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Previous: IFX CORP, 424B3, 2000-09-14 |
Next: LUXTEC CORP /MA/, 10-Q, EX-27, 2000-09-14 |
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 July 31, 2000
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 September 8, 2000,
was 2,885,022.
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
July 31, 2000 and October 31, 1999 3
Consolidated Statements of Operations -
Nine and three months ended July 31, 2000 and July 31, 1999 4
Consolidated Statements of Cash Flows -
Nine months ended July 31, 2000 and July 31, 1999 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 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Luxtec Corporation and Subsidiaries
Consolidated Balance Sheets
Assets
July 31 October 31
2000 1999
(Unaudited)
Current Assets:
$
Cash - $ 18,333
Accounts receivable, less reserves of approximately $135,000 and $291,000 in 2,125,723 2,284,648
Inventories 2,656,951 2,010,134
Prepaid expenses and other current assets 104,229 38,915
Total current assets 4,886,903 4,352,030
Property and Equipment, at cost 2,792,689 2,747,431
Accumulated Depreciation and Amortization (2,341,319) (2,225,976)
Property and equipment, net 451,370 521,455
Other Assets, net of accumulated amortization of approximately $138,000 and 160,314 179,018
Total assets $ 5,498,587 $ 5,052,503
Liabilities and Stockholders' Deficit
Current Liabilities:
Line of credit $2,461,690 $ 2,148,457
Current portion of equipment facility loan and term loan 220,000 220,000
Accounts payable 1,298,220 816,826
Accrued expenses 175,875 489,285
Total current liabilities 4,155,785 3,674,568
Term Loan, Net of Current Portion 230,000 308,250
Equipment Facility Loan, net of current portion 72,523 147,524
Minority Interest 1,450 1,450
Redeemable Preferred Stock 1,391,330 1,312,576
Stockholders' Deficit:
Common stock, $.01 par value-
Authorized--10,000,000 shares
Issued and outstanding--2,885,022 shares in 2000 and 2,875,906 shares in 1999 28,801 28,759
Additional paid-in capital 8,107,722 8,179,252
Accumulated deficit (8,489,024) (8,599,876)
Total stockholders' deficit (352,501) (391,865)
Total liabilities and stockholders' deficit $ 5,498,587 $ 5,052,503
================== ===============
See Notes to Consolidated Financial Statements.
LUXTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
July 31 July 31 July 31 July 31
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
NET SALES $ 2,423,041 $ 2,404,730 $ 7,280,623 $ 7,284,600
COST OF SALES 1,551,873 1,539,513 4,549,292 4,353,394
---------------
----------------------------------------------------------------------------------------------------
GROSS PROFIT 871,168 865,217 2,731,331 2,931,206
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OPERATING EXPENSES:
Selling 364,379 523,595 1,077,498 1,482,292
Research and development 51,626 170,788 336,012 429,458
General and administrative 333,990 459,308 993,814 1,186,000
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TOTAL OPERATING EXPENSES 749,995 1,153,691 2,407,324 3,097,750
-----------------------------------------------------------------------------------------------------------------------
INCOME/(LOSS)
FROM OPERATIONS 121,173 (288,474) 324,007 (166,544)
OTHER EXPENSES, NET (72,175) (72,263) (213,487) (175,524)
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NET INCOME/(LOSS) 48,998 (360,737) 110,520 (342,068)
ACCRETION OF PREFERRED STOCK DIVIDENDS
38,758 20,000 78,754 60,000
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NET INCOME/(LOSS) APPLICABLE TO COMMON
STOCKHOLDERS $ 10,240 $ (380,737) $ 31,766 $ (402,068)
=======================================================================================================================
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BASIC NET INCOME/(LOSS) PER SHARE
========================================================================================================================
DILUTED NET INCOME/(LOSS) PER SHARE
========================================================================================================================
========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
========================================================================================================================
- Basic 2,880,061 2,867,592 2,880,061 2,858,998
========================================================================================================================
- Diluted 2,894,402 3,141,425 2,904,634 2,900,786
========================================================================================================================
See Notes to Consolidated Financial Statements.
LUXTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
July 31, July 31,
2000 1999
--------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income/(loss) $ 110,520 $ (342,068)
Adjustments to reconcile net income/(loss) to
net cash (used in)/provided by operating activities -
Depreciation and amortization 115,343 99,694
Provision for uncollectible accounts receivable 23,150 19,081
Changes in current assets and liabilities:
Accounts receivable 135,775 594,194
Inventories (646,817) (432,691)
Prepaid expenses and other current assets (65,314) (77,085)
Accounts payable and accrued expenses 167,986 192,598
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NET (USED IN)/CASH PROVIDED BY OPERATING ACTIVITIES (159,357) 53,723
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (45,258) (121,014)
Decrease in other assets 18,704 32,930
--------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (26,554) (88,084)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 313,233 29,352 (10,730)
(Repayments)/advances of equipment facility loan (75,000) 8,006
Repayments of term note (78,250)
Proceeds from common stock sold under employee stock purchase plan 7,596 9,237
--------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 167,578 46,595
--------------------------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH (18,333) 12,234
CASH, BEGINNING OF PERIOD 18,333 43,698
-------------- -------------
CASH, END OF PERIOD $ - 55,932
==============================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
ACCRETION OF SERIES A PREFERRED STOCK $ 78,754 $ 60,000
=============================================================================================================
ACCRETION OF DEBT DISCOUNT $ 2,250 $ 6,750
See Notes to Consolidated Financial Statements.
Certain amounts from the October 31, 1999 financial statements have been reclassified to conform with the current period’s presentation.
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:
Raw material $1,554,942 $ 1,417,670
Work in process 414,862 47,813
Finished goods 687,147 544,651
Total $2,656,951 $ 2,010,134
3) Debt
(a) Line of Credit
The Company has a $2,500,000 line of credit with a bank. The maximum amount available to borrow
under the line of credit is limited to the lesser of $2,500,000, the total line committed or
certain percentages of accounts receivable and inventory, as defined. Borrowings bear interest at
the bank's prime rate (9.00% at July 31, 2000) plus .5%. Unused portions of the line of credit
accrue a fee at an annual rate of .25%. Borrowings are secured by substantially all assets of the
Company. The line of credit contains certain financial covenants, with which the Company was not
in compliance at July 31, 2000. At July 31, 2000, the balance outstanding was approximately
$2,462,000 and there was approximately $38,000 of unused availability under the line of credit.
The line of credit expires on March 31, 2001.
On August 9, 2000, the Economic Stabilization Trust (EST) of the Corporation for Business, Work and
Learning, an agency of the Commonwealth of Massachusetts, approved an incremental working capital
guarantee in the amount of $400,000. The Company will have an additional overadvance available
from Fleet Bank for that amount for a period of 18 months after the closing date. The guarantee
fee to be paid to EST will be three percent of the amount of the total amount guaranteed ($400,000).
(b) Equipment Facility Loan
The Company has a $450,000 equipment facility loan with a bank. Borrowings bear interest at the
bank's prime rate (9.00% at July 31, 2000) plus .5% and are secured by substantially all assets of
the Company. The equipment facility loan contains certain financial covenants, with which the
Company was not in compliance at July 31, 2000. The equipment facility loan expires on March 31,
2001. At July 31, 2000, the Company had outstanding borrowings of $172,523 under this agreement.
Luxtec Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
July 31, 2000
(c) Term Loan
The Company has a $500,000 term loan with a bank. The term loan bears interest at prime (9.00% at
July 31, 2000) plus 1.0%. Principal payments are payable at $10,000 per month. 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, as defined.
In connection with the term loan, the Company issued warrants to the bank for the purchase of
44,000 shares of common stock at an exercise price of $3.00 per share, expiring on March 31, 2002.
The Company has valued these warrants using the Black-Scholes option pricing model at approximately
$45,000, which has been recorded as a debt discount and is being accreted to interest expense over
the payment term of 60 months. At July 31, 2000, there was $335,000 outstanding under this
agreement, net of the remaining unamortized debt discount of $15,000. The term loan contains
certain financial covenants, with which the Company was not in compliance at July 31, 2000.
4) Earnings per share
Basic net income/(loss) per share was determined by dividing net income/(loss) applicable to common stockholders
by the weighted average common shares outstanding during the period. Diluted net income/(loss) per share was
determined by dividing net income/(loss) 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 and warrants to the extent their effect is dilutive, based on the treasury stock
method. The calculation of diluted earnings per share for the fiscal 2000 period excludes options to purchase
507,660 shares of common stock and warrants to purchase 888,171 shares of common stock, as the effects are
antidilutive.
---------------------------------------------------- --------------------------------- -----------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------------------- --------------------------------- -----------------------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
July 31 July 31 July 31 July 31
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
2000 1999 2000 1999
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
Basic weighted average shares outstanding 2,880,061 2,867,592 2,880,061 2,858,998
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
Weighted average common equivalent shares 14,341 273,833 24,573 41,788
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
Diluted weighted average shares outstanding 2,894,402 3,141,425 2,904,634 2,900,786
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
---------------------------------------------------- ------------------ -------------- --------------- -------------
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 OPERATIONSNet revenues for the three months ended July 31, 2000 were $2,423,041, an increase of 0.8% from the $2,404,730 reported for the same period in fiscal 1999. For the nine months ended July 31, 2000 net revenues decreased 0.1% to $7,280,623 from $7,284,600 reported for the same period last year.
Cost of sales for the three months ended July 31, 2000 was $$1,551,873 or 64.0% of net revenues compared with $1,539,513 or 64.0% of net revenues for the same period in fiscal 1999. For the nine month period ended July 31, 2000, cost of sales was $4,549,292 or 62.5% of net revenues compared to $4,353,394 or 59.8% of net revenues for the same period in fiscal 1999. The increase in cost of sales as a percentage of net revenues was primarily a result of lower average unit selling prices resulting from competitive pressures.
Gross profit was $871,168 or 36.0% of net revenues for the quarter ended July 31, 2000, compared to $865,217 or 36.0% of net revenues for the same period in fiscal 1999. For the nine month period ended July 31, 2000 gross profit was $2,731,331 or 37.5% of net revenues compared to $2,931,206 or 40.2% of net revenues for the same period in fiscal 1999. The decreased margin percentage was primarily due to the effects of increased price competition.
Selling and marketing expenses were $364,379 for the three months ended July 31, 2000 compared to $523,595 for the same period in fiscal 1999, a decrease of 30.4%. For the nine month period ended July 31, 2000 selling and marketing expenses were $1,077,498 compared with $1,482,292 for the same period in fiscal 1999, a decrease of 27.3%. The decrease primarily resulted from marketing cost reduction efforts resulting in lower trade show and other costs during fiscal 2000.
Research and development expenditures were $51,626 for the three months ended July 31, 2000 compared to $170,788 for the same period in fiscal 1999, a decrease of 69.8%. For the nine month period ended July 31, 2000 research and development expenditures were $336,012 compared with $429,458 for the same period in fiscal 1999, a decrease of 21.8%. The change in research and development expenditures was a result of the Company completing a major development project during the first quarter of fiscal 2000, with a resultant decrease in expenditures during the second and third quarters of fiscal 2000.
General and administrative expenses were $333,991 for the three months ended July 31, 2000 compared to $459,308 for the same period in fiscal 1999, representing a decrease of 27.3%. For the nine months ended July 31, 2000 general and administrative expenses totaled $993,814 compared to $1,186,000 during the same period in fiscal 1999, a decrease of 16.2%. The decrease primarily resulted from lowered salary related costs and a reduction of investment banking costs in fiscal 2000 as compared to fiscal 1999.
Interest and other expenses were $72,175 for the three months ended July 31, 2000 compared to $72,263 for the same period in fiscal 1999. For the nine months ended July 31, 2000 interest and other expenses were $213,487 compared to $175,524 for the same period in fiscal 1999, an increase of 21.6%. The increase for the nine month period was due to higher average credit lines and higher interest rates in fiscal 2000 compared to fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCESAt July 31, 2000, the Company had working capital of $731,118 compared to $677,462 at October 31, 1999. Cash provided by or used in operating activities was primarily the result of normal operations.
On April 3, 1997, the Company received $500,000 from a new term loan agreement with a bank. Borrowings bear interest at the bank’s prime rate plus 1.00%. Borrowings are secured by substantially all assets of the Company. Principal repayment is to be repaid at $10,000 per month beginning during May 1999. The agreement contains covenants, including the maintenance of certain financial ratios, as defined. The Company was not in compliance with the covenants for the quarter ended July 31, 2000.
The principal source of short-term borrowings during the quarter was a secured $2,500,000 revolving credit agreement. At July 31, 2000, the credit line borrowings balance was approximately $2,462,000. The interest rate on the credit line at the end of the fiscal quarter was 9.50%. At July 31, 2000, there was approximately $38,000 of unused availability under the revolving credit agreement. The line of credit expires on March 31, 2001. The revolving credit agreement contains covenants, including the maintenance of certain financial ratios, as defined. The Company was not in compliance with the covenants for the quarter ended July 31, 2000.
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, although the Company is considering raising additional debt or equity in the near future. The Company is required to redeem Preferred Stock on January 1, 2001, with a balance of approximately $1,391,330 at July 31, 2000 (with additional dividends accruing at 8% per year). The Company does not presently have the funds available to redeem the Preferred Stock, but it is exploring various options in order to comply with the cash requirement.
On August 9, 2000, the Economic Stabilization Trust (EST) of the Corporation for Business, Work and Learning, an agency of the Commonwealth of Massachusetts, approved an incremental working capital guarantee in the amount of $400,000. The Company will have an additional overadvance available from Fleet Bank in that amount for 18 months after the closing date. The guarantee fee to EST will be three percent of the amount of the total amount guaranteed.
ITEM 3. QUANTITATIVE OR QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's market risk exposure relates to outstanding debt. The balance of outstanding bank debt at July 31, 2000 is approximately $2,984,000, all of which is subject to interest rate fluctuations. A hypothetical 10% change in interest rates applied to the fair value of debt would not have a material impact on earnings or cash flows of the Company.When used in this Form 10-Q, in future filings by the Company with the Securities and Exchange Commission, or in the Company’s press releases or 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
o 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.
o 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.o 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.
o 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. o 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.o 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.
o 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.
o 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.
o 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 have a material adverse impact on the Company’s financial condition or future results of operations.
o 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.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit Description Designation
27 Financial Data Schedule 27
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the quarter ended
July 31, 2000.
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)
09/14/00_ _________ s/ Samuel M. Stein________
Date Samuel M. Stein
Chief Financial Officer
(Principal Accounting Officer and Duly
Authorized Executive Officer)
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