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, 1998
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 March 9, 1998, was 2,858,998.
<PAGE>
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
January 31, 1998 and October 31, 1997 3
Consolidated Condensed Statements of Operations -
Three months ended January 31, 1998 and January 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Three months ended January 31, 1998 and January 31, 1997 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 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
ASSETS
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash $ - $ 41,712
Accounts receivable, less reserves of approximately $209,000 and 2,164,336 2,319,945
$320,000 in 1998 and 1997, respectively
Inventories 2,855,491 2,527,309
Prepaid expenses and other current assets 80,304 71,191
--------------- ---------------
Total current assets 5,100,131 4,960,157
--------------- ---------------
PROPERTY AND EQUIPMENT, AT COST 2,495,258 2,476,691
ACCUMULATED DEPRECIATION AND AMORTIZATION (1,934,231) (1,890,093)
--------------- ---------------
Property and equipment, net 561,027 586,598
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF APPROXIMATELY $150,000 AND 243,928 255,819
--------------- ---------------
$143,000 IN 1998 AND 1997, RESPECTIVELY
Total assets $ 5,905,086 $ 5,802,574
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 2,140,591 $ 2,082,854
Current portion of equipment facility loan 65,186 65,186
Accounts payable 1,106,556 938,733
Accrued expenses 359,116 478,931
--------------- ---------------
Total current liabilities 3,671,449 3,565,704
--------------- ---------------
TERM NOTE 462,500 460,250
EQUIPMENT FACILITY LOAN, NET OF CURRENT PORTION 180,772 200,992
REDEEMABLE PREFERRED STOCK, $1.00 PAR VALUE:
Series A Preferred Stock-
Authorized--500,000 shares
Issued and outstanding--10,000 shares (preference in liquidation of 1,142,603 1,119,768
$1,142,603 in 1998 and $1,119,768 in 1997)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized--10,000,000 shares
Issued and outstanding--2,858,998 shares in 1998 and 2,853,491 in 1997 28,590 28,535
Additional paid-in capital 8,301,940 8,318,685
Accumulated deficit (7,882,768) (7,891,360)
--------------- ---------------
Total stockholders' equity 447,762 455,860
--------------- ---------------
Total liabilities and stockholders' equity $ 5,905,086 $ 5,802,574
=============== ===============
</TABLE>
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31, January 31,
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 2,707,525 $ 2,517,364
COST OF SALES 1,619,278 1,422,348
- --------------------------------------------------------------------------------------------------
GROSS PROFIT 1,088,246 1,095,017
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 534,778 615,324
Research and development 104,852 108,129
General and administrative 377,733 373,527
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,017,363 1,096,980
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 70,884 (1,963)
OTHER EXPENSES, NET (62,292) (42,428)
- --------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 8,592 (44,391)
PROVISION FOR INCOME TAXES - -
- --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,592 $ (44,391)
==================================================================================================
PREFERRED STOCK DIVIDENDS 22,835 16,438
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
$ (14,243) $ (60,829)
==================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.02)
==================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
2,858,998 2,849,657
==================================================================================================
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
January 31, January 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ 8,592 $ (44,391)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 50,134 82,254
Provision for uncollectible accounts receivable 6,000 0
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 149,609 (58,576)
Increase in inventories (328,182) (118,859)
(Increase) decrease in prepaid expenses and other
current assets (9,113) 84,118
Increase in accounts payable 167,823 127,597
Decrease in accrued expenses (119,815) (132,527)
- --------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (83,544) (15,993)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (74,952) (60,384)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (18,567) (42,625)
(Increase) decrease in other assets 5,895 (28,181)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (12,672) (70,806)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving line of credit 59,987 (220,803)
Repayments on equipment facility loan (20,220) (880,788)
Issuance of preferred stock - 1,042,524
Employee stock purchase 6,145 17,901
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
45,912 (41,166)
- --------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (41,712) (172,356)
CASH, BEGINNING OF PERIOD 41,712 172,356
CASH, END OF PERIOD $ - $ -
====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
UNPAID DIVIDENDS ON SERIES A PREFERRED
STOCK $ 22,835 $ -
====================================================================================================================
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
LUXTEC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated condensed unaudited 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 (see the Form 10K for the year ending October
31, 1997 for complete disclosure). 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,
1998, 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, 1998 October 31, 1997
----------------------------------------------------------------------
Raw material $ 1,587,471 $ 1,357,761
Work in process 382,874 318,312
Finished goods 885,146 851,236
----------------------------------------------------------------------
Total $ 2,855,491 $ 2,527,309
----------------------------------------------------------------------
3) Loans from banks
The Company has a $2,250,000 revolving line-of-credit agreement with a bank.
Borrowings bear interest at the bank's prime rate (8.5% at January 31, 1998)
plus .50%. 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 Company was in compliance with all covenants
or had obtained a waiver from the bank for the quarter ended January 31, 1998.
At January 31, 1998, availability under the line of credit was approximately
$109,400. The line of credit expires on March 31, 1999.
The Company has a $500,000 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 (8.5% at January 31,
1998) plus .5%. Borrowings under this facility are secured by substantially all
assets of the Company. The equipment facility agreement expired on October 21,
1997. At January 31, 1998, the Company had outstanding borrowings of $245,958
under this agreement.
4) Earnings per share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128-Earnings per Share.
This standard is effective for fiscal periods ending after December 15, 1997 and
requires presentation of both basic and diluted earnings per share on the face
of the Consolidated Statements of Income. These financial statements have been
prepared and presented based on the new standard.
<PAGE>
5) Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both SFAS No. 130 and SFAS No. 131 are effective for fiscal years
beginning after December 15, 1997. The Company believes that the adoption of
these new accounting standards will not have a material impact on the Company's
financial statements.
<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, 1998 were $2,707,525
compared to $2,517,364 for the same period in fiscal 1997, an increase of 7.6%.
Domestic sales of the company's primary products were more than 30% ahead of
last year's level. However, international sales were soft, particularly in the
Asia Pacific area.
Gross profit was $1,088,246 or 40.2% of net sales for the three months
ended January 31, 1998, compared to $1,095,017 or 43.5% of net sales for the
same period in fiscal 1997. The lower margin was primarily the result of not
receiving a non-recurring royalty payment from a license agreement relating to
the CardioDyne product line.
Selling expenses were $534,778 for the three months ended January 31,
1998, compared to $615,324 for the same period in fiscal 1997, a decrease of
13.1%. The Company has instituted cost containment priorities that have
successfully reduced sales and marketing expenditures as a percent of sales to
19.8% in the first quarter of fiscal 1998, compared to 24.5% in the comparable
prior year period.
Research and development expenditures were $104,852 for the three months
ended January 31, 1998, compared to $108,129 for the same period in fiscal 1997,
a decrease of 3.0%. The Company's level of effort on new and improved products
has continued at approximately the same level during both the prior year and the
current year periods.
General and administrative expenses were $377,733 for the three months
ended January 31, 1998, compared to $373,527 for the same period in fiscal 1997,
representing an increase of 1.2%, primarily reflecting no major change in
staffing levels or other administrative effort.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company had working capital of $1,428,700
compared to $1,394,500 at October 31, 1997. At January 31, 1998, the Company had
used $2,140,591 from a $2,250,000 revolving credit line and $245,958 of an
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)
March 16, 1998 S/ Samuel M. Stein
----------------- --------------------------
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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,373
<ALLOWANCES> 209
<INVENTORY> 2,855
<CURRENT-ASSETS> 5,100
<PP&E> 2,495
<DEPRECIATION> 1,934
<TOTAL-ASSETS> 5,905
<CURRENT-LIABILITIES> 3,671
<BONDS> 0
0
1,143
<COMMON> 29
<OTHER-SE> 419
<TOTAL-LIABILITY-AND-EQUITY> 5,905
<SALES> 2,708
<TOTAL-REVENUES> 2,708
<CGS> 1,619
<TOTAL-COSTS> 1,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 9
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
