FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 2, 2000
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to_______
Commission file number: 0-17919
SURGICAL LASER TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1093148
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
147 Keystone Drive
Montgomeryville, PA 18936
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 619-3600
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 ( )
On May 8, 2000 the registrant had outstanding 1,977,965 shares
of Common Stock, $.0l par value.
Page 1
Exhibit Index is on Page 11
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION: PAGE
- -------------------------------- ----
ITEM 1. Financial Statements:
a. Condensed Consolidated Balance Sheets, 3
April 2, 2000 (unaudited) and January 2, 2000
b. Condensed Consolidated Statements of Operations (unaudited) for the quarters ended 4
April 2, 2000 and April 4, 1999
c. Condensed Consolidated Statements of Cash Flows (unaudited) for the quarters ended 5
April 2, 2000 and April 4, 1999
d. Notes to Condensed Consolidated Financial Statements (unaudited) 6-8
ITEM 2. Management's Discussion and Analysis of 8-10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
- ----------------------------
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBITS:
EXHIBIT 27.1 - Financial Data Schedule, April 2, 2000 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
April 2, 2000 Jan. 2, 2000
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents (including restricted amount of $45) $1,045 $277
Short-term investments 2,616 3,472
Accounts receivable, net of allowance for doubtful accounts of $488 1,105 1,210
Inventories (Note 3) 1,777 1,793
Other 190 51
---------- ---------
Total current assets 6,733 6,803
Property and equipment, net 589 612
Patents and licensed technology, net 491 516
Other assets 68 89
---------- ---------
Total assets $7,881 $8,020
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $104 $163
Accounts payable 543 515
Accrued liabilities 408 604
---------- ---------
Total current liabilities 1,055 1,282
---------- ---------
Long-term debt 14 16
Stockholder's equity:
Common stock, $.01 par value, 30,000 shares authorized, 1,978 shares
issued and outstanding 20 20
Additional paid-in capital 33,033 33,033
Accumulated deficit (26,234) (26,321)
Deferred compensation (7) (10)
---------- ---------
Total stockholders' equity 6,812 6,722
---------- ---------
Total liabilities and stockholders' equity $7,881 $8,020
========== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
For the Quarter Ended:
April 2, 2000 April 4, 1999
Net sales $1,837 $2,262
Cost of sales 772 971
---------- ----------
Gross profit 1,065 1,291
---------- ----------
Operating expenses:
Selling, general and administrative 880 1,371
Product development 146 228
---------- ----------
1,026 1,599
---------- ----------
Operating income (loss) 39 (308)
Interest expense 9 139
Interest income (57) (72)
Other income -- (98)
---------- ----------
Income (loss) before income taxes 87 (277)
Provision for income taxes -- --
---------- ----------
Net income (loss) $87 ($277)
========== ==========
Basic and diluted income (loss) per share $0.04 ($0.14)
========== ==========
Shares used in calculating basic income (loss) per share 1,978 1,978
Shares used in calculating diluted income (loss) per share 2,027 1,978
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
For the Quarter Ended:
April 2, 2000 April 4, 1999
Cash Flows From Operating Activities:
Net income (loss) $87 ($277)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 124 285
Imputed interest (2) (5)
Provision for bad debts -- 14
(Increase) decrease in assets:
Accounts receivable 105 (343)
Inventories 11 68
Other current assets (139) 7
Other assets 4 (19)
Increase (decrease) in liabilities:
Accounts payable 28 (22)
Accrued liabilities (196) (107)
----------- ----------
Net cash provided by (used in) operating activities 22 (399)
----------- ----------
Cash Flows From Investing Activities:
Sales (purchases) of short-term investments 856 (240)
Purchases of property and equipment (48) (71)
Patent costs (1) (13)
----------- ----------
Net cash provided by (used in) investing activities 807 (324)
----------- ----------
Cash Flows From Financing Activities:
Payments on long-term debt (61) (134)
----------- ----------
Net cash used in financing activities (61) (134)
----------- ----------
Net increase (decrease) in cash and cash equivalents 768 (857)
Cash and Cash Equivalents, Beginning of Period 277 2,938
----------- ----------
Cash and Cash Equivalents, End of Period $1,045 $2,081
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
1. Summary Financial Information and Results of Operations:
In the opinion of Surgical Laser Technologies, Inc. and Subsidiaries (the
"Company"), the accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and with the regulations of the Securities and Exchange Commission
and contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods presented.
Interim Financial Information:
While the Company believes that the disclosures presented are adequate to
prevent misleading information, it is suggested that the unaudited condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes included in the Company's Form 10-K
report for the fiscal year ended January 2, 2000, as filed with the Securities
and Exchange Commission. Interim results for the quarter ended April 2, 2000 are
not necessarily indicative of the results to be expected for the full year.
2. Supplemental Cash Flow Information:
There were no material income taxes paid for the quarters ended April 2, 2000
and April 4, 1999. Interest paid for the quarters ended April 2, 2000 and April
4, 1999 was $9,000 and $139,000, respectively.
3. Inventories:
Inventories at April 2, 2000 and January 2, 2000 were as follows (in thousands
of dollars)
April 2, 2000 January 2, 2000
------------- ---------------
Raw material and work-in-process $1,137 $1,156
Finished goods 640 637
------ ------
$1,777 $1,793
====== ======
4. Basic and Diluted Income (Loss) Per Share:
Basic and diluted income (loss) per share have been computed under the
guidelines of Statement of Financial Accounting Standards No. 128 "Earnings per
Share" ("SFAS No. 128") as follows (in thousands except for per share amounts):
6
For the Quarter Ended:
April 2, 2000 April 4, 1999
------------- -------------
Basic EPS Calculation
Net income (loss) $87 ($277)
Denominator:
Common Stock Outstanding 1,978 1,978
---------- ----------
Basic EPS $0.04 ($0.14)
========== ==========
Diluted EPS Calculation
Net income (loss) $87 ($277)
Denominator:
Common Stock Outstanding 1,978 1,978
Common Stock Options 49 --
---------- ----------
Total Shares 2,027 1,978
---------- ----------
Diluted EPS $0.04 ($0.14)
========== ==========
For the quarter ended April 2, 2000, the Company had common stock options and
warrants outstanding of 459,000, of which 49,000 options were included in the
calculation of diluted earnings per share. The remainder of common stock options
and warrants outstanding of 410,000 were excluded from the calculation of
diluted earnings per share because those options' and warrants' exercise prices
were greater than the average market price of the common stock. For the quarter
ended April 4, 1999, the Company had common stock options and warrants
outstanding of 377,000 and subordinated debt convertible into 72,000 shares of
common stock. Due to the net loss incurred for the quarter ended April 4, 1999,
the inclusion of these common share equivalents had an anti-dilutive effect when
calculating diluted loss per share under SFAS No. 128, and as a result, were
excluded from the calculation.
5. Bank Borrowings:
The Company's $2,535,000 line of credit agreement with a bank expired on August
31, 1999. The Company is currently seeking a new banking relationship, at which
time the Company expects to secure a new line of credit. The Company's
management does not foresee any event or condition which would prohibit the
attainment of a new line of credit.
6. Income Taxes:
No income tax provision was made for the quarter ended April 2, 2000 due to the
availability of net operating loss carryforwards. No income tax provision was
made for the quarter ended April 4, 1999 due to the net loss incurred.
7. Business Segment and Geographic Data:
The Company is engaged primarily in one business segment: the design,
development, manufacture and marketing of laser products and other instruments
for medical applications. The Company's customers are primarily hospitals and
medical centers. For the quarters ended April 2, 2000 and April 4, 1999, the
Company did not have material net sales to any individual customer.
The Company reported net sales in the following categories (in thousands of
dollars):
For the Quarter Ended:
April 2, 2000 April 4, 1999
------------- -------------
Disposables and accessories $1,347 $1,596
Laser system sales, service and rental 490 666
--------- ------
Total net sales $1,837 $2,262
========= ======
7
For the quarters ended April 2, 2000 and April 4, 1999, there were no material
net sales attributed to an individual foreign country. Net sales by geographic
area were as follows (in thousands of dollars)
For the Quarter Ended:
April 2, 2000 April 4, 1999
------------- -------------
Domestic $1,614 $2,068
Foreign 223 194
------ ------
$1,837 $2,262
====== ======
8. Acquisition of Surgical Innovations & Services, Inc.
On May 8, 2000, the Company entered into a definitive agreement to acquire
Surgical Innovations & Services, Inc. ("SIS"), a closely held Alabama
corporation that provides contract laser and other surgical services to
hospitals and surgery centers in the southeastern United States. Under the
agreement, the SIS shareholders will receive 350,000 shares of the Company's
common stock and $300,000 in cash. Closing is expected to occur on or before May
31, 2000 and is subject to certain customary closing conditions. The Company
expects to account for this acquisition using the purchase method.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
Overview
The Company is engaged in the development, manufacture and sale of proprietary
laser systems for both contact and non-contact surgery. The Company supplements
its contact offerings with non-laser products. The Company's growth strategy
includes a specific focus in the surgical specialties of Otolaryngology and Head
and Neck surgery and Neurosurgery (ENT and Neurosurgery). In conjunction with
this focused strategy, the Company has entered and will continue to seek to
enter into relationships with other companies to expand the use of the Company's
products in surgical specialties other than ENT and Neurosurgery, and has
utilized and will continue to seek to utilize its strengths in supplying other
companies with products that draw on the Company's expertise and competencies.
While refocusing its strategy in ENT and Neurosurgery, the Company will take
these other actions in an effort to enhance sales and to promote continued
utilization of its products and services in those other surgical specialties.
The Company is also taking actions intended to improve its international
customer relationships, consistent with a focus on a more specific surgical
segment. Additionally, as part of this transition, the Company is exploring
opportunities to expand the utilization of its proprietary technologies by
entering into private label relationships with other companies which will market
products encompassing the Company's core competencies under their product
labeling.
Results of Operations
Net sales for the quarter ended April 2, 2000 of $1,837,000 decreased $425,000
or 19% from the comparable period in 1999. Net sales of disposables and related
accessories declined $249,000 or 16% in the first quarter of 2000 from the first
quarter of 1999 due to a lower level of Contact Laser(TM) Delivery System sales
offset, in part, by an increase in non-laser product sales. Net sales of Nd:YAG
laser systems, service and rentals of $490,000 in the first quarter of 2000 were
$176,000 or 26% lower than the comparable period in 1999. The decrease was
mainly attributable to a reduction in Nd:YAG laser systems sales of $112,000 and
to lower sales from the Company's Laser On Call(TM) rental business.
8
Gross profits of $1,065,000 for the quarter ended April 2, 2000 decreased
$226,000 or 18% from the first quarter of 1999. As a percentage of net sales,
gross profit of 58% was slightly higher in the quarter ended April 2, 2000
compared to a gross profit percentage in the quarter ended April 4, 1999 of 57%
due to a decline in depreciation expense of laser systems utilized within the
Laser On Call(TM) rental business.
Operating expenses for the first quarter of 2000 of $1,026,000 decreased by
$573,000 or 36% from the first quarter of 1999. This decrease was due primarily
to personnel and other expense reductions implemented during the second quarter
of 1999 for the purpose of bringing expenses more in line with current sales
levels. Also contributing to the decline in the operating expenses was a
decrease in depreciation expense, primarily related to demonstration lasers
systems.
Selling, general and administrative expenses of $880,000 in the first quarter of
2000 decreased $491,000 or 36% from the comparable prior year period. Reductions
in personnel and associated expenses and depreciation expense accounted for the
majority of the reduction.
Product development expenses of $146,000 in the first quarter of 2000 were
$82,000 or 36% lower than the same period in 1999. The lower level of spending
was principally due to a decrease in personnel costs and related expenses.
Interest expense of $9,000 for the first quarter of 2000 was $130,000 or 94%
lower than in the first quarter of 1999. The decrease was primarily attributable
to the sale of the Company's facility in Oaks, Pennsylvania during June 1999,
whereby the mortgages on the facility were assumed by the buyer.
Interest income of $57,000 for the first quarter of 2000 declined $15,000 or 21%
from the first quarter of 1999 due to the lower level of cash, cash equivalents
and short term investments.
Other income primarily consisted of facility-related income and expense items.
Due to the Company's sale of its facility in Oaks, Pennsylvania during June
1999, there was no other income recorded for the quarter ended April 2, 2000.
Other income for the quarter ended April 4, 1999 was $98,000.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at April 2, 2000 were
$3,661,000, a decrease of $88,000 from the January 2, 2000 balance of
$3,749,000. The Company invests its excess cash in high-quality, liquid,
short-term investments. Restricted cash and cash equivalents at April 2, 2000
and January 2, 2000 consisted of $45,000 held in escrow for payment of taxes
related to the sale of the Company's property in Oaks, Pennsylvania.
The Company currently does not have a line of credit agreement with a bank. Due
to the sale of the Company's former headquarters facility, its requirements for
a line of credit changed. Therefore, upon the expiration of the Company's former
line of credit agreement with a bank, the Company chose not to renew the line.
The Company is seeking a new banking relationship for its treasury needs and
expects to complete the process in the second quarter of 2000.
Net cash provided by operating activities was $22,000 in the first quarter of
2000 compared to cash used in operating activities of $399,000 in the comparable
period in 1999. The comparable increase was due principally to the profit of
$87,000 reported in the first quarter of 2000 compared to the loss of $277,000
in the first quarter of 1999.
Net cash provided by investing activities was $807,000 in the first quarter of
2000, compared to cash used in investing activities of $324,000 in the first
quarter of 1999. The increase in cash provided by investing activities was due
principally to the sale of short-term investments of $856,000 in the first
quarter of 2000 as compared to purchases of short-term investments of $240,000
in the first quarter of 1999.
9
Net cash used in financing activities was $61,000 and $134,000 in the first
quarter of 2000 and 1999, respectively. The decrease was the result of the
elimination of mortgage payments resulting from the sale of the Company's
facility in Oaks, Pennsylvania during June 1999.
Management believes the Company's current cash position will be sufficient to
fund operations and meet commitments for long-term debt, other commitments and
contingencies and capital expenditures.
Management believes that inflation has not had a material effect on operations
for the periods presented.
The Year 2000 issue related to the Company's hardware and software programs as
well as the Company's non-information technology, such as its telephone and
security system, did not result in any disruption of its business operations.
The Company incurred Year 2000 costs of $8,000, which represented payment for
new software. There were no Year 2000 related trends, such as increased
purchases from customers or changes in spending patterns, that had a material
impact on the results of operations. The Company has not encountered any
material Year 2000 compliance issues with direct third parties, such as banks,
service providers or suppliers.
Risk Factors
For information regarding certain risk factors that could cause actual results
to differ materially from those suggested in forward-looking statements
contained herein or otherwise made from time to time by the Company, reference
is made to the Company's Form 10-K, Item 7, "Risk Factors," for the fiscal year
ended January 2, 2000, which is incorporated herein by reference. The risk
factors described in such report continue to be applicable at April 2, 2000.
ITEM 5. Other Information
- ---------------------------
Acquisition of Surgical Innovations & Services, Inc.
On May 8, 2000, the Company entered into a definitive agreement to acquire
Surgical Innovations & Services, Inc. ("SIS"), a closely held Alabama
corporation that provides contract laser and other surgical services to
hospitals and surgery centers in the southeastern United States. Under the
agreement, the SIS shareholders will receive 350,000 shares of the Company's
common stock and $300,000 in cash. Closing is expected to occur on or before May
31, 2000 and is subject to certain customary closing conditions.
SIS had 1999 revenues of $2.7 million, reflecting growth of 27% from the prior
year, with pre-tax income of $130,000. In addition to the potential for
continued revenue growth, the Company believes that the integration of its
capabilities into the SIS operations is expected to provide cost reduction
opportunities in several areas. The Company will continue the SIS business
through a new wholly-owned subsidiary that will operate under the SIS name.
Robert Crutchfield, SIS' President, will remain as President of the SIS
subsidiary and will become Vice President, Business Planning for the Company. In
addition, James Lee Stafford, a director and shareholder of SIS, will be
nominated for election as a director of the Company at the 2000 Annual Meeting
of Stockholders.
The audited financial statements of SIS for the fiscal year ended December 31,
1999 and unaudited pro-forma consolidated financial statements of the Company
and SIS for the year ended January 2, 2000 and period ended April 2, 2000 are
not included in this filing. These financial statements will be filed with the
Form 8-K Report which will be filed within 15 days after closing of the merger.
10
ITEM 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
a. Exhibits: Exhibit 27.1 - Financial Data Schedule, April 2, 2000
b. Reports on Form 8-K: None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SURGICAL LASER TECHNOLOGIES, INC.
Date: May 15, 2000 By: /s/ Davis Woodward
--------------------
Davis Woodward
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the
Company and as principal
financial officer.
12