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, 1995
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.)
200 Cresson Boulevard, P.O. Box 880
Oaks, PA 19456
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(Address of principal executive offices)
(Zip Code)
(610) 650-0700
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(Registrant's telephone number, including area code)
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(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 9, 1995, the registrant had outstanding 9,850,312 shares of Common
Stock, $.01 par value.
Page 1 of 12 Pages
Index is on Page 2
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
a. Condensed Consolidated Balance Sheets,
April 2, 1995 (unaudited) and January 1, 1995 3
b. Condensed Consolidated Statements of Operations
(unaudited) for the quarters ended
April 2, 1995 and April 3, 1994 4
c. Condensed Consolidated Statements of Cash Flows
(unaudited) for the quarters ended
April 2, 1995 and April 3, 1994 5
d. Notes to Condensed Consolidated Financial
Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 9
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBITS:
EXHIBIT 11 - Computation of Earnings Per Share 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
Apr. 2, Jan. 1,
1995 1995
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $3,427 $4,143
(including restricted amounts of $100)
Accounts receivable, net of allowance for doubtful
accounts of $111 and $110 4,157 4,468
Inventories 5,095 4,725
Other 455 257
------ ------
Total current assets 13,134 13,593
Property and equipment, net 8,766 8,869
Patents and licensed technology, net 3,427 3,627
Other assets 369 365
------ ------
Total Assets $25,696 $26,454
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $410 $314
Accounts payable 1,599 1,298
Accrued liabilities 2,598 2,590
------ ------
Total current liabilities 4,607 4,202
------ ------
Long-term debt 6,622 6,567
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares authorized,
9,849 shares and 9,840 shares issued and outstanding 99 98
Additional paid-in capital 32,567 32,526
Accumulated deficit (18,199) (16,939)
------ ------
Total stockholders' equity 14,467 15,685
------ ------
Total Liabilities and Stockholders' Equity $25,696 $26,454
======= =======
The accompanying notes are an integral part of these statements.
3
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
For the Quarter Ended:
----------------------
Apr. 2, Apr. 3,
1995 1994
---- ----
Net sales $4,167 $4,665
Cost of sales 1,664 1,832
----- -----
Gross profit 2,503 2,833
------ ------
Operating expenses:
Selling, general and administrative 2,965 2,489
Product development 683 462
------ ------
3,648 2,951
------ ------
Operating income (loss) (1,145) (118)
Interest expense 161 166
Interest income (38) (18)
Equity in earnings of joint venture (7) (11)
------ ------
Income (loss) before income taxes (1,261) (255)
Provision for income taxes -- --
------ ------
Net income (loss) ($1,261) ($255)
======= =====
Net income (loss) per share ($0.13) ($0.03)
======= =====
Shares used in calculating net income (loss) per share 9,846 9,072
======= =====
The accompanying notes are an integral part of these statements.
4
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
For the Quarter Ended:
---------------------
Apr. 2, Apr. 3,
1995 1994
---- ----
Cash Flows From Operating Activities:
Net income (loss) ($1,261) ($255)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (income) of joint venture (7) (11)
Depreciation and amortization 463 498
Imputed interest 5 8
Decrease (increase) in assets:
Accounts receivable 311 384
Inventories (377) 154
Other current assets (198) (64)
Other assets 1 (18)
Increase (decrease) in liabilities:
Accounts payable 555 (281)
Accrued liabilities 2 (311)
------ ------
Net cash provided by (used in) operating activities (506) 104
------ ------
Cash Flows From Investing Activities:
Additions to property and equipment (143) (104)
Patent costs (7) (61)
------ ------
Net cash used in investing activities (150) (165)
------ ------
Cash Flows From Financing Activities:
Payments on long-term debt (60) (172)
------ ------
Net decrease in cash and cash equivalents (716) (233)
Cash and Cash Equivalents, Beginning of Period 4,143 2,866
------ ------
Cash and Cash Equivalents, End of Period $3,427 $2,633
------ ------
The accompanying notes are an integral part of these 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 as of April 2, 1995 and the
results of operations and cash flows for the quarters ended April 2, 1995 and
April 3, 1994.
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 1, 1995, as filed with the Securities
and Exchange Commission. Interim results for the quarter ended April 2, 1995 are
not necessarily indicative of the results to be expected for the full year.
2. Supplemental Cash Flow Information:
There were no income taxes paid for the quarters ended April 2, 1995 or
April 3, 1994. Interest paid for the quarters ended April 2, 1995 and April 3,
1994 was $156,000 and $167,000, respectively.
The following noncash investing and financing activities took place:
During the first quarter of 1995, the Company issued additional notes of
$299,000 in conjunction with the financing of certain patent litigation. The
notes bear interest at annual interest rates ranging from 9.5% to 10%, are
payable in monthly installments and are scheduled to be completely repaid
between December 1996 and March 1997. For the quarters ended April 2, 1995 and
April 3, 1994, $42,000 and $118,000, respectively, of the 8% convertible
subordinated notes were converted at the request of the note holders into common
stock at a conversion price of $4.50 per share. For the quarter ended April 3,
1994, the Company issued additional common stock of $114,000 in the form of
restricted stock awards, for bonuses previously accrued.
3. Net Loss Per Share:
Net loss per share has been computed using the weighted average number of
6
common shares outstanding during each period. Common share equivalents have not
been considered as they are anti-dilutive.
4. Bank Borrowings:
The Company has a $2.75 million line of credit agreement with a bank. The
line of credit provides for a $750,000 sub-line for letters of credit. Under its
sub-line, SLT issued a letter of credit in the amount of $629,000 in favor of
the Montgomery County Industrial Development Corporation (MCIDC) under the terms
of the Mortgage and Security Agreement. There were no other borrowings under the
line at April 2, 1995. Borrowings on the line are secured by the Company's
accounts receivable and inventories and bear interest at the bank's prime rate
plus 1/2%. The line expires on June 30, 1996.
The Company's line of credit agreement prohibits the declaration or payment
of dividends or distributions on any of its capital stock at any time there are
outstanding obligations to the bank without prior written consent of the bank.
In addition, the agreement requires the Company to maintain a leverage covenant,
as defined.
5. Income Taxes:
No income tax provision was made for the quarters ended April 2, 1995 or
for the comparable quarter in 1994 due to the losses incurred.
6. Segment and Geographic Data:
The Company is engaged in one business segment: the design, development,
manufacture and marketing of laser products for medical applications. The
Company's customers are primarily hospitals and medical centers. Foreign sales,
excluding sales to C.R. Bard, represented 23% of net sales in the first quarter
of 1995 as compared to 16% in the same period in 1994. Sales to the Company's
joint venture (see note 7) were 13% of net sales in the first quarter of 1995.
Sales to one customer (C.R. Bard) in the first quarter of 1994 represented 14%
of net sales.
7. Investment in MEDIQ PRN/SLT:
The Company is a 50% owner of MEDIQ PRN/SLT, a joint venture formed in the
third quarter of 1993 to provide rentals of lasers and related equipment to
hospitals and other health care providers. The investment in MEDIQ PRN/SLT is
accounted for using the equity method and is included in other assets. Sales to
MEDIQ PRN/SLT are recorded at an arms-length price. Under the equity method, 50%
of the gross profit from the sales to the joint venture is deferred and
amortized to income as the related asset is used by the joint venture. The
Company's sales to the joint venture were $548,000 and $17,000 for the quarters
ended April 2, 1995 and April 3, 1994 respectively. Accounts receivable from
sales to MEDIQ PRN/SLT at April 2, 1995 are $1,116,000.
7
ITEM 2. Management's Discussion and Analysis of Financial
- - - - - - - ----------------------------------------------------------
Condition and Results of Operations
- - - - - - - -----------------------------------
Results of Operations
Net sales for the quarter ended April 2, 1995 of $4,167,000 decreased
$498,000 or 10% from the comparable period in 1994. Included in the first
quarter of 1994 sales were $666,000 of sales to C.R. Bard Inc. for which there
were no corresponding sales in 1995.
Net sales of delivery systems increased by 5.2% over the comparable period
in 1994, while net sales of Contact Laser Systems, excluding sales to C.R. Bard,
were flat compared to the same period last year.
Sales in the international marketplace for the quarter ended April 2, 1995
increased 28% over the comparable period last year, while net sales in the
domestic markets remained relatively flat. One factor affecting U.S. capital
sales in the first quarter of 1995 was market confusion resulting from the
introduction by certain companies of a new electrosurgical roller-ball product
for use in urology in performing TURPs and prostatectomies. Though these
products have not had widespread clinical use and long-term clinical outcomes
are not yet available, they have delayed the capital purchasing decisions of
some hospitals from which the Company had anticipated sales in the first quarter
of 1995.
Gross profits for the quarter ended April 2, 1995 of $2,503,000 decreased
$330,000, or 12%, from the first quarter of 1994. As a percentage of net sales,
gross profit decreased to 60% compared to 61% in the comparable period of 1994.
The decrease in gross profit as a percentage of net sales was due primarily to
the lower volume of sales. Partially offsetting this decrease was the favorable
impact of a shift in the mix of laser units sold in favor of self-manufactured
units.
Operating expenses of $3,648,000, which include $200,000 for expenses
incurred in connection with a proposed business combination transaction that was
not consummated, increased by $697,000 over the comparable period last year.
Product development expenses of $683,000 increased by $221,000, or 48%,
over the same period in 1994. The increase is due to the one year renewal, in
the third quarter of 1994, of a consulting agreement with the principals of
ALST. Additionally the Company incurred higher project related expenses,
including personnel related charges in the first quarter of 1995.
Selling, general and administrative expenses, excluding the charge of
$200,000 incurred for a proposed business combination transaction, increased by
$276,000 or 19%, over the comparable period in 1994. Of this increase, general
and administrative costs increased by $82,000 over the comparable period in 1994
due to higher legal fees incurred in connection with non-patent related
litigation. Additionally, marketing expenses mainly due to international
expansion increased by $153,000.
Net interest expense for the first quarter of 1995 of $123,000 decreased
$25,000 from the comparable period in 1994. The reduction is due primarily to
8
higher interest income earned in the 1995 period and slightly lower interest
expense.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $3,427,000 at April 2, 1995,
of which $100,000 was restricted. In addition, the Company currently has a $2.75
million credit facility with its bank. The facility includes a sub-line for
letters of credit of $750,000. Other than for the letter of credit issued in the
amount of $629,000, there were no other borrowings outstanding under the line of
credit. Borrowings under the line are secured by the Company's accounts
receivable and inventories. The credit facility expires on June 30, 1996.
Net cash used in operating activities was $506,000 for the first quarter of
1995 compared to cash provided by operating activities of $104,000 for the
comparable period in 1994. The decrease in cash provided by operating activities
is the result of the increase in the net loss incurred and the higher investment
in inventories, partially offset by an increase in accounts payable and accrued
expenses.
Net cash used in investing activities was $150,000 and $165,000 for the
first quarter of 1995 and 1994, respectively.
Net cash used in financing activities was $60,000 in the first quarter of
1995 compared to $172,000 in the comparable period in 1994. The reduction was
due primarily to lower principal payments on the Company's outstanding debt.
Management anticipates capital expenditures of approximately $300,000 in
1995 of which $143,000 was spent in the first quarter. The capital expenditures
are mainly for manufacturing and research and development needs and sales
demonstration lasers. The Company is not contractually committed to spend the
balance of its estimated capital expenditures. Investment in patents (primarily
litigation costs) is anticipated to be approximately $400,000 in 1995, of which
$7,000 was incurred in the first quarter. Management believes that cash provided
by operations and other financing alternatives will be sufficient for these
expenditures.
Management believes inflation has not had a material effect on operations.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
- - - - - - - --------------------------
For information regarding certain pending lawsuits, reference is made to
the Company's Form 10-K, Item 3, for the fiscal year ended January 1, 1995, as
filed with the Securities and Exchange Commission, which is incorporated herein
by reference.
With regard to the action in the Eastern District against Heraeus
LaserSonics, Inc. ("Heraeus") for breach of its Supply Agreement with the
Company and other claims, the court granted the Company's motion opposing
9
Heraeus' standing to maintain its counterclaim for declaratory judgment that two
of the Company's patents are invalid. Heraeus has filed a motion for
reconsideration. The court has pended consideration of this and several other
pre-trial motions while the Company and Heraeus attempt in good faith to reach
an out-of-court settlement.
Discovery is proceeding with regard to the action in the Eastern District
against C. R. Bard, Inc. and the Bard Urological Division (collectively, "Bard")
for specific performance and/or breach of contract, anticipatory repudiation of
a contract, negligent misrepresentation and unfair competition. The Company has
filed a motion to join Trimedyne, Inc. ("Trimedyne") and Mr. Marvin Loeb,
Trimedyne's Chairman and Chief Executive Officer, as defendants in this action
for contractual interference and civil conspiracy, which Bard has opposed. The
court has taken the motion under advisement.
Various preliminary motions have been filed, and discovery is proceeding,
with regard to the action for patent infringement filed against the Company by
Trimedyne and Royice Everett in the United States District Court for the Central
District of California. The Company has filed a motion to bifurcate the
liability portion of the case from the damages portion, which Trimedyne has
opposed. The Company believes that is has meritorius defenses and will assert
such defenses vigorously.
With regard to the suit against the Company brought by Norio Daikuzono, the
inventor of three of the Company's Contact Laser , patents for breach of
contract, and related claims, filed in the United States District Court for the
Southern District of Ohio, the Company has filed a motion to dismiss that action
for failure to state claims upon which relief may be granted. The Federal Rules
of Civil Procedure, however, are liberal in allowing complaints to be amended so
that claims for relief may be properly stated by the plaintiff and put in a form
to which an answer may be given. No date for a ruling on the Company's motion to
dismiss has been set. The Compnay believes that Mr. Daikuzono's suit is without
merit. The Company will assert its defenses in this suit in a vigorous manner,
as well.
ITEM 6. Exhibits and Reports on Form 8-K
- - - - - - - ------------------------------------------
a. Exhibits: Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K: none
10
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.
SURGICAL LASER TECHNOLOGIES, INC.
Date: May 10, 1995 By /s/ Michael R. Stewart
------------------------------------
Michael R. Stewart
Vice President, Controller and
Chief Financial Officer
Signing on behalf of the registrant
and as principal financial officer
11
EXHIBIT 11
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(In thousands, except per share data)
For the Quarter Ended:
----------------------
Apr. 2, Apr. 3,
1995 1994
---- ----
Primary Earnings (Loss) Per
Common Share:
Net income (loss) ($1,261) ($255)
-------- --------
Weighted average number of shares
of Common Stock outstanding during
the period 9,846 9,072
Additional shares assuming excercise
of stock options and warrants
utilizing the treasury stock method -- --
-------- --------
Weighted average Common Stock and Common
Stock equivalents outstanding 9,846 9,072
-------- --------
Primary earnings (loss) per share ($0.13) ($0.03)
======== ========
Fully Diluted Earnings (Loss) Per
Common Share:
Net income (loss) ($1,261) ($255)
-------- --------
Weighted average number of shares
of Common Stock outstanding during
the period 9,846 9,072
Additional shares assuming excercise
of stock options and warrants
utilizing the treasury stock method -- --
Additional shares assuming conversion
of convertible subordinated notes -- --
-------- --------
Weighted average Common Stock and Common
Stock equivalents outstanding 9,846 9,072
-------- --------
Fully diluted earnings (loss) per share ($0.13) ($0.03)
======== ========
12