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 April 30, 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) Identification No.)
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 June 12, 1996, was 2,449,480.
<PAGE>
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1996 and October 31, 1995 3
Consolidated Condensed Statements of Operations -
Six months ended April 30, 1996 and April 30, 1995 4
Consolidated Condensed Statements of Cash Flows -
Six months ended April 30, 1996 and April 30, 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>
<TABLE>
<CAPTION>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
April 30, October 31,
1996 1995
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,544 $ 11,721
Accounts receivable 1,517,294 1,534,267
Inventories 2,200,787 1,696,001
Prepaid expenses 133,404 82,738
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,854,029 3,324,727
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT AT COST 1,989,309 1,910,189
ACCUMULATED DEPRECIATION (1,524,436) (1,409,960)
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT - NET 464,873 500,229
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 285,969 297,087
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,604,871 $ 4,122,043
===================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,899,353 $ 1,730,308
Accounts payable 1,260,493 1,553,869
Accrued expenses 275,456 639,969
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,435,302 3,924,146
- ---------------------------------------------------------------------------------------------------
LONG TERM LIABILITIES:
Long term debt 26,818 0
Subordinated debt 1,000,000 0
- ---------------------------------------------------------------------------------------------------
LONG TERM LIABILITIES 1,026,818 0
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,462,120 3,924,146
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value
Authorized 10,000,000 shares; Issued
and outstanding - 2,443,286 shares in
1996 and 2,436,541 in 1995 24,433 24,365
Additional paid-in capital 7,158,409 7,141,576
Accumulated deficit (7,040,091) (6,968,044)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 142,751 197,897
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,604,871 $ 4,122,043
===================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
April 30, April 30, April 30, April 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 2,232,412 $ 2,143,106 $ 4,221,315 $ 3,773,422
COST OF GOODS SOLD 1,180,267 1,081,385 2,253,767 1,950,717
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,052,145 1,061,721 1,967,548 1,822,705
- ---------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling and marketing 551,136 491,182 961,859 869,838
Research & development 184,439 165,097 314,959 350,384
General & administrative 349,630 357,594 671,344 664,835
- ---------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,085,205 1,013,873 1,948,162 1,885,057
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (33,060) 47,848 19,386 (62,352)
OTHER EXPENSES, NET (58,134) (20,123) (91,433) (35,316)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (91,194) $ 27,725 $ (72,047) $ (97,668)
=====================================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (0.04) $ 0.02 $ (0.03) $ (0.07)
=====================================================================================================================
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 2,441,951 1,481,043 2,441,844 1,490,095
=====================================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LUXTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
April 30, April 30,
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET LOSS $ (72,047) (97,668)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 123,666 79,260
Provision for uncollectible accounts receivable 0 5,000
Changes in current assets and liabilities:
Accounts receivable 16,973 112,046
Inventories (504,786) (414,169)
Prepaid expenses (50,666) (31,083)
Accounts payable (293,376) 91,250
Accrued expenses (364,513) (256,036)
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,072,702) (511,400)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (79,120) (57,103)
Change in other assets 1,928 (8,142)
- ------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (77,192) (65,245)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 169,045 559,904
Net borrowings on long term debt 26,818 0
Net borrowings on subordinated debt 1,000,000 0
Employee stock purchase plan 14,456 19,669
Proceeds from exercise of stock options 2,445 0
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,212,764 579,573
- ------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,177) 2,928
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,721 10,329
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,544 13,257
============================================================================================================
</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 six months ended April 30, 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:
April 30, 1996 October 31, 1995
-----------------------------------------------------------------------
Raw material $ 1,552,433 $ 978,477
Work in process 181,656 203,833
Finished goods 466,698 513,691
-----------------------------------------------------------------------
Total $ 2,200,787 $ 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 (8.25% at April 30,
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. 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 revenues for the three months ended April 30, 1996 were $2,232,412 or
4.2% greater than the $2,143,106 reported for the same period in fiscal 1995.
For the six months ended April 30, 1996 net revenues increased 11.9% to
$4,221,315 from $3,773,422 reported for the same period last year. The year to
date sales increase of 11.9% was primarily the result of higher sales in the
international and OEM markets for Luxtec products and the royalties recorded
during both the first and second quarter for the CardioDyne products.
Cost of sales for the three months ended April 30, 1996 were $1,180,267 or
52.9% of net revenues, compared with $1,081,385 or 50.5% for the same period in
fiscal 1995. For the six month period ended April 30, 1996, cost of sales was
$2,253,767 or 53.4% of net revenues compared with $1,950,717 or 51.7% for the
same period in fiscal 1995. The increase in cost of sales as a percentage of net
revenues was primarily the result of a mix shift toward OEM business, as the
domestic distributors reduced orders in anticipation of the new line of Luxtec
products introduced during the later part of the second quarter, with
significant shipments not beginning until the third quarter of fiscal 1996.
Gross profit was $1,052,145 or 47.1% of net revenues for the quarter ended
April 30, 1996 compared to $1,061,721 or 49.5% for the same period in fiscal
1995. For the six month period ended April 30, 1996 gross profit was $1,967,548
or 46.6% compared with $1,822,705 or 48.3% for the same period in fiscal 1995.
The Company has continued to face increased competition during the past quarter.
Overall margins as a percent of net revenue are lower primarily because of the
mix shift toward lower margin OEM business, partly brought about because of some
business interruption while an upgrade to the primary product line of the
Company was being developed. The Company introduced a line of redesigned
products at the end of the second quarter of fiscal 1996 that the Company
anticipates will help to maintain historical margin levels.
Selling and marketing expenses were $551,136 for the three months ended
April 30, 1996 compared to $491,182 for the same period in fiscal 1995, an
increase of 12%. For the six month period ended April 30, 1996 selling and
marketing expenses were $961,859 compared with $869,838 for the same period in
fiscal 1995, an increase of 11%. Marketing activities related to the CardioDyne
motion tolerant blood pressure monitor introduction planned for the last half of
fiscal 1996, were primarily responsible for the increase in selling and
marketing expenses. The level of selling and marketing activities associated
with the CardioDyne product introduction are expected to continue to increase
throughout fiscal 1996.
<PAGE>
LUXTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
ITEM 2. (Continued)
Research and development expenditures were $184,439 for the three months
ended April 30, 1996 compared to $165,097 for the same period in fiscal 1995, an
increase of 12%. For the six month period ended April 30, 1996 research and
development expenditures were $314,959 compared with $350,384 for the same
period in fiscal 1995, a decrease of 10%. The second quarter increase resulted
from the development of a redesigned line of primary Luxtec products and
continuing work on future generations of the CardioDyne product line. The
decrease for the first half of fiscal 1996 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 $349,630 for the three months
ended April 30, 1996, compared to $357,594 for the same period in fiscal 1995,
representing a decrease of 2 %. For the six months ended April 30, 1996 general
and administrative expenses totaled $671,344 compared to $664,835 during the
same period in fiscal 1995, an increase of 1%. The increase is primarily the
result of the costs attributable to the integration of the operations of
CardioDyne into the Company.
Interest and other expenses of $58,134 for the three months ended April
30, 1996 compared to $20,123 for the same period in fiscal 1995, an increase of
189%. For the six months ended April 30, 1996 interest and other expenses were
$91,433 compared to $35,316 for the same period in fiscal 1995, an increase of
159%. The second quarter and first half increases were the result of higher
revolving credit line balances and the issuance of Senior Subordinated Notes to
an investor for $1,000,000 in cash. Interest accrues on the Notes at the rate of
8% per annum.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996 the Company had working capital of $418,727 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 first quarter. At April 30, 1996 the
Company had used $26,818 from a $750,000 equipment facility agreement with a
bank and had used $1,899,353 from a $2,500,000 revolving credit line.
The Company 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, and the completion of a private
placement described in the following paragraph.
The Company is currently in the process of completing a private placement
of up to 333,334 units (the "Units"), with each Unit consisting of one (1) share
of common stock, $0.01 par value per share (the "Common Stock"), and one Common
Stock Purchase Warrant (the "Warrants") for the purchase of one (1) share of
Common Stock of the Company at an initial purchase price of $6.00 per share,
subject or adjustment. The offering price is $3.00 per Unit. The Units are being
placed with primarily outside investors and certain officers and directors of
the Company. As of June 12, 1996, the Company had received commitments for
215,888 Units which would result in $647,514 in gross proceeds for the Company.
<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)
Factors That May Affect Future Results
From time to time, information provided by the Company or statements made
by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Company cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including but
not limited to the following:
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 April 30, 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 1,600
<ALLOWANCES> 83
<INVENTORY> 2,201
<CURRENT-ASSETS> 3,854
<PP&E> 1,989
<DEPRECIATION> 1,524
<TOTAL-ASSETS> 4,605
<CURRENT-LIABILITIES> 3,435
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 118
<TOTAL-LIABILITY-AND-EQUITY> 4,605
<SALES> 4,221
<TOTAL-REVENUES> 4,221
<CGS> 2,254
<TOTAL-COSTS> 1,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> (72)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
