LUXTEC CORPORATION
326 CLARK STREET
WORCESTER,MA 01606
MARCH 16,1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
GENTLEMEN:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-q.
Sincerely,
LUXTEC CORPORATION
Samuel M. Stein
Samuel M. Stein, Chief Financial Officer
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, 1999
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, 1999, was 2,872,149.
<PAGE>
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
January 31, 1999 and October 31, 1998 3
Consolidated Statements of Operations -
Three months ended January 31, 1999 and January 31, 1998 4
Consolidated Statements of Cash Flows -
Three months ended January 31, 1999 and January 31, 1998 5
Notes to Consolidated 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 Informat 9
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
LUXTEC CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
Assets
<S> <C> <C>
January 31, October 31,
1999 1998
Current Assets:
Cash $ 11,091 $ 43,698
Accounts receivable, less reserves of approximately $160,000 and 2,247,633 2,571,230
$250,000 in 1999 and 1998, respectively
Inventories 2,972,072 2,549,244
Prepaid expenses and other current assets 80,443 55,068
Total current assets 5,311,239 5,219,240
Property and Equipment, at cost 2,583,421 2,570,501
Accumulated Depreciation and Amortization (2,109,066) (2,075,345)
Property and equipment, net 474,355 495,156
Other Assets, net of accumulated amortization of approximately $158,000 and 227,503 244,754
$150,000 in 1999 and 1998, respectively
Total assets $ 6,013,097 $ 5,959,150
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving line of credit $ 2,315,178 $ 2,186,052
Current portion of equipment facility loan 88,726
88,726
Accounts payable 699,489 497,980
Accrued expenses 432,517 711,745
Total current liabilities 3,535,910 3,484,503
Term Note 469,250 469,250
Equipment Facility Loan, net of current portion 76,189 88,726
Minority Interest
51,386 51,386
Redeemable Preferred Stock, $1.00 par value:
Series A Preferred Stock-
Authorized-500,000 shares
Issued and outstanding-10,000 shares (at liquidation value) 1,219,768 1,199,768
Stockholders' Equity:
Common stock, $.01 par value-
Authorized-10,000,000 shares
Issued and outstanding-2,872,149 shares in 1999 and 2,867,592 in 1998 28,721 28,676
Additional paid-in capital 8,279,699 8,263,018
Accumulated deficit (7,647,826) (7,626,177)
Total stockholders' equity 660,594 665,517
Total liabilities and stockholder' equity $ 6,013,097 $ 5,959,150
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
LUXTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C> <C>
THREE MONTHS ENDED
January 31, January 31,
1999 1998
- --------------------------------------------------------------------------------------------------
NET SALES $ 2,360,657 $ 2,707,525
COST OF SALES 1,356,057 1,619,278
- --------------------------------------------------------------------------------------------------
GROSS PROFIT 1,004,600 1,088,246
- --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 467,327 534,778
Research and development 109,067 104,852
General and administrative 357,794 377,733
- --------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 934,188 1,017,363
- --------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 70,412 70,884
OTHER EXPENSES, NET (54,115) (62,292)
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 16,297 $ 8,592
==================================================================================================
PREFERRED STOCK DIVIDENDS 20,000 22,835
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
$ (3,703) $ (14,243)
==================================================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00)
==================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
2,872,149 2,858,998
==================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
LUXTEC CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
THREE MONTHS ENDED
January 31, January 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 16,297 $ 8,592
Adjustments to reconcile net income to
net cash used in operating activities -
Depreciation and amortization 33,721 50,134
Provision for uncollectible accounts receivable 15,000 6,000
Changes in current assets and liabilities:
Accounts receivable 308,597 149,609
Inventories (422,828) (328,182)
Prepaid expenses and other current assets (25,375) (9,113)
Accounts payable 201,509 167,823
Accrued expenses (279,228) (119,815)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (152,307) (74,952)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (12,920) (18,567)
Decrease in other assets 7,325 5,895
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,595) (12,672)
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit 129,126 59,987
Repayments on equipment facility loan (12,537) (20,220)
Issuance of common stock under employee stock purchase plan 8,706 6,145
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 125,295 45,912
- -------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (32,607) (41,712)
CASH, BEGINNING OF PERIOD 43,698 41,712
CASH, END OF PERIOD $ 11,091 $ -
====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
ACCRETION OF SERIES A PREFERRED STOCK $ 20,000 $ 22,835
====================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated 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 Form 10K for the year ending October 31, 1998 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, 1999, 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, 1999 October 31, 1998
Raw material $1,785,084 $ 1,580,002
Work in process 392,003 352,464
Finished goods 794,985 616,778
Total $2,972,072 $ 2,549,244
3) Debt
The Company has a $2,500,000 revolving line-of-credit agreement with a
bank. The maximum amount available to borrow under the line is limited to the
lesser of the total line committed or certain percentages of accounts receivable
and inventory, as defined. Borrowings bear interest at the bank's prime rate (8%
at January 31, 1999) plus .5%. 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 for the quarter ended January 31, 1999. At January
31, 1999, availability under the line of credit was approximately $185,000. The
line of credit expires on March 31, 1999, unless renewed.
The Company has an equipment facility agreement with a bank. Borrowings
bear interest at the bank's base rate (8% at January 31, 1999) plus .5% and are
secured by substantially all assets of the Company. No further borrowings are
available under this arrangement. At January 31, 1999, the Company had
outstanding borrowings of $164,915 under this agreement.
On March 31, 1997, the Company entered into a $500,000 term note agreement
with a bank. The term note bears interest at prime (8% at January 31, 1999) plus
1.0%. Principal payments are payable in consecutive annual installments
beginning before April 30, 1999 and continuing annually thereafter in an amount
equal to the lesser of (a) $200,000 or (b) the greater of (i) zero and (ii)
excess cash flow as defined. If not paid sooner, the term note is due on the
earlier of (a) March 31, 2002, (b) the date of an equity infusion or (c) the
date of a management change. At January 31, 1999, the Company had outstanding
borrowings of $469,250 under this agreement. The Company was in compliance with
all covenants at January 31, 1999.
<PAGE>
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) Earnings per share
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
This statement established standards for computing and presenting earnings per
share and applies to entities with publicly traded common stock or potential
common stock. This statement is effective for fiscal years ending after December
15, 1997.
Basic earnings/(loss) per share was determined by dividing net income by
the weighted average common shares outstanding during the period. Diluted
earnings per share was determined by dividing net income by diluted weighted
average shares outstanding. Diluted weighted average shares reflect the dilutive
effect, if any, of common equivalent shares. Common equivalent shares include
common stock options to the extent their effect is dilutive, based on the
treasury stock method. The calculation of diluted earnings per share excludes
options to purchase 254,560 shares of common stock and 888,171 warrants, as the
effects are antidilutive. Dilutive loss per share is the same as basic loss per
share as there were no dilutive shares.
<TABLE>
<S> <C> <C>
- --------------------------------------------------- ---------------------------------
THREE MONTHS ENDED
- --------------------------------------------------- ---------------------------------
- --------------------------------------------------- ------------------ --------------
January 31 January 31
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
1999 1998
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
Basic weighted average shares outstanding 2,872,149 2,858,998
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
Weighted average common equivalent shares - -
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
Diluted weighted average shares outstanding 2,872,149 2,858,998
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
- --------------------------------------------------- ------------------ --------------
</TABLE>
<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, 1999 were $2,360,657
compared to $2,707,525 for the same period in fiscal 1998, a decrease of 12.8%.
The Company's strategy of shifting sales emphasis from multiple small orders to
larger customer partnering relationships has resulted in a transition that
affected first quarter results.
Gross profit was $1,004,600 or 42.6% of net sales for the three months
ended January 31, 1999, compared to $1,088,246 or 40.2% of net sales for the
same period in fiscal 1998. The higher margin was primarily the result of a
favorable mix of product sales during the quarter, when compared to the same
quarter last year.
Selling expenses were $467,327 for the three months ended January 31, 1999,
compared to $534,778 for the same period in fiscal 1998, a decrease of 12.6%.
The Company has instituted cost containment priorities that have successfully
maintained sales and marketing expenditures at 19.8% as a percent of sales in
both the current and prior year first quarter periods.
Research and development expenditures were $109,067 for the three months
ended January 31, 1999, compared to $104,852 for the same period in fiscal 1998,
an increase of 4.0%. The Company's level of research and development effort on
new and improved products has continued at approximately the same level during
both the prior year and the current year quarter. Management expects the level
of research and development effort for the rest of the fiscal year to increase
from the prior year level.
General and administrative expenses were $357,794 for the three months
ended January 31, 1999, compared to $377,733 for the same period in fiscal 1998,
for a decrease of 5.3%, reflecting a continuation of cost containment
priorities.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had working capital of $1,775,300 compared
to $1,734,700 at October 31, 1998. Cash used in operating activities was
primarily funded by the line of credit.
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 t", "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' 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, 1999.
<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)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 2408
<ALLOWANCES> 160
<INVENTORY> 2972
<CURRENT-ASSETS> 5311
<PP&E> 2583
<DEPRECIATION> 2109
<TOTAL-ASSETS> 6013
<CURRENT-LIABILITIES> 3536
<BONDS> 0
0
1220
<COMMON> 29
<OTHER-SE> 632
<TOTAL-LIABILITY-AND-EQUITY> 6013
<SALES> 2361
<TOTAL-REVENUES> 2361
<CGS> 1356
<TOTAL-COSTS> 1005
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 16
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
