<PAGE> 1
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 June 30, 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 0-16752
MEDSTONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 66-0439440
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Columbia, Suite 100, Aliso Viejo, California 92718
---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 448-7700
-------------------
Not Applicable
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed,
since last report)
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 [ ]
The number of shares of the Common Stock of the registrant outstanding as of
August 4, 1997 was 5,612,280.
<PAGE> 2
MEDSTONE INTERNATIONAL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1997 (Unaudited) 3
and December 31, 1996
Condensed Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 1997 and 1996
Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 1997 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months ended June 30, 1997 and 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 3 Defaults Upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE> 3
MEDSTONE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 2,592,606 $ 3,906,961
Short-term investments 6,914,058 7,102,170
Accounts receivable, less allowance for doubtful accounts of
$363,597 and $220,000 in 1997 and 1996, respectively 3,777,758 2,686,985
Inventories 2,558,662 2,459,779
Deferred tax assets 691,891 1,061,000
Note receivable 750,000 1,250,000
Prepaid expenses and other current assets 184,144 243,271
------------ ------------
Total current assets 17,469,119 18,710,166
Property and equipment:
Lithotripters 7,545,288 7,289,845
Equipment 919,783 876,809
Furniture and fixtures 1,054,494 1,007,292
Leasehold improvements 89,764 89,764
------------ ------------
9,609,329 9,263,710
Less accumulated depreciation and amortization (4,478,068) (3,740,973)
------------ ------------
Net property and equipment 5,131,261 5,522,737
------------ ------------
Goodwill, net 3,308,196 1,118,583
Other assets, net 36,105 43,805
------------ ------------
$ 25,944,681 $ 25,395,291
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 725,888 $ 1,760,922
Accrued expenses 170,918 209,512
Accrued income taxes 700,190 376,172
Accrued payroll expenses 422,138 338,461
Deferred revenue 1,092,726 1,042,043
------------ ------------
Total current liabilities 3,111,860 3,727,110
Deferred tax liabilities 392,000 392,000
Minority interest 359,924 111,172
Commitments and contingencies (Note F)
Stockholders' equity:
Common stock - $.004 par value, 20,000,000 shares authorized, 5,612,280 and
5,578,403 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively 22,449 22,314
Additional paid-in capital 18,827,294 18,715,068
Accumulated earnings 5,354,915 3,471,965
Stock purchase notes receivable (134,800) (134,800)
Unrealized gain (loss) on short-term investments (1,238) (1,168)
Treasury stock (246,400 shares at cost at June 30, 1997
and 112,800 shares at cost at December 31, 1996) (1,987,723) (908,370)
------------ ------------
Total stockholders' equity 22,080,897 21,165,009
------------ ------------
$ 25,944,681 $ 25,395,291
============ ============
</TABLE>
See accompanying notes
3
<PAGE> 4
MEDSTONE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net equipment sales . . . . . . . . . . . . . . . . . . . $ 826,400 $ 503,500 $ 1,603,300 $ 1,291,000
Procedures fees, maintenance
and fee for service . . . . . . . . . . . . . . . . . 4,717,416 3,631,667 8,772,102 6,722,447
Interest . . . . . . . . . . . . . . . . . . . . . . . . 121,034 194,361 251,576 418,415
---------- ------------ ----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . . . 5,664,850 4,329,528 10,626,978 8,431,862
Costs and expenses:
Cost of equipment sales . . . . . . . . . . . . . . . . . 619,416 265,900 1,183,571 682,424
Costs of procedures and
maintenance fees . . . . . . . . . . . . . . . . . . . 1,716,044 1,722,379 3,422,368 3,138,707
Research and development . . . . . . . . . . . . . . . . 210,838 127,302 405,003 250,165
Selling and marketing . . . . . . . . . . . . . . . . . . 687,421 615,879 1,245,692 1,110,993
General and administrative . . . . . . . . . . . . . . . 642,858 362,515 1,190,620 679,551
Settlement costs . . . . . . . . . . . . . . . . . . . . --- 5,500,000 --- 5,500,000
Legal and other expense . . . . . . . . . . . . . . . . . 21,117 436,064 33,191 803,219
---------- ------------ ----------- -----------
Total costs and expenses . . . . . . . . . . . . . . . 3,897,694 9,030,039 7,480,445 12,165,059
---------- ------------ ----------- -----------
Income (loss) before provision
for (benefit from) income taxes . . . . . . . . . . . . . 1,767,156 (4,700,511) 3,146,533 (3,733,197)
Provision for (benefit from) income taxes . . . . . . . . . . 609,000 (1,739,000) 1,049,000 (1,389,000)
Minority interest . . . . . . . . . . . . . . . . . . . . . . 135,659 69,049 214,583 69,049
---------- ------------ ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $1,022,497 $ (3,030,560) $ 1,882,950 $(2,413,246)
========== ============ =========== ===========
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . $ .19 $ (.55) $ .34 $ (.44)
========== ============ =========== ===========
Fully diluted . . . . . . . . . . . . . . . . . . . . . . $ .19 $ --- $ .34 $ ---
========== ============ =========== ===========
Number of shares used in the computation of income per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . 5,448,683 5,531,750 5,490,008 5,532,093
========== ============ =========== ===========
Fully diluted . . . . . . . . . . . . . . . . . . . . . . 5,503,345 --- 5,544,688 ---
========== ============ =========== ===========
</TABLE>
See accompanying notes.
4
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MEDSTONE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK STOCK UNREALIZED
-------------------- ADDITIONAL ACCUMULATED PURCHASE LOSS ON
NUMBER OF PAID-IN EARNINGS NOTE SHORT-TERM TREASURY
SHARES AMOUNT CAPITAL (DEFICIT) RECEIVABLE INVESTMENTS STOCK TOTAL
---------- -------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 5,465,603 $ 22,314 $18,715,068 $ 3,471,965 $(134,800) $(1,168) $ (908,370) $21,165,009
Common stock options exercised 33,877 135 112,226 --- --- --- --- 112,361
Treasury stock repurchased (133,600) --- --- --- --- --- (1,079,353) (1,079,353)
Unrealized loss on short-term
investments --- --- --- --- --- (70) --- (70)
Net income --- --- --- 1,882,950 --- --- --- 1,882,950
--------- -------- ----------- ----------- --------- ------- ------------ -----------
BALANCE AT JUNE 30,
1997 (UNAUDITED) 5,365,880 22,449 $18,827,294 $ 5,354,915 $(134,800) $(1,238) $ (1,987,723) $22,080,897
========= ======== =========== =========== ========= ======= ============ ===========
</TABLE>
5
<PAGE> 6
MEDSTONE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 1,882,950 $(2,413,246)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization.......................................... 770,190 512,220
Minority interest in partnership....................................... 100,035 69,049
Provision for doubtful accounts........................................ 76,000 ---
Provision for lawsuit settlement....................................... --- 5,500,000
Changes in assets and liabilities:
Accounts receivable.................................................... (1,166,773) (1,212,502)
Inventories............................................................ (98,883) 78,171
Notes receivable....................................................... 500,000 ---
Deferred taxes......................................................... 369,109 ---
Prepaid expenses and other current assets.............................. 59,127 128,178
Accounts payable and accrued expenses.................................. (989,951) 889,454
Accrued income taxes .................................................. 324,018 (1,484,216)
Deferred revenue....................................................... 50,683 467,902
Other, net............................................................. 7,700 (456,098)
------------ -----------
Net cash provided by operating activities........................ 1,884,205 2,078,912
------------ -----------
Cash flows from investing activities:
Purchase of marketable securities........................................ (16,123,348) (8,826,708)
Sale of marketable securities............................................. 16,311,390 13,373,227
Purchase of subsidiary.................................................... (2,300,000) (1,350,000)
Investment by minority in partnership..................................... 226,009 (195,028)
Distribution of minority interest......................................... --- 45,557
Purchase of property and equipment........................................ (345,619) (2,476,460)
Disposals of property and equipment....................................... --- ---
------------ -----------
Net cash provided by (used in) investing activities............. (2,231,568) 570,588
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock .................................... 112,361 88,234
Purchase of treasury stock................................................. (1,079,353) (505,067)
Dividends paid............................................................. --- (1,000,000)
------------ -----------
Net cash provided by (used in) financing activities.............. (966,992) (1,416,833)
------------ -----------
Net increase (decrease) in cash and equivalents................................. (1,314,355) 1,232,667
Cash and equivalents at beginning of period .................................... 3,906,961 3,108,741
------------ -----------
Cash and equivalents at end of period........................................... $ 2,592,606 $ 4,341,408
============ ===========
Supplemental cash flow disclosures: Cash paid during the period for:
Income taxes................................................... $ 359,504 $ 505,893
Interest....................................................... $ --- $ ---
</TABLE>
See accompanying notes.
6
<PAGE> 7
MEDSTONE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
A. ORGANIZATION AND OPERATIONS OF THE COMPANY
Medstone International, Inc. ("Medstone") was incorporated in Delaware
in October 1984. The Company designs, manufactures and markets the Medstone
STSTM Shockwave Therapy System (the "System") for the noninvasive disintegration
of kidney stones in human patients. In addition to sales of the System, Medstone
generates recurring revenue from procedure fees and fee for service arrangements
for use of the System and from repairs and maintenance of the Systems. The
Company, as a manufacturer of capital medical devices, has been vertically
integrating by offering its medical devices directly to providers on a
fee-per-procedure basis. Medstone currently offers mobile lithotripsy services
to customers in the United States on a "wholesale" fee-per-procedure basis,
which consolidated billings are rendered to providers. Medstone intends to
expand efforts to grow this medical service side of its business.
Northern Nevada Lithotripsy Associates, LLC ("Northern Nevada"), is
owned 60% by Medstone. Medstone acquired its 60% interest for $1.35 million as
of April 1, 1996. The operating results of Northern Nevada are included in the
consolidated financial statements of the Company as of the acquisition date.
United Physicians Resources, Inc. ("UPR") was incorporated in June
1996, to expand the Company's service orientation to the urologist practitioner.
UPR provides billing, practice management, and consulting services as an
additional service line once the initial physician relationship has been
established. UPR purchased the operations of Integrated HealthCare Systems, Inc.
in July 1996 for $30,000. The operating results of UPR are included in the
consolidated financial statements of the Company since its incorporation.
As of March 1, 1997, Medstone acquired a 60% interest in Southern Idaho
Lithotripsy Associates, LLC ("Southern Idaho") for $2.3 million in cash. The
operating results of Southern Idaho are included in the consolidated financial
statements of Medstone as of March 1, 1997.
B. BASIS OF PRESENTATION
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of its consolidated financial position at June 30, 1997 and consolidated results
of operations and cash flows for the periods presented. Certain prior period
balances have been reclassified to conform with current period presentation.
Although the Company believes that the disclosures in these financial statements
are adequate to make the information presented not misleading, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted and should be read in conjunction with the Company's audited
financial
7
<PAGE> 8
statements included in the Company's 1996 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 27, 1997. Results of operations
for the six months ended June 30, 1997 are not necessarily indicative of results
to be expected for the full year.
C. PER SHARE INFORMATION
Per share information is presented in the accompanying consolidated
statements of income based upon the weighted average number of common and common
equivalent shares outstanding. Common equivalent shares result from the assumed
exercise of outstanding dilutive securities when applying the treasury stock
method. Fully diluted per share information is not presented for periods in
which the effect is antidilutive.
D. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made in preparing these financial statements
include the allowance for doubtful accounts.
E. INVENTORIES
At June 30, 1997 and December 31, 1996, inventories consisted of the
following:
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
Raw materials $1,467,348 $1,353,993
Work in process 147,396 255,776
Finished goods 943,918 850,010
---------- ----------
$2,558,662 $2,459,779
========== ==========
F. SHORT-TERM INVESTMENTS
Effective January 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption did not have a
significant impact on the Company's consolidated financial statements.
Management determines the appropriate classification of such securities at the
time of purchase and reevaluates such classification as of each balance sheet
date. Based on its intent, the Company's investments are classified as
available-for-sale and are carried at fair value, with unrealized gains and
losses, net of tax, reported as a separate component of stockholders' equity.
The investments are adjusted for amortization of premiums and discounts to
maturity and such amortization is included in interest income. Realized gains
and losses and declines in value judged to be other than temporary are
determined based on the specific identification method and are reported in the
consolidated statements of operations.
8
<PAGE> 9
G. CONTINGENCIES
From time to time, the Company is subject to legal actions and claims
for personal injuries or property damage related to patients who use its
products. The Company has obtained a liability insurance policy providing
coverage for product liability and other claims. Management does not believe
that the resolution of any current proceedings will have a material financial
impact on the Company or the consolidated financial statements.
H. STOCK REPURCHASE PLAN
On March 29, 1996 the Company announced a stock repurchase program of
up to 500,000 shares of its Common Stock. For the quarter ended June 30, 1997,
the Company has repurchased 96,000 shares at a cost of $764,161. Since inception
of the repurchase program, the Company has repurchased a total of 246,400 shares
at a cost of $1,987,723.
I. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. Under Statement 128, for
the three months ended June 30, 1997 and 1996, there would be no impact on
either primary or fully diluted earnings per share. For the six months ended
June 30, 1997, primary earnings per share would be $.35 with no impact for the
first six months ended June 30, 1996. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these six months ended June
30, 1997 and 1996 is not expected to be material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONSOLIDATED OPERATIONS
GENERAL
Medstone is a provider of extracorporeal shockwave therapy. Medstone
manufactures, markets and maintains extracorporeal shockwave therapy (ESWT)
devices, and continues to expand its Fee-for-Service Program to supply such
devices to providers on a per procedure basis. To date, the Company's
consolidated revenues have come primarily from Medstone's lithotripsy business.
The Company as a manufacturer of capital medical devices has been
vertically integrating by offering its medical devices directly to providers.
Medstone sells its ESWT devices as well as providing them on fee-for-service
procedure basis. Medstone intends to continue the growth of this manufacturer
direct business.
9
<PAGE> 10
The Company's extracorporeal shockwave therapy (ESWT) device has
received pre-market approval to treat renal stones and will be filing for
approval to treat gallstones. Medstone is investigating the use of ESWT in the
treatment of orthopedic and other diseases.
In 1996, the Company acquired a 60% interest in Northern Nevada, a
lithotripsy partnership which deals directly with patient and insurers and also
founded UPR as a majority-owned subsidiary of the Company, to expand the
Company's service orientation to the urologist practitioner. In March 1997 the
Company acquired a 60% interest in Southern Idaho Lithotripsy Associates, LLC,
another provider of lithotripsy services.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company recognized revenue of $5.7 million in second quarter of
1997 or a 31% increase compared to $4.3 million in the corresponding period of
1996. Equipment revenues increased by 64% due to the shipment of two systems in
the second quarter of 1997, compared to one system in the second quarter of
1996. Also increasing by 30% was the revenues from the Company's maintenance,
procedure and fee-for-service activities as the number of patients treated on
the Company's lithotripters in the United States increased by 21% in the second
quarter of 1996 compared to the comparable period in 1996.
Interest income decreased by 38% in the second quarter of 1997
compared to the same period in 1996 due to a 40% decrease in average invested
balances.
Cost of sales on equipment and equipment upgrade sales increased to
75% of sales in the three months ended June 30, 1997, compared to 53% of sales
in the comparable period of the prior year due to product option mix and lower
average unit selling prices. Recurring revenue costs of sales decreased to 36%
in the three months ended June 30, 1997, compared to 47% in the same period in
the prior year due to higher utilization factors on the Company's
fee-for-service lithotripters, with a record number of patients treated in the
current year. Overall cost of sales, as a percentage of revenue (excluding
interest), declined to 42% in the second quarter of 1997 compared to 48% in the
second quarter of 1996.
Research and development costs increased by 66%, or $84,000 in the
second quarter of 1997 compared to the same quarter of 1996 due to increased
headcount and project expenses in connection with new lithotripsy products under
development by the Company.
Selling expenses increased by $72,000, or 12% in the second quarter of
1997 when compared to 1996 due to higher commission expense resulting from the
31% revenue increase.
General and administrative expenses increased by $280,000, or 77% in
the second quarter of 1997 when compared to the second quarter of 1996 due to
additional payroll expenses for the United Physicians Resources subsidiary.
10
<PAGE> 11
A one-time settlement expense of $5.5 million was recorded in the
second quarter of 1996 due to the out-of-court agreement reached in the class
action securities suit against the Company and current and former officers with
no comparable charge in the current year.
Legal and other expenses decreased by $415,000 in the second quarter
of 1997 compared to the same period of 1996 as legal expenses are no longer
being incurred in connection with the class action securities suit against the
Company and current and former officers settled in the second quarter of 1996.
Provision for (benefit from) income taxes for the second quarter of
1997 represents an expected statutory rate in the current year, compared to a
benefit against taxes in the second quarter of 1996.
Minority interest in subsidiaries' income increased to $136,000 in the
second quarter of 1997, compared to $69,000 in the three months ended June 30,
1996, due to the acquisition of 60% of the Southern Idaho operation.
Six Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
The Company recognized revenue of $10.6 million in the six
months ended June 30, 1997 compared to revenue of $8.4 million in the same
period of 1996, or a 26% increase. Equipment revenues increased by 24% due to
the shipment of four systems in 1997 compared to three systems in 1996.
Recurring revenue from maintenance, procedure and fee-for-service revenues
increased by $2.1 million, or 30% in the first six months of 1997 compared to
the first six months of 1996, with the fee-for-service revenue segment growing
the fastest. Over 11,800 patients have been treated on the Company's systems in
the first six months of 1997 compared to approximately 10,500 in the comparable
period in the prior year.
Interest income decreased by 40% in the first six months of 1997
compared to the first six months of 1996 due to slightly lower market rates for
investments and a decrease in average invested balances as the Company had
settled the class action litigation.
Cost of sales on equipment and equipment upgrade sales increased
to 74% of sales in the first six months of 1997, compared to 53% of sales in the
first six months of 1996 due to product option mix and lower average unit
selling prices. Recurring revenue cost of sales decreased to 39% in the first
six months of 1997, compared to 47% in the same period in 1996 due to the higher
utilization factors on the fee-for-service units placed in service during the
first six months of 1996. Overall cost of sales, as a percentage of operating
revenue, decreased to 44% in the first six months of 1997 compared to 48% in the
same period of the prior year.
Research and development costs increased by $155,000 or 62% in
the first six months of 1997 compared to the first six months of 1996 due to the
payroll and project expenses as the Company concentrates its efforts on new
lithotripsy products.
11
<PAGE> 12
Selling expenses increased in the first six months of 1997 by
$135,000 or 12% compared to the same period of 1996 as the Company's commission
expenses increased due to expanded mobile route revenue and the Company pursues
international sales opportunities.
General and administrative expenses increased in the first six
months of 1997 by $511,000, or 75%, compared to the same period of 1996 due to
the expanded staffing levels to support the United Physicians Resources
subsidiary.
Settlement expense of $5.5 million was recorded in the first six
months of 1996 to end the class action securities suit against the Company and
current and former officers with no comparable expense in the current year.
Legal and other expense decreased by $803,000 in the first six
months of 1996 when compared to the same period in the prior year due to the
settlement in the second quarter of 1996 of the class action securities suit.
Minority interest expense increased to $215,000 in the first six
months of 1997, compared to $69,000 in the first six months of 1996, due to the
acquisition in April 1996 of Northern Nevada and Southern Idaho in March 1997.
Provision for (benefit from) income taxes went from a benefit
from income taxes of $1,389,000 in the first six months of 1996 to a provision
for income taxes of $1,049,000 for the first six months of 1997, due to the loss
from settlement of the class action securities suit in 1996 and the tax
consequences therefrom.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and short-term
investments of approximately $9.5 million. These funds were generated from
operating activities and from the Company's initial public offering in June
1988.
Accounts receivable have increased substantially, $1.1 million,
due to the acquisition of Southern Idaho's retail receivables and timing of
shipments near the end of the quarter.
Accounts payable decreased by $1.0 million as the Company paid
costs incurred in the attempted acquisition of the lithotripsy operations of
Coram Healthcare.
The Company's long-term capital expenditure requirements will
depend on numerous factors, including the progress of the Company's research and
development programs, the time required to obtain regulatory approvals, the
resources that the Company devotes to the development of self-funded products,
proprietary manufacturing methods and advanced technologies, the costs of
acquisitions and/or new revenue opportunities, the ability of the Company to
obtain additional licensing arrangements and to manufacture products under those
arrangements, and the demand for its products if and when approved and possible
acquisitions of products, technologies and
12
<PAGE> 13
companies.
The Company believes that its existing working capital and funds
anticipated to be generated from operations will be sufficient to meet the cash
needs for continuation of its present operations during 1997.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objections, expectations and intentions are subject to change
at any time at the discretion of the Company, (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth; (iii) the Company's businesses are highly competitive and the entrance
of new competitors into or the expansion of the operations by existing
competitors in the Company's markets and other changes could adversely affect
the Company's plans and results of operations; and (iv) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
13
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MEDSTONE INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 11.1 Computation of per Share Information
(b) 27. Financial Data Schedule
None
14
<PAGE> 15
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 hereunto duly authorized.
MEDSTONE INTERNATIONAL, INC.
----------------------------------
A Delaware corporation
Date: August 13, 1997 /s/ MARK SELAWSKI
----------------------------------
Mark Selawski
Chief Financial Officer
(Principal financial and
accounting officer)
15
<PAGE> 1
Exhibit 11.1
MEDSTONE INTERNATIONAL, INC.
COMPUTATION OF PER SHARE INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings:
Net income (loss) .............................. $ 1,022,497 $(3,030,560) $ 1,882,950 $(2,413,246)
=========== =========== =========== ===========
Computation of primary per share information:
Shares:
Number of shares outstanding(b) ............. 5,401,880 5,531,750 5,427,993 5,532,093
Add effect of outstanding
options and warrants (a) ................. 46,803 --- 62,015 ---
----------- ----------- ----------- -----------
Number of shares outstanding, as
adjusted ................................. 5,448,683 5,531,750 5,490,008 5,532,093
=========== =========== =========== ===========
Primary earnings per share:
Net income (loss) ........................... $ .19 $ (.55) $ .34 $ (.44)
=========== =========== =========== ===========
Computation of fully diluted per share information:
Shares:
Number of shares outstanding
per primary computation .................. 5,401,880 5,427,993
Add effect of outstanding options and
warrants (a) ............................. 101,465 116,695
----------- -----------
Number of shares outstanding as
adjusted ................................. 5,503,345 5,544,688
=========== ===========
Fully diluted earnings per share:
Net income .................................. $ .19 $ .34
=========== ===========
</TABLE>
- -----------
(a) As determined by the application of the treasury stock method.
(b) Weighted average number of shares outstanding.
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,592,606
<SECURITIES> 6,914,058
<RECEIVABLES> 3,777,758
<ALLOWANCES> 363,597
<INVENTORY> 2,558,662
<CURRENT-ASSETS> 17,469,119
<PP&E> 9,609,329
<DEPRECIATION> 4,478,068
<TOTAL-ASSETS> 25,944,681
<CURRENT-LIABILITIES> 3,111,860
<BONDS> 0
22,449
0
<COMMON> 0
<OTHER-SE> 22,058,448
<TOTAL-LIABILITY-AND-EQUITY> 25,944,681
<SALES> 5,543,816
<TOTAL-REVENUES> 5,664,850
<CGS> 2,335,460
<TOTAL-COSTS> 1,541,117
<OTHER-EXPENSES> 156,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,631,497
<INCOME-TAX> 609,000
<INCOME-CONTINUING> 1,022,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,022,497
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
