0
<EXTRAORDINARY> (515,280)
<CHANGES> 0
<NET-INCOME> (2,424,630)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.31)
</TABLE>
