____________________________________________________________________________
____________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 28, 1996.
Commission file number 0-14742
CANDELA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2477008
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
530 Boston Post Road, Wayland, Massachusetts 01778
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (508) 358-7400
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
----- -----
_______________________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at November 7, 1996
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Common Stock, $.01 par value 5,388,809
____________________________________________________________________________
____________________________________________________________________________
CANDELA CORPORATION
INDEX
Page(s)
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Part I. Financial Information:
Item 1. Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-10
Part II. Other Information:
Item 1. through Item 5. 11
Not applicable
Item 6. Exhibits and Reports on Form 8-K 11
1
CANDELA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 28 June 29,
1996 1996
ASSETS (unaudited) (1)
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Current assets:
Cash and equivalents $ 3,019 $ 3,041
Accounts receivable 6,585 6,444
Notes receivable 949 1,956
Inventory 5,715 5,627
Other current assets 467 352
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Total current assets 16,735 17,420
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Property and equipment, net 1,164 1,183
Other assets 830 731
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Total Assets $18,729 $19,334
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 562 $ 708
Deferred income 1,716 1,943
Accounts payable 2,422 3,162
Accrued payroll and related expenses 722 748
Accrued warranty costs 1,061 897
Income taxes payable 483 350
Other accrued liabilities 817 1,004
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Total current liabilities 7,783 8,812
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Long-term debt 520 557
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Stockholders' equity:
Common stock 53 53
Additional paid-in capital 17,103 17,069
Retained deficit (6,614) (7,123)
Accumulated translation adjustment (116) (34)
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Total stockholders' equity 10,426 9,965
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Total Liabilities and Stockholders' Equity $18,729 $19,334
====================================================================================================
(1) Derived from audited financial statements
The accompanying notes are an integral part
of the consolidated financial statements.
2
CANDELA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the three months ended:
September 28 September 30,
1996 1995
(unaudited)
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Revenue $7,639 $5,984
Cost of sales 3,885 3,590
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Gross profit 3,754 2,394
Operating expenses:
Research and development 573 374
Selling, general and administrative 2,505 2,023
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Total operating expenses 3,078 2,397
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Income (loss) from operations 676 (3)
Other income (expense):
Interest income 15 27
Interest expense (17) (10)
Other 54 (119)
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Total other income (expense) 52 (102)
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Income (loss) before income taxes 728 (105)
Provision for income taxes 218 ---
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Net income (loss) $ 510 $ (105)
==================================================================================================================================
Net income (loss) per share $0.09 $(0.02)
==================================================================================================================================
Weighted average number of common
and common equivalent shares
outstanding 5,655 5,299
==================================================================================================================================
The accompanying notes are an integral part
of the consolidated financial statements.
3
CANDELA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the three months ended:
September 28, September 30,
1996 1995
(unaudited)
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Cash flows from operating activities:
Net income (loss) $ 510 $ (104)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 107 117
Change in assets and liabilities:
Accounts receivable (142) 442
Notes receivable 1,007 1,085
Inventory (88) 119
Other current assets (115) (59)
Other assets (99) 43
Accounts payable (740) 502
Accrued payroll and related expenses (26) 26
Deferred income (227) (257)
Accrued warranty costs 164 (152)
Income taxes payable 133 (507)
Other accrued liabilities (187) (114)
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Total adjustments (213) 1,245
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Net cash provided by (used for) operating activities 297 1,141
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Cash flows from investing activities:
Proceeds from sale of equipment 45 0
Payment for additions to property and equipment (134) (68)
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Net cash used for investing activities (89) (68)
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Cash flows from financing activities:
Payments of capital lease obligations (39) 0
Issuance (payment) of long-term debt (143) (210)
Proceeds from the issuance of common stock 34 0
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Net cash used for financing activities (148) (210)
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Accumulated translation adjustment (82) (365)
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Net decrease in cash and equivalents (22) 498
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Cash and equivalents at beginning of period 3,041 2,565
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Cash and equivalents at end of period $3,019 $3,063
==================================================================================================================================
The accompanying notes are an integral part
of the consolidated financial statements.
4
CANDELA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Annual Report on Form 10-K for fiscal 1996,
which should be read in conjunction with these statements. The financial
information included herein, with the exception of the consolidated balance
sheet at June 29, 1996, has not been audited. However, in the opinion of
management, the statements include all adjustments necessary for a fair
presentation of the quarterly results. All adjustments made to these
financial statements were considered to be of a normal and recurring nature.
The results for the three month period ended September 28, 1996 are not
necessarily indicative of the results to be expected for the full year.
In August 1995, the Company incorporated a wholly-owned subsidiary, Candela
Skin Care Centers, Inc. (CSCC). CSCC supports services to its customers,
through cosmetic laser facilities, integrating laser cosmetic procedures with
spa, salon, health and fitness services. In June 1996, the Company acquired
all of the outstanding capital stock of Spa Management, Inc., which was
accounted for using the pooling of interests method of accounting. (See Note
2).
2. POOLING OF INTERESTS
On June 27, 1996, the Company acquired all of the outstanding shares of
capital stock of Spa Management, Inc. The acquisition was accomplished
through an exchange of 60,317 shares of the Company's common stock for all of
the outstanding shares of capital stock of Spa Management, Inc. This
transaction has been accounted for using the pooling of interests method of
accounting. Spa Management, Inc., d/b/a Le Pli at the Heritage(Le Pli) was
formed in May 1994, and is a Boston-based health spa with approximately 60
employees at the time of acquisition and specializes in personal care and
health and beauty services. Le Pli currently operates as a wholly-owned
subsidiary of CSCC.
All prior period historical consolidated financial data presented herein have
been restated to include the financial position, results of operations, and
cash flows of Le Pli.
3. INVENTORY
Inventory consists of the following (in thousands):
September 28, 1996 June 29, 1996
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(unaudited) (1)
Raw materials $3,550 $3,534
Work in process 845 531
Finished goods 1,320 1,562
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$5,715 $5,627
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5
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
September 28, 1996 June 29, 1996
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(unaudited) (1)
Leasehold improvements $ 357 $ 361
Office furniture & equipment 772 724
Laser systems 483 543
Equipment 3,372 3,296
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Total $4,984 $4,924
Less accumulated depreciation
and amortization 3,820 3,741
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$1,164 $1,183
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(1) Derived from audited financial statements
5. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and, if dilutive, common stock
equivalents outstanding. Common stock equivalents include shares issuable
upon the exercise of stock options or warrants, net of shares assumed to have
been purchased with the proceeds. The 1995 income per share data also
reflects the assumed issuance, at the beginning of the period, of 60,317
shares of common stock in connection with the acquisition of Spa Management,
Inc.
6
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
the following cautionary statements should be considered carefully in
evaluating the Company and its business. Statements contained in this Form 10-
Q that are not historical facts (including without limitation, statements
concerning anticipated operational and capital expense levels and such expense
levels relative to the Company's total revenues) and other information provided
by the Company and its employees from time to time may contain certain
"forward-looking" information, as that term is defined by (i)the Private
Securities Litigation Reform Act of 1995 (the "Act") and (ii)in releases made
by the Securities and Exchange Commission (the "SEC"). The factors identified
in the cautionary statements below, among other factors, could cause actual
results to differ materially from those suggested in such forward-looking
statements. The cautionary statements below are being made pursuant to the
provisions of the Act and with the intention of obtaining the benefits of the
"safe harbor" provisions of the Act.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results may vary significantly from quarter to quarter, depending
upon factors such as the timing of product sales, the timing of expenditures in
anticipation of future product orders, the introduction and market acceptance
of new products, effectiveness in managing manufacturing processes, changes in
cost and availability of labor and product components, order cancellations, the
budgetary cycles of its customers, and the timing of regulatory approvals. The
Company's ability to accurately forecast future revenues and income for any
period is necessarily limited, and any forward-looking information provided
from time to time by the Company represents only management's then-best current
estimate of future results or trends, and actual results may differ materially
from those contained in the Company's estimates.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been significant volatility
in the market price of securities of companies in the medical device industry.
Factors such as announcements of new products by the Company or its
competitors, quarterly fluctuations in the financial results of the Company or
its competitors, shortfalls in the Company's actual financial results compared
to results previously forecasted by stock market analysts, conditions in the
medical device industry and the financial markets and the economy generally
could cause the market price of the Company's securities to fluctuate
substantially and may adversely affect the price of the Company's securities.
7
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. A significant portion of the
Company's revenues are attributable to international operations and revenues
from international operations are likely to continue to be significant in
future periods. The Company's international business and financial performance
may be adversely affected by a number of factors, including without limitations
to fluctuations in exchange rates, tariffs and other trade barriers, adverse
tax regulation, and adverse political and economic conditions. Adverse effect
on the Company's international operations may have materially adverse effects
on the Company's overall financial condition and operating results.
GOVERNMENTAL REGULATION. Medical devices are subject to United States Food
and Drug Administration ("FDA") approval before they can be utilized for
clinical studies or sold commercially. In addition, the Company's activities
in connection with its CSCC business may subject the Company to additional
regulation under state and federal laws. The process for obtaining the
necessary approvals and compliance with applicable regulations can be costly
and time consuming. Many foreign countries in which the Company markets or may
market its products have similar regulatory bodies and restrictions. There is
no assurance the Company will be able to obtain any such government approvals
or successfully comply with any such regulations in a timely and cost-effective
manner, if at all, and failure to do so may have an adverse effect on the
Company's financial condition and results of operations.
RISKS ASSOCIATED WITH PRODUCT LIABILITY. The administration of medical and
cosmetic treatments using laser products is subject to various risks of
physical injury to the patient which may result in product liability or other
claims against the Company. The costs and resources involved in defending or
settling any such claims, or the payment of any award in connection therewith,
may adversely affect the Company's financial condition and operating results.
The Company maintains product liability insurance, but there is no assurance
that its policy will provide sufficient coverage for any claim or claims that
may arise, or that the Company will be able to maintain such insurance coverage
on favorable economic terms.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The medical laser industry is
subject to rapid and substantial technological development and product
innovations. The Company, to be successful, must be responsive to new
developments in laser technology and applications of existing technology, and
the Company's financial condition and operating results may be adversely
affected by the failure of new or existing products to compete favorably in
response to such technological developments. In addition, the Company competes
against numerous other companies offering products similar to the Company's
and/or alternative products and technologies, some of which have greater
financial, marketing and technical resources than the Company. There can be no
assurance the Company will be able to compete successfully.
8
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's success
will depend in large part on its ability to attract and retain highly-qualified
scientific, technical, managerial, sales and marketing, management and other
personnel. Competition for such personnel is intense and any decline in the
Company's ability to attract and retain such personnel may have adverse effects
on its financial condition and operating results.
RESULTS OF OPERATIONS
- ---------------------
Revenue for the three months ended September 28, 1996 was $7,639,000, an
increase of 28% versus the same period a year earlier. The increase for the
three month period reflects an increase in shipments of the Company's new leg
vein device, the Sclerolaser, and the shipments of the AlexLAZR used for
treatment of vascular and pigmented lesions.
Gross margins were 49% for the three month period ending September 28, 1996,
versus 40% for the three month period a year earlier. The gross margins of 49%
for the period ending September 28, 1996 were significantly impacted by the
increased shipments of the Sclerolaser and AlexLAZR.
Research and development spending has increased to $573,000 for the three
months ended September 28, 1996 from $374,000 in the three month period a year
earlier. This represents an increase of 53% and results from the Company's R&D
efforts to expand in a number of areas which can be commercialized quickly and
efficiently.
Selling, general and administrative spending for the three month period
ending September 28, 1996 was $2,505,000. This was an increase of $482,000 over
the same period a year earlier, representing additional spending related to the
Company's entry into the cosmetic laser center market and repositioning for
growth in certain sales, marketing and administrative areas, offset by spending
reductions in other areas of the company.
Other interest income and expense for the three month period ended September
28, 1996 reflects an increase in income of $154,000. For the three month period
ended September 28, 1996, interest income was $15,000 and interest expense was
$17,000 versus interest income of $27,000 and interest expense of $10,000 for
the same period one year earlier. Exchange rate translation resulted in other
income of $54,000 compared to a $119,000 loss for the same period one year
earlier.
Profit from operations of $676,000 for the three months ended September 28,
1996 include losses from the Company's cosmetic laser center operations of
$183,000 for the three month period.
Provision for income taxes for the three months ended September 28, 1996
reflects an effective tax rate of 30%. The provision for income taxes is a
combination of both the domestic and foreign activities of the Company.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and equivalents at September 28, 1996 decreased to $3,019,000 from
$3,041,000 at June 29, 1996.
In October 1995, the Company opened its first laser cosmetic skin care
center. The funds used by the Company for the initial investment costs and on-
going operating expenses of the laser center were partially offset by cash
received under equipment financing arrangements. In support of the continued
growth of this and other laser centers, the Company may acquire additional
capital through similar equipment financing arrangements or other means.
The Company is in negotiation with various banks to establish a credit line
should additional capital be needed for on-going operations.
9
CANDELA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
10
CANDELA CORPORATION
PART II OTHER INFORMATION
Item 1-5 Not Applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANDELA CORPORATION
Registrant
Date: November 7, 1996 /s/ Gerard E. Puorro
----------------- --------------------------------------
Gerard E. Puorro
(President , Chief Executive Officer)
Date: November 7, 1996 /s/ F. Paul Broyer
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F. Paul Broyer
(Vice President, Treasurer and Chief
Financial Officer)
12