UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
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: 0-14961B
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2741310
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) IdentificationNo.)
326 Clark Street, Worcester, Massachusetts 01606
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code)
(508) 856-9454
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 for each of the issuer's classes of
Common Stock, as of the latest practicable date.
The number of shares outstanding of registrant's common stock, par value $.01
per share, at March 14, 1996, was 2,445,398.
<PAGE>
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
January 31, 1996 and October 31, 1995 3
Consolidated Condensed Statements of Operations -
Three months ended January 31, 1996 and
January 31, 1995 4
Consolidated Condensed Statements of Cash Flows -
Three months ended January 31, 1996 and
January 31, 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ - $ 11,721
Accounts receivable 1,307,335 1,534,267
Inventories 1,961,484 1,696,001
Prepaid expenses 133,987 82,738
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,402,806 3,324,727
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT AT COST 1,914,495 1,910,189
ACCUMULATED DEPRECIATION (1,450,998) (1,409,960)
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT - NET 463,497 500,229
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 276,470 297,087
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,142,773 $ 4,122,043
===================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,520,307 $ 1,730,308
Accounts payable 1,135,870 1,553,869
Accrued expenses 252,651 639,969
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 2,908,828 $ 3,924,146
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
SUBORDINATED DEBT $ 1,000,000 $ -
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 3,908,828 $ 3,924,146
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value -
Authorized - 10,000,000 shares
Issued and outstanding - 2,436,541 shares in
1995 and 2,445,398 shares in 1996 24,454 24,365
Additional paid-in capital 7,158,388 7,141,576
Accumulated deficit (6,948,897) (6,968,044)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 233,945 197,897
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 4,142,773 $ 4,122,043
===================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31, January 31,
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 1,988,903 $ 1,630,316
COST OF SALES 1,073,500 869,332
- --------------------------------------------------------------------------------------------------
GROSS PROFIT 915,403 760,984
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 410,723 378,656
Research and development 130,520 185,287
General and administrative 321,714 307,241
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 862,957 871,184
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 52,446 (110,200)
OTHER EXPENSES, NET (32,267) (15,193)
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 20,179 (125,393)
PROVISION FOR INCOME TAXES 1,032 -
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 19,147 $ (125,393)
==================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.01 $ (0.08)
==================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,578,259 1,494,542
==================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31, January 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ 19,147 $ (125,393)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED BY OPERATING ACTIVITIES:
Depreciation and amortization 41,038 39,013
Provision for uncollectible accounts receivable 7,500 2,500
Changes in current assets and liabilities:
Decrease in accounts receivable 219,432 552,564
(Increase) in inventories (265,483) (429,018)
(Increase) in prepaid expenses (51,249) (45,845)
Increase (decrease) in accounts payable (417,999) 30,246
(Decrease) in accrued expenses (387,318) (285,926)
- --------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (854,079) (136,466)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (834,932) (261,859)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 4,306) (9,340)
(Increase) decrease in other assets 20,617 (13,877)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 16,311 (23,217)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving credit arrangement (210,001) 288,444
Issuance of long-term debt 1,000,000 -
Employee stock purchase 16,901 19,669
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 806,900 308,113
- --------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,721) 23,037
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,721 10,329
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 33,366
====================================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
LUXTEC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation have been made which comprise only normal recurring
adjustments. Operating results for the three months ended January 31, 1996, are
not necessarily indicative of the results that may be expected for the entire
year.
2) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first in, first out (FIFO) method and includes materials, labor and
manufacturing overhead. Inventories are as follows:
January 31, 1996 October 31, 1995
----------------------------------------------------------------------
Raw material $ 1,320,985 $ 978,477
Work in process 108,842 203,833
Finished goods 531,657 513,691
----------------------------------------------------------------------
Total $ 1,961,484 $ 1,696,001
----------------------------------------------------------------------
3) Revolving Line of Credit
The Company has a $2,500,000 revolving line of credit agreement with a
bank. Borrowings bear interest at the bank's prime rate (8.75% at January 31,
1996) plus .25%. Unused portions of the revolving line of credit accrue a fee at
an annual rate of .25%. Borrowings are secured by substantially all assets of
the Company. The agreement contains covenants, including the maintenance of
certain financial ratios, as defined. The line of credit expires on March 31,
1997.
The Company has a $750,000 equipment facility agreement with a bank.
Borrowings are based on the purchase price of new equipment and conditions
determined by the bank. Borrowings bear interest at the bank's base rate plus
.5%. Borrowings under this facility are secured by substantially all assets of
the Company. As of January 31, 1996, there are no borrowings outstanding under
the equipment facility. The equipment facility agreement expires on March 31,
1997.
4) Private Placement
On December 18, 1995, the Company issued Senior Subordinated Notes (the
Notes) to an investor for $1,000,000 in cash. Interest accrues on the Notes at
the rate of 8% per annum and is payable annually in arrears. Principal on the
Notes is due January 1, 2001. In connection with the financing, the Company
issued a detachable stock warrant to the investor. The warrant entitles the
holder to purchase 450,000 shares of common stock at an exercise price of $3,
adjusted for certain dilutive events, as defined.
<PAGE>
LUXTEC CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below. The industry in which the Company competes is characterized by
rapid changes in technology and frequent new product introductions. The Company
believes that its long-term growth depends largely on its ability to continue to
enhance existing products and to introduce new products and features that meet
the continually changing requirements of customers. While the Company has
invested heavily in new products and processes, there can be no assurance that
it can continue to introduce new products and features on a timely basis or that
certain of its products and processes will not be rendered noncompetitive or
obsolete by its competitors.
RESULTS OF OPERATIONS
Net sales for the three months ended January 31, 1996 were $1,988,903
compared to $1,630,316 for the same period in fiscal 1995, an increase of 22%.
Although all major sales channels were ahead of last year, the international
market was particularly strong showing a 37% sales increase between periods.
Additionally, the Company booked its first revenues from the CardioDyne product
line.
Cost of sales for the three months ended January 31, 1996 were $1,073,500,
or 54% of net sales, compared with $869,332, or 53% of net sales for the same
period in fiscal 1995. Lower margins related to an increasing percentage of net
sales derived from shipments to original equipment manufacturers were offset by
the favorable impact of contract payments from a license agreement relating to
the CardioDyne product line.
Gross profit was $915,403 or 46% of net sales for the three months ended
January 31, 1996, compared to $760,984 or 47% of net sales for the same period
is fiscal 1995. Although the Company has continued to face increased competition
during the past quarter, overall margins have not changed significantly from the
previous year. The Company expects to introduce a line of redesigned products
during the second quarter of fiscal 1996 that the Company anticipates will help
to maintain historical margin levels.
Selling expenses were $410,723 for the three months ended January 31, 1996
compared to $378,656 for the same period in fiscal 1995, an increase of 8%.
Although the Company continued to invest in various marketing programs,
management held total selling costs to a level of growth that was below the
growth in sales. The Company plans to introduce the CardioDyne products into the
market during fiscal 1996. Therefore, it is unlikely that the Company will
maintain selling expense increases at the level shown for the first quarter.
Research and development expenditures were $130,520 for the three months
ended January 31, 1996 compared to $185,287 for the same period in fiscal 1995,
a decrease of 30%. The decrease is attributed to the completion of the fiscal
1995 development of a new halogen light source product line and the Mark II line
of illuminated and standard telescopes. The Company believes that the
introduction of the fiscal 1996 new product plan and the efforts related to the
CardioDyne product lines will result in an increased rate of spending for
research and development during the remainder of fiscal 1996.
General and administrative expenses were $321,714 for the three months
ended January 31, 1996, compared to $307,241 for the same period in fiscal 1995,
representing an increase of 5%. The increase is primarily the result of the
costs attributable to the integration of the operations of CardioDyne into the
Company.
<PAGE>
LUXTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ITEM 2. (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1996 the Company had working capital of $ 493,978 compared
to negative working capital of $599,419 at October 31, 1995. The major reason
for the change from negative working capital to positive working capital was the
completion of a private placement of $1,000,000 during the first quarter of
fiscal 1996.
Cash used by operating activities was primarily funded by the private
placement of $1,000,000 executed during the quarter. At January 31, 1996 the
Company also had an unused $750,000 equipment facility agreement with a bank and
had used $1,520,307 from a $2,500,000 revolving credit line.
The Corporation anticipates that its current cash requirements will be
satisfied by cash flow from existing operations and the continuation of its
revolving credit arrangement with a bank, although the Company may need to
consider an additional private placement at some point in the near future.
<PAGE>
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
The Company is the defendant in a suit brought by Republic Lens
Corporation ("Republic") of New Jersey. The suit, filed on September 29, 1995,
in United States District Court, District of New Jersey alleges that the Company
breached a contract with Republic in which the Company was obliged to use
Republic as its sole supplier of components to be used in the development and
sale of a product that would result from a patent assigned to the Company by
Republic. Republic seeks damages of $2,000,000 together with attorneys' fees and
rescission of the contract. The Company believes that the suit is without merit
as the Company has not used the patent which is the subject of the suit and the
contract. The Chief Executive Officers of the two corporations have orally
agreed to a settlement of the suit in which the Company will return the rights
to the patent to Republic in return for a release from liability from Republic.
ITEM 5. Other Information
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" below, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed below could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Risk Factors and Cautionary Statements
The Company's revenues and income are derived primarily from the
sale of medical devices. The medical device industry is highly competitive. Such
competition could negatively impact the Company's market share and therefore
reduce the Company's revenues and income.
Another result of competition could be the reduction of average unit
prices paid for the Company's products. This could have the impact of reducing
the percentage of profit margin available to the Company for its product sales.
<PAGE>
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 5. (Continued)
The Company's future operating results are dependent on its ability
to develop, produce and market new and innovative products and services. There
are numerous risks inherent in this complex process, including rapid
technological change and the requirement that the Corporation bring to market in
a timely fashion new products and services that meet customers' needs.
Historically, the Company's operating results have varied from
fiscal period to fiscal period; accordingly, the Company's financial results in
any particular fiscal period are not necessarily indicative of results for
future periods.
The Company offers a broad variety of products and services to
customers around the world. Changes in the mix of products and services
comprising revenues could cause actual operating results to vary from those
expected.
The Company's success is partly dependent on its ability to
successfully predict and adjust production capacity to meet demand, which is
partly dependent upon the ability of external suppliers to deliver components at
reasonable prices and in a timely manner; capacity or supply constraints, as
well as purchase commitments, could adversely affect future operating results.
The Company operates in a highly competitive environment and in a
highly competitive industry, which includes significant competitive pricing
pressures and intense competition for skilled employees.
The Company offers its products and services directly and through
indirect distribution channels. Changes in the financial condition of, or the
Company's relationship with, distributors and other indirect channel partners,
could cause actual operating results to vary from those expected.
The Company does business worldwide in over 50 countries. Global
and/or regional economic factors and potential changes in laws and regulations
affecting the Company's business, including without limitation, currency
exchange rate fluctuations, changes in monetary policy and tariffs, and federal,
state and international laws regulating the environment, could impact the
Company's financial condition or future results of operations.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
market conditions in the medical device industry, as well as general economic
conditions and other factors external to the Company.
<PAGE>
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
No Exhibits were required to be filed.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during
the quarter ended January 31, 1996.
<PAGE>
LUXTEC CORPORATION
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.
LUXTEC CORPORATION
(Registrant)
----------------- --------------------------
Date Samuel M. Stein
Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Executive Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,377
<ALLOWANCES> 70
<INVENTORY> 1,961
<CURRENT-ASSETS> 3,403
<PP&E> 1,914
<DEPRECIATION> 1,451
<TOTAL-ASSETS> 4,143
<CURRENT-LIABILITIES> 2,909
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 210
<TOTAL-LIABILITY-AND-EQUITY> 4,143
<SALES> 1,989
<TOTAL-REVENUES> 1,989
<CGS> 1,073
<TOTAL-COSTS> 863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 20
<INCOME-TAX> 1
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
