UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 27, 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 0-17885
BEI MEDICAL SYSTEMS COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 71-0455756
- -------------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
83 Hobart Street
Hackensack, New Jersey 07601
----------------------------
(Address of principal executive offices)
(201) 488-4960
--------------
(Registrant's telephone number)
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 of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.001 Par Value, 7,556,534 shares as of January 20, 1998
Page 1 of 12
<PAGE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION (Unaudited) PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--December 27, 1997 and
September 27, 1997 3
Condensed Consolidated Statements of Operations--Quarter
ended December 27, 1997 and December 28, 1996 4
Condensed Consolidated Statements of Cash Flows--Quarter
ended December 27, 1997 and December 28, 1996 5
Notes to Condensed Consolidated Financial Statements--
December 27, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES 12
Page 2 of 12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 27, September 27,
1997 1997
(Unaudited) (See note below)
(dollars in thousands)
- ---------------------------------------------- ---------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $8,363 $9,271
Trade receivables, net 2,210 1,958
Inventories, net -- Note 2 2,880 2,939
Other current assets 1,018 296
------------------ --------------------
Total current assets 14,471 14,464
Property, plant and equipment, net 753 811
Tradenames, patents and other 3,459 3,708
Goodwill 3,535 3,595
Other assets, net -- 6
------------------ --------------------
$22,218 $22,584
================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $1,161 $346
Accrued expenses and other liabilities 2,891 2,843
Current portion of long-term debt 171 190
------------------ --------------------
Total current liabilities 4,223 3,379
Long-term debt, less current portion 9 22
Minority interest -- 1,523
Stockholders' equity 17,986 17,660
------------------ --------------------
$22,218 $22,584
================== ====================
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
Note: The balance sheet at September 27, 1997 has been derived from the audited
consolidated balance sheet at that date but does not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
Page 3 of 12
<PAGE>
<TABLE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended
-------------------------------------------------
December 27, December 28,
1997 1996
(dollars in thousands except per share amounts)
- ---------------------------------------------------------------- -------------------------------------------------
<S> <C> <C>
Net sales $2,418 $2,584
Cost of sales 1,495 1,432
----------------- ------------------
Gross profit 923 1,152
Selling, general and administrative expenses 2,264 1,909
Research, development and related expenses 478 433
----------------- ------------------
Loss from operations (1,819) (1,190)
Interest expense 11 20
Other income 120 89
----------------- ------------------
Loss from continuing operations before
income taxes (1,710) (1,121)
Provision (benefit) for income taxes (514) (375)
----------------- ------------------
Loss from continuing operations (1,196) (746)
Income from discontinued operations, net of income taxes -- 35
----------------- ------------------
Net loss ($1,196) ($711)
================= ==================
Earnings (loss) per Common Share -- Note 4
Basic and Diluted Earnings (loss) per Common Share
Loss from continuing operations ($0.17) ($0.11)
Income from discontinued operations, net of income taxes -- 0.01
----------------- ------------------
Net loss per common share ($0.17) ($0.10)
================= ==================
Dividends per common share -- $0.02
================= ==================
<FN>
See notes to condensed consolidated financial statements.
</FN>
Page 4 of 12
</TABLE>
<PAGE>
<TABLE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
--------------------------------------------------
December 27, December 28,
1997 1996
(dollars in thousands)
- -------------------------------------------------------------------- --------------------------------------------------
<S> <C> <C>
Net cash (used) provided by operating activities ($851) $531
Cash flows from investing activities:
Purchases of property, plant and equipment (18) (31)
Increase in other assets (4) (124)
------------------- ------------------
Net cash used in investing activities (22) (155)
Cash flows from financing activities:
Payments on long-term debt (35) (5,606)
Proceeds from issuance of common stock -- 168
Purchase of treasury stock -- (748)
Payment of cash dividends -- (140)
------------------- ------------------
Net cash used in financing activities (35) (6,326)
------------------- ------------------
Net decrease in cash and cash equivalents (908) (5,950)
Cash and cash equivalents at beginning of period 9,271 17,329
------------------- ------------------
Cash and cash equivalents at end of period $8,363 $11,379
=================== ==================
<FN>
See notes to condensed consolidated financial statements.
</FN>
Page 5 of 12
</TABLE>
<PAGE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 27, 1997
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the year ending
October 3, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto in the Company's annual report on Form 10-K for
the year ended September 27, 1997.
On September 27, 1997, BEI Electronics, Inc. ("Electronics") distributed to
holders of Electronics common stock one share of common stock of BEI
Technologies, Inc. ("Technologies"), a newly formed subsidiary, for each share
of Electronics common stock held (the "Distribution"). On November 4, 1997,
Electronics merged with its subsidiary, BEI Medical Systems Company, Inc.
("Medical"), and became one company with Electronics as the surviving
corporations (the "Merger"). After the Merger, Electronics changed its name to
BEI Medical Systems Company, Inc. (the "Company").
In connection with the Distribution, Electronics transferred to Technologies all
of the assets, liabilities and operations of its BEI Sensors & Systems Company,
Inc. ("Sensors") and Defense Systems Company, Inc. ("Defense") business
segments. See Note 3 -- Discontinued Operations for a description of the
Distribution.
NOTE 2--INVENTORIES
December 27, September 27,
1997 1997
(dollars in thousands)
- --------------------------------------------------------------------------------
Finished products $1,753 $1,843
Work in process 137 230
Materials 990 866
-------------------- --------------------
Net inventories $2,880 $2,939
==================== ====================
NOTE 3 -- DISCONTINUED OPERATIONS
Technologies was incorporated on June 30, 1997 in the State of Delaware, as a
wholly owned subsidiary of Electronics. On September 27, 1997, Electronics
distributed to holders of Electronics common stock one share of common stock of
Technologies for each share of Electronics common stock held on September 24,
1997. In connection with the Distribution, Electronics transferred to
Technologies all of the assets, liabilities and operations of its Sensors and
Defense business segments. Accordingly, the financial position and results of
operations of Sensors and Defense are shown as discontinued operations for all
periods presented.
Page 6 of 12
<PAGE>
NOTE 4--EARNINGS PER SHARE
<TABLE>
The following table sets forth the computation of basic and diluted earnings per
common share:
<CAPTION>
Quarter Ended
--------------------------------------------------
December 27, December 28,
1997 1996
(dollars in thousands except per share amounts)
- ------------------------------------------------------------------- --------------------------------------------------
<S> <C> <C>
Numerator
Income from continuing operations ($1,196) ($746)
Income from discontinued operations, net of income taxes -- 35
------------------- -------------------
Net income (loss) available to common stockholders ($1,196) ($711)
=================== ===================
Denominator
Denominator for basic earnings per share --
weighted average shares, net of unvested
contingently issuable shares (FY 1998--268 shares;
FY 1997--225 shares) 7,185 6,760
Basic and diluted earnings per share ($0.17) ($0.11)
</TABLE>
Due to the loss from continuing operations, earnings per share is based on
weighted average common shares only, as any assumption of the conversion of
equivalent shares would be anti-dilutive.
NOTE 5--CONTINGENCIES AND LITIGATION
CooperSurgical, Inc. vs. BEI Medical Systems Company, Inc. et al.
In October 1993, CooperSurgical, Inc., a subsidiary of The Cooper Companies,
filed a claim for unspecified damages alleging unfair competition due to actions
by Medical Systems and its president Richard Turner, a former employee of The
Cooper Companies, and others. On January 31, 1996, the Court issued a ruling
which affirmed the legal basis for Medical Systems to assert a counterclaim for
damages against CooperSurgical regarding the parties' electrosurgical generator
contract.
CooperSurgical's original damage claims were for $11 million. In June 1996, more
than one year after expert discovery closed in May 1995, CooperSurgical's
counsel sent to the Company's counsel a letter purporting to supplement
CooperSurgical's previous responses to interrogatories. The June 1996 letter
indicated that CooperSurgical's damages for one particular aspect of the claim
were between $24 and $50 million with respect to a claim for which
CooperSurgical's experts had previously estimated damages of $3.4 million. The
Company will vigorously oppose any CooperSurgical attempt whatsoever to
introduce at trial any evidence of a damage claim based upon its June 1996
purported supplement.
Management has vigorously defended its rights in this action and believes after
discussion with legal counsel that the CooperSurgical claims are exaggerated. In
1995, expert witnesses for the Company prepared a formal response to the damage
computations CooperSurgical previously submitted. The Company's experts stated
that if CooperSurgical were entitled to damages, those damages would total less
than $100,000, and would be more than offset by the Company's counterclaims
against CooperSurgical, if the Company were successful in its counterclaims.
Page 7 of 12
<PAGE>
The trial started in October 1997, and is currently ongoing in the Superior
Court of New Jersey for Bergen County, Chancery Division at a rate of about two
days per week, with interruptions to the trial schedule. While the outcome of
this matter cannot be determined at this time, management believes, taking known
factors into account and after consultation with legal counsel, that this matter
will not result in a material adverse impact on the financial position of the
Company. However, any settlement of this case on a basis that results in an
unfavorable outcome for the Company could have a material adverse effect on the
results of operations of any quarterly or annual reporting period.
Other
The Company has pending various legal actions arising in the normal course of
business. None of these legal actions is expected to have a material effect on
the Company's operating results or financial condition.
Page 8 of 12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this section, and those discussed in the
Company's Form 10-K for the year ended September 27, 1997.
<TABLE>
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<CAPTION>
Quarter Ended
-------------------------------------------------
December 27, December 28,
1997 1996
- ------------------------------------------------------------------- -------------------------- ---------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 61.8 55.4
----------------- -----------------
Gross profit 38.2 44.6
Operating expenses
Selling, general and administrative expenses 93.6 73.9
Research, development and related expenses 19.8 16.8
----------------- -----------------
Income (loss) from operations (75.2) (46.1)
Interest expense 0.6 0.8
Other income 5.0 3.5
----------------- -----------------
Loss from continuing operations before income taxes (70.8) (43.4)
Provision (benefit) for income taxes (21.3) (14.5)
----------------- -----------------
Loss from continuing operations (49.5) (28.9)
Income from discontinued operations -- 1.4
----------------- -----------------
Net loss (49.5)% (27.5)%
================= =================
</TABLE>
Quarters ended December 27, 1997 and December 28, 1996
Net sales for the quarter decreased $166,000 or 6.4% to $2,418,000 from the same
period in fiscal 1997. The sales volume decrease was due primarily to lower
domestic sales of surgical instruments resulting from a reorganization in the
domestic sales force. The Company is transitioning from an inside telemarketing
sales force to a field sales force of independent sales representatives
supported by telemarketing. Sales of OEM and gastro-intestinal products also
declined, reflecting reduced sales and marketing effort in this area as the
Company concentrates on its core products in women's health. Partially
offsetting the decrease in domestic sales were increases in international sales,
primarily of the Company's new product for dysfunctional uterine bleeding, the
HydroThermAblator(R) ("HTA(R)"). The HTA was not available for sale during the
first quarter of fiscal 1997.
Page 9 of 12
<PAGE>
Cost of sales as a percentage of net sales in the first quarter of fiscal 1998
increased to 61.8% from 55.4% in the comparable period of fiscal 1997. The
increase was due mainly to an unfavorable product mix with a higher portion of
lower margin products sold during the first quarter of fiscal 1998 as compared
to the same period in fiscal 1997. In addition, production and marketing
start-up costs associated with the introduction
of the HTA in international markets had a negative impact on the cost of sales
in the first quarter of fiscal 1998.
Selling, general and administrative expenses as a percentage of net sales
increased in the first quarter of fiscal 1998 versus the comparable period in
fiscal 1997, due to increased expenditures associated with the development of
the Company's new field sales force. The Company added a sales manager and two
sales representatives to support the field sales activities. Additionally, legal
expenses incurred as a result of the Company's ongoing litigation plus expenses
associated with the change in corporate structure following distribution of BEI
Technologies on September 27, 1997 contributed to higher administrative
expenses. (See Note 5 -- Contingencies and Litigation)
Research, development and related expenses as a percentage of net sales for the
first quarter of fiscal 1998 increased versus the comparable period of fiscal
1997 due to costs associated with the Phase II clinical trials for the HTA in
the United States and various international clinical trials that the Company is
supporting.
Liquidity and Capital Resources
During the first quarter of fiscal 1998, cash used by operations was $851,000,
primarily resulting from the net loss of $1,196,000, an increase in refundable
income taxes of $514,000 and an increase in current assets of $402,000.
Partially offsetting the above were increases in accounts payable and accrued
liabilities of $866,000, non-cash depreciation and amortization expenses of
$395,000.
Cash used in investing activities during the first quarter of fiscal 1998 of
$22,000 was mainly for equipment expenditures.
Cash flows from financing activities consisted of $35,000 in scheduled payments
made on long-term debt.
The Company had capital equipment commitments at December 27, 1997, of
approximately $100,000.
Year 2000 Compliance: Modification of Management Information Systems
The company is evaluating the potential impact of what is commonly referred to
as the "Year 2000" issue concerning the inability of certain information systems
to properly recognize and process dates containing the Year 2000 and beyond. If
not corrected, these systems could fail or create erroneous results. The
Company's management information systems primarily use software products
purchased from commercial sources without significant modification or
customization. Updates to these products are routinely installed by the Company
to upgrade the systems and correct known faults in the software. There have been
no significant incremental costs identified with updates that specifically
address Year 2000 compliance. Notwithstanding Year 2000 compliance of the
Company's systems, there can be no assurance that the Company will not be
adversely affected by the failure of others to become Year 2000 compliant.
Based on the financial condition of the Company at December 27, 1997, management
believes that the existing cash balances together with operating revenues will
provide adequate funding to meet the Company's capital requirements for the near
term. In the event additional capital is required, the Company may seek to raise
the capital through public or private equity or debt financing. There can be no
assurance that such capital will be available on favorable terms, if at all.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had a
material effect on the Company's operations.
Page 10 of 12
<PAGE>
BEI MEDICAL SYSTEMS COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K as an Item 2
Acquisition or Disposition of Assets reporting the
completion of the spin-off of BEI Technologies, Inc.
from the Company. The Form 8-K included the Company's
pro forma condensed consolidated balance sheet as of
June 28, 1997, and its pro forma condensed consolidated
statements of operation for the nine months ended June
28, 1997 and the year ended September 28, 1996.
Page 11 of 12
<PAGE>
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 on February 9, 1998.
BEI Medical Systems Company, Inc.
By: /s/ Thomas W. Fry
---------------------------
Thomas W. Fry
Vice President of Finance and Administration,
Secretary and Treasurer
(Chief Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Condensed Consolidated Financial Statements
for the period ended December 27, 1997
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
<CASH> 8363
<SECURITIES> 0
<RECEIVABLES> 2210
<ALLOWANCES> 0
<INVENTORY> 2880
<CURRENT-ASSETS> 14471
<PP&E> 753
<DEPRECIATION> 0
<TOTAL-ASSETS> 22218
<CURRENT-LIABILITIES> 4223
<BONDS> 9
0
0
<COMMON> 10
<OTHER-SE> 17976
<TOTAL-LIABILITY-AND-EQUITY> 22218
<SALES> 2418
<TOTAL-REVENUES> 2538
<CGS> 1495
<TOTAL-COSTS> 1495
<OTHER-EXPENSES> 2742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (1710)
<INCOME-TAX> (514)
<INCOME-CONTINUING> (1196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1196)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
