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, 1997
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 February 20, 1997, was 2,849,657.
<PAGE>
LUXTEC CORPORATION
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
January 31, 1997 and October 31, 1996 3
Consolidated Condensed Statements of Operations -
Three months ended January 31, 1997 and January 31, 1996 4
Consolidated Condensed Statements of Cash Flows -
Three months ended January 31, 1997 and January 31, 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1997 1996
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 0 $ 172,356
Accounts receivable 1,800,245 1,741,669
Inventories 2,291,874 2,173,015
Prepaid expenses 126,446 210,564
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,218,565 4,297,604
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT AT COST 2,408,365 2,365,740
ACCUMULATED DEPRECIATION (1,700,117) (1,617,861)
- ---------------------------------------------------------------------------------------------------
PROPERTY & EQUIPMENT - NET 708,248 747,879
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 277,556 249,375
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,204,369 $ 5,294,858
===================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit 1,965,032 2,146,223
$ $
Current portion of equipment facility loan 49,000 39,612
Accounts payable 853,798 726,201
Accrued expenses 318,541 451,068
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,186,371 3,363,104
$ $
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
NOTE PAYABLE TO STOCKHOLDER 0 1,000,000
$ $
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
EQUIPMENT FACILITY LOAN, NET OF CURRENT MATURITIES
189,055 118,843
$ $
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
SERIES A, PREFERRED STOCK, $1.00 PAR VALUE,
Authorized 500,000 shares
Issued and outstanding - 0 shares in
1996 and 10,000 shares in 1997 $ 1,042,524 -
$
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value -
Authorized - 10,000,000 shares
Issued and outstanding 2,841,539 shares in
1996 and 2,849,657 shares in 1997 28,497 28,415
Additional paid-in capital 8,341,035 8,323,216
Accumulated deficit (7,583,113) (7,538,720)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 786,419 812,911
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 5,204,369 $ 5,294,858
===================================================================================================
</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,
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 2,517,364 $ 1,988,903
COST OF SALES 1,422,348 1,073,500
- --------------------------------------------------------------------------------------------------
GROSS PROFIT 1,095,017 915,403
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 615,324 410,723
Research and development 108,129 130,520
General and administrative 373,527 321,714
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,096,980 862,957
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (1,963) 52,446
OTHER EXPENSES, NET (42,428) (32,267)
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (44,391) 20,179
PROVISION FOR INCOME TAXES - 1,032
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (44,391) $ 19,147
==================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (0.02) $ 0.01
==================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,849,657 2,578,259
==================================================================================================
</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,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ (44,391) $ 19,147
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED BY OPERATING ACTIVITIES:
Depreciation and amortization 82,254 41,038
Provision for uncollectible accounts receivable 0 7,500
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (58,576) 219,432
Increase in inventories (118,859) (265,483)
(Increase) decrease in prepaid expenses 84,118 (51,249)
Increase (decrease) in accounts payable 127,597 (417,999)
Decrease in accrued expenses (132,527) (387,318)
- --------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (15,993) (854,079)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (60,384) (834,932)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (42,625) ( 4,306)
(Increase) decrease in other assets (28,181) 20,617
- -------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (70,806) 16,311
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving credit arrangement (220,803) (210,001)
Issuance (repayment) of long-term debt (880,788) 1,000,000
Issuance of preferred stock 1,026,086 0
Preferred stock dividends 16,438
Employee stock purchase 17,901 16,901
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (41,166) 806,900
- --------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (172,356) (11,721)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 172,356 11,721
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ -
====================================================================================================================
</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, 1997, 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, 1997 October 31, 1996
----------------------------------------------------------------------
Raw material $ 1,351,981 $ 1,237,123
Work in process 213,255 220,255
Finished goods 726,638 715,637
----------------------------------------------------------------------
Total $ 2,291,874 $ 2,173,015
----------------------------------------------------------------------
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 January 31,
1997) 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) Note Payable and Preferred Stock
On December 18, 1995, the Company issued Senior Subordinated Notes (the
Notes) to an investor for $1,000,000 in cash. Interest accrued on the Notes at
the rate of 8% per annum and was payable annually in arrears. Principal on the
Notes was 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 $3.00
per share (fair market value at the date of grant), adjusted for certain
dilutive events, as defined.
On November 14, 1996, the Company exchanged the Senior Subordinated Notes for
ten thousand (10,000) shares of the Company's nonvoting Series A preferred
stock, $1.00 par value per share (the Series A Preferred Stock). The Series A
Preferred Stock has the following rights and preferences:
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4) Note Payable and Preferred Stock (continued)
Dividends
The holders of the Series A Preferred Stock shall be entitled to receive cash
dividends of $8.00 per share per annum, payable when, as and if declared by the
Board of Directors of the Company. Such dividends on the Series A Preferred
Stock shall accrue and be cumulative from the date of issuance.
Liquidation Preference
Upon any liquidation, dissolution or winding up of the Company, after payment or
provision for payment of all debts and other obligations and liabilities of the
Company, the holders of the shares of preferred stock shall be entitled, before
any distribution or payment is made upon any common stock, to be paid an amount
equal to the redemption price ($100 per share) plus an amount equal to all
accrued dividends, and the holders of the preferred stock shall not be entitled
to any further payment.
Redemption
The Company may, at the option of the Company's Board of Directors, redeem part
or all of the outstanding shares of the Series A Preferred Stock at any time or
times at a redemption price of $100 per share.
On January 1, 2001, the Company shall redeem all outstanding shares of the
Series A Preferred Stock at a redemption price of $100 per share.
<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, 1997, were $2,517,364
compared to $1,988,903 for the same period in fiscal 1996, an increase of 26.6%.
All major sales channels were ahead of last year. Management believes that the
primary reason for this sales growth was the wide acceptance of the Company's
new product lines, including the improvements made to the Company's headlight
systems.
Gross profit was $1,095,017 or 43.5% of net sales for the three months
ended January 31, 1997, compared to $915,403 or 46.0% of net sales for the same
period is fiscal 1996. Lower margins were the result of an increasing percentage
of net sales derived from shipments to original equipment manufacturers as well
as a smaller favorable offset impact of contract payments from a license
agreement relating to the CardioDyne product line.
Selling expenses were $615,324 for the three months ended January 31,
1997, compared to $410,723 for the same period in fiscal 1996, an increase of
49.8%. The Company is incurring substantial costs in the rollout of the
CardioDyne product line into the market during fiscal 1997. In Addition, the
Company has maintained an aggressive marketing program related to the fiber
optic and microlaparscopic product lines responsible for the bulk of the
Company's sales to date.
Research and development expenditures were $108,129 for the three months
ended January 31, 1997, compared to $130,520 for the same period in fiscal 1996,
a decrease of 17.2%. The decrease is attributed to the completion of the fiscal
1996 development of the improvements to the Company's headlight and camera
systems. The Company believes that the introduction of the fiscal 1997 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 1997.
General and administrative expenses were $373,527 for the three months
ended January 31, 1997, compared to $321,714 for the same period in fiscal 1996,
representing an increase of 16.1%, primarily as a result of increased payroll
costs.
<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, 1997, the Company had working capital of $1,032,194
compared to $934,500 at October 31, 1996. At January 31, 1997, the Company had
used $1,965,032 from a $2,500,000 revolving credit line and $238,055 of a
$750,000 equipment facility agreement.
The Company anticipates that its current cash requirements will be
satisfied by cash flow from existing operations and the continuation of its
credit arrangement with a bank, although the Company may consider an additional
private placement or expansion of its credit facilities in the near future.
<PAGE>
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
None.
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.
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 Company 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.
<PAGE>
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 5. (Continued)
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, 1997.
<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-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,869
<ALLOWANCES> 69
<INVENTORY> 2,292
<CURRENT-ASSETS> 4,219
<PP&E> 2,408
<DEPRECIATION> 1,700
<TOTAL-ASSETS> 5,204
<CURRENT-LIABILITIES> 3,186
<BONDS> 0
0
1,042
<COMMON> 28
<OTHER-SE> 758
<TOTAL-LIABILITY-AND-EQUITY> 5,204
<SALES> 2,517
<TOTAL-REVENUES> 2,517
<CGS> 1,422
<TOTAL-COSTS> 1,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> (44)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
