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 April 1, 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 0-17885
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.)
100 Hollister Road
Teterboro, New Jersey 07608
----------------------------------------
(Address of principal executive offices)
(201) 727-4900
-------------------------------
(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, 7,685,922 shares as of May 1, 2000
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<PAGE>
INDEX
PART 1. FINANCIAL INFORMATION (Unaudited) Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- April 1, 2000
(unaudited) and October 2, 1999 3
Condensed Consolidated Statements of Operations -
Quarter and Six Months Ended April 1, 2000
(unaudited) and April 3, 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows --
Six Months Ended April 1, 2000 (unaudited) and April 3,
1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements --
April 1, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
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
SIGNATURES 17
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2
<PAGE>
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
BEI Medical Systems Company, Inc. and Subsidiaries
(dollars in thousands) April 1, October 2,
2000 1999
(Unaudited) (See note below)
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $7,206 $1,654
Trade receivables, net 124 338
Inventories 449 339
Refundable income taxes 86 487
Other current assets 228 68
Net assets held for sale -- 7,282
- --------------------------------------------------------------------------------
Total current assets 8,093 10,168
Property, plant and equipment, net 266 423
Tradenames, patents and other, net 229 234
Other assets 114 137
- --------------------------------------------------------------------------------
Total assets $8,702 $10,962
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $227 $536
Accrued expenses and other liabilities 1,646 1,727
Notes payable -- 1,000
- --------------------------------------------------------------------------------
Total current liabilities 1,873 3,263
Stockholders' equity 6,829 7,699
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $8,702 $10,962
================================================================================
See notes to condensed consolidated financial statements.
Note: The balance sheet at October 2, 1999 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.
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3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------- --------------------
(amounts in thousands except per share amounts) April 1, April 3, April 1, April 3,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $36 $2,001 $1,270 $4,165
Cost of revenues 224 1,181 1,048 2,489
- -------------------------------------------------------------------------------------------------
Gross profit (loss) (188) 820 222 1,676
Selling, general and administrative expenses 1,033 1,728 2,287 3,545
Research, development and related expenses 309 857 727 1,583
Gain on Asset Sale -- -- (1,913) --
- -------------------------------------------------------------------------------------------------
1,342 2,585 1,101 5,128
- -------------------------------------------------------------------------------------------------
Loss from operations (1,530) (1,765) (879) (3,452)
Interest income 98 37 140 63
Interest expense -- -- (50) --
- -------------------------------------------------------------------------------------------------
Loss before income taxes and extraordinary item (1,432) (1,728) (789) (3,389)
Income tax benefit -- (74) -- (208)
- -------------------------------------------------------------------------------------------------
Net loss before extraordinary item (1,432) (1,654) (789) (3,181)
Extraordinary loss on extinguishment of debt -- -- (130) --
- -------------------------------------------------------------------------------------------------
Net loss ($1,432) ($1,654) ($919) ($3,181)
=================================================================================================
Loss per Common Share
Loss before extraordinary loss per common
share, basic and diluted ($0.19) ($0.22) ($0.10) ($0.42)
=================================================================================================
Extraordinary loss on extinguishment of debt,
basic and diluted -- -- ($0.02) --
=================================================================================================
Net loss per common share, basic and diluted ($0.19) ($0.22) ($0.12) ($0.42)
=================================================================================================
Weighted average shares outstanding 7,612 7,503 7,605 7,491
=================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
Six Months Ended
---------------------
(dollars in thousands) April 1, April 3,
2000 1999
- --------------------------------------------------------------------------------
Net cash used in operating activities ($2,310) ($681)
Cash flows from investing activities:
Purchases of equipment (9) (22)
Net proceeds from Asset Sale 8,871 --
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 8,862 (22)
Cash flows from financing activities:
Proceeds from revolving credit note 500 --
Payments on long-term debt and revolving credit note (1,500) (21)
- --------------------------------------------------------------------------------
Net cash used in financing activities (1,000) (21)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,552 (724)
Cash and cash equivalents at beginning of period 1,654 3,504
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $7,206 $2,780
================================================================================
See notes to condensed consolidated financial statements.
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5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
April 1, 2000
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 September 30, 2000. 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 October 2, 1999.
The Asset Sale: On December 8, 1999, BEI completed the sale of a
substantial portion of the assets of the Company to CooperSurgical Acquisition
Corp., a Delaware corporation ("CSAC"), for approximately $10.5 million in cash,
subject to post-closing adjustments, pursuant to an Asset Purchase Agreement,
dated as of October 1, 1999, between the Company and CSAC, as amended (the
"Asset Purchase Agreement") (the "Asset Sale"). The assets sold constitute a
business of developing, manufacturing, marketing and servicing a broad array of
advanced systems and devices for diagnostic and therapeutic procedures in the
medical fields of gynecology and gastroenterology (the "Base Business").
Following the Asset Sale, the Company is focusing exclusively on developing a
new therapeutic system, the Hydro ThermAblator(R) (the "HTA(R)") for treatment
of excessive uterine bleeding.
The cash consideration received at the closing of the Asset Sale was
$10,538,000, subject to certain net post-closing adjustments estimated to be
approximately $374,000 payable by the Company to CSAC reflecting lower than
estimated amounts of accounts receivable and inventory as of the closing date.
The consideration received by the Company also included the assumption of
$331,000 of specified liabilities, the assumption of liabilities under certain
contracts of the Company, and the forgiveness of royalty payments that may in
the future have been owed by the Company to an affiliate of CSAC in an amount of
up to $100,000. In addition, as a condition to the consummation of the Asset
Sale, the Company entered into a noncompetition agreement with and for the
benefit of CSAC for a period of five years.
The Company recorded a net gain on the sale of the Base Business of
approximately $1,913,000 from the Asset Sale. The key components of the gain are
as follows:
Dollars in thousands
Proceeds $10,164(1)
Less: estimated transaction costs (1,293)(2)
-------
Estimated net proceeds 8,871
Less: net assets sold (6,958)
-------
Gain on Asset Sale $1,913
=======
(1) Reflects proceeds from the Asset Sale received at closing of $10,538,000,
less estimated post-closing adjustments of $374,000.
(2) Transaction costs of $1,293,000 include estimated professional fees to be
paid by BEI in connection with the Asset Sale ($524,000), employee bonuses
related to completion of the Asset Sale ($186,000), estimated severance
payments and other costs ($308,000), and the cost of products and services
provided to CSAC free of charge ($275,000) pursuant to the Transition
Agreement dated December 8, 1999 between the Company and CSAC.
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6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
April 1, 2000
The net assets of the Base Business as of the closing on December 8, 1999
and as of October 2, 1999 are reflected in the table below. The net assets of
the Base Business as of October 2, 1999, which totaled $7,282,000, are included
in the accompanying condensed consolidated balance sheet as net assets held for
sale:
dollars in thousands December 8 October 2,
1999 1999
- --------------------------------------------------------------------------------
Trade receivables, net $998 $1,179
Inventories 1,764 1,827
Property and equipment, net 98 107
Tradenames, patents and related assets, net 1,354 1,381
Goodwill, net 3,075 3,113
Less: trade accounts payable, accrued expenses and other
assumed liabilities (331) (325)
- --------------------------------------------------------------------------------
Net assets held for sale $6,958 $7,282
================================================================================
The following unaudited pro forma statements of operations data have been
prepared assuming the Asset Sale was completed as of October 3, 1998. The pro
forma financial data is presented for illustrative purposes only and is not
necessarily indicative of any future results of operations or the results that
might have occurred if the Asset Sale had actually occurred on the indicated
date.
Statements of Operations Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended April 1, 2000 Quarter Ended April 3, 1999
--------------------------- ---------------------------
Pro Forma Pro Forma
Pro Forma as Pro Forma as
Historical Adjustments (3) Adjusted Historical Adjustments Adjusted
---------- --------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues ..................................... $36 -- $36 $2,001 $1,937(1) $64
Cost of revenues ............................. 224 -- 224 1,181 948(1) 233
-----------------------------------------------------------------------
Gross profit ................................. (188) -- (188) 820 989(1) (169)(2)
Selling, general and administrative
expenses .................................. 1,033 -- 1,033 1,728 831(1) 897
Research, development and related
expenses .................................. 309 -- 309 857 -- 857
-----------------------------------------------------------------------
1,342 -- 1,342 2,585 831 1,754
-----------------------------------------------------------------------
Loss from operations ......................... (1,530) -- (1,530) (1,765) 158 (1,923)
Interest income .............................. 98 -- 98 37 -- 37
-----------------------------------------------------------------------
Loss before income taxes and
extraordinary item ........................ (1,432) -- (1,432) (1,728) 158 (1,886)
Income tax benefit ........................... -- -- (74) -- (74)
-----------------------------------------------------------------------
Net loss ..................................... ($1,432) -- ($1,432) ($1,654) $158 ($1,812)
=======================================================================
Loss per Common Share:
Net loss per common share, basic and diluted . ($0.19) ($0.19) ($0.22) ($0.24)
=======================================================================
=======================================================================
Weighted average shares outstanding .......... 7,612 7,612 7,503 7,503
=======================================================================
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
April 1, 2000
- ----------
(1) To give retroactive effect to the decrease in revenues and operating
expenses estimated by the Company to be attributable to cessation of
substantially all operating activities of the Company as a result of the
Asset Sale, other than that which is required to support the ongoing
development of its HTA product.
(2) The negative gross margin for the second quarter of fiscal 1999 of
$169,000 reflects direct product costs for the HTA business of $61,000 as
well as pro forma allocations of $172,000 of fixed manufacturing overhead
costs, which were projected to continue following the Asset Sale.
(3) The Asset Sale was completed on December 8, 1999, therefore no proforma
adjustments are required for the quarter ended April 1, 2000.
<TABLE>
<CAPTION>
Six Months Ended April 1, 2000 Six Months Ended April 3, 1999
------------------------------ ------------------------------
Pro Forma Pro Forma
Pro Forma as Pro Forma as
Historical Adjustments Adjusted Historical Adjustments Adjusted
---------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues ..................................... $1,270 $1,184(1) $86 $4,165 $4,020 $145
Cost of revenues ............................. 1,048 642(1) 406 2,489 1,996 493
-------------------------------------------------------------------
Gross profit ................................. 222 542(1) (320)(3) 1,676 2,024 (348)(3)
Selling, general and administrative
expenses .................................. 2,287 434(1) 1,853 3,545 1,779 1,766
Research, development and related
expenses .................................. 727 -- 727 1,583 -- 1,583
Gain on Asset Sale ........................... (1,913) (1,913) -- -- -- --
-------------------------------------------------------------------
1,101 (1,479) 2,580 5,128 1,779 3,349
-------------------------------------------------------------------
Loss from operations ......................... (879) 2,021 (2,900) (3,452) 245 (3,697)
Interest income ........................... 140 -- 140 63 (4) 67
Interest expense .......................... 50 (50)(2) -- -- -- --
-------------------------------------------------------------------
Loss before income taxes and
extraordinary item (789) 1,971 (2,760) (3,389) 241 (3,630)
Income tax benefit ........................ -- -- -- (208) -- (208)
-------------------------------------------------------------------
Loss before extraordinary item ............... (789) 1,971 (2,760) (3,181) 241 (3,422)
Extraordinary loss on extinguishment of
debt ...................................... (130) -- (130) -- -- --
-------------------------------------------------------------------
Net loss ..................................... ($919) $1,971 ($2,890) ($3,181) $241 ($3,422)
===================================================================
Loss per Common Share:
Loss before extraordinary loss
per common share, basic and diluted ....... ($0.10) ($0.36) ($0.42) ($0.46)
===================================================================
Extraordinary loss on extinguishment
of debt, basic and diluted ................ ($0.02) ($0.02) -- --
===================================================================
Net loss per common share,
basic and diluted ......................... ($0.12) ($0.38) ($0.42) ($0.46)
===================================================================
Weighted average shares outstanding .......... 7,605 7,605 7,491 7,491
===================================================================
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
April 1, 2000
- ----------
(1) To give retroactive effect to the decrease in revenues and operating
expenses estimated by the Company to be attributable to cessation of
substantially all operating activities of the Company as a result of the
Asset Sale, other than that which is required to support the ongoing
development of its HTA product.
(2) To reflect a reduction in interest expense incurred related to the
Transamerica Business Credit Corporation credit facility, assuming the
application of proceeds from the Asset Sale to repay the outstanding
indebtedness under this facility and financing charges on accounts
receivable related to the Base Business.
(3) The negative gross margin for the six month period ended April 1, 2000, of
$320,000, reflects direct product costs and fixed manufacturing costs for
the HTA business of $273,000, as well as pro forma allocation of $133,000
of fixed manufacturing overhead costs from the first quarter of fiscal
year 2000 prior to the Asset Sale, which were projected to continue
following the Asset Sale. The negative gross margins for the six month
period ended April 3, 1999, of $348,000, reflects direct product costs for
the HTA business of $111,000, as well as pro forma allocation of $382,000
of fixed manufacturing overhead costs, which were projected to continue
following the Asset Sale.
Note 2
Inventories
April 1, October 2,
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Finished products $58 $87
Work in process 230 118
Materials 161 134
- --------------------------------------------------------------------------------
Inventories $449 $339
================================================================================
Note 3
Earnings (Loss) Per Share
As a result of the net loss for all periods presented, weighted average
shares used in the calculation of basic and diluted loss per share are the same.
Weighted shares excluded unvested restricted stock, which amounted to 73,000 and
184,000 shares at April 1, 2000, and April 3, 1999, respectively. Common stock
equivalents are excluded from loss per share for all periods presented because
the effect would be anti-dilutive.
Note 4
Notes Payable
The Company signed an agreement, effective as of May 7, 1999, with
Transamerica Business Credit Corporation ("TBCC") to provide senior secured
financing. TBCC provided the Company with a revolving credit facility under
which the Company could from time to time borrow an aggregate amount not to
exceed the lesser of $1,000,000 or an amount equal to 85% of the amount of the
Company's eligible accounts receivable as defined in the agreement (the
"Revolving Loan"). In addition to the Revolving Loan, TBCC provided the Company
with a term loan (the "Term Loan") in the amount of $1,000,000 on May 7, 1999
bearing interest at a rate of 14.14%. On November 1, 1999, the Company borrowed
$500,000 under the Revolving Loan. All borrowings under the TBCC agreement were
collateralized by all of the assets of
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9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
April 1, 2000
the Company.
Concurrent with the above transaction, the Company provided TBCC with a
seven-year warrant to purchase 92,308 shares of common stock at an initial
exercise price of $1.625 per share, subject to adjustment. The warrant is
currently exercisable.
As a result of the Asset Sale, both the Term Loan and the Revolving Loan
were repaid in full on December 8, 1999 and all of the related agreements were
terminated. Cancellation fees aggregating $85,000 were incurred in connection
with such termination. Such fees, as well as the unamortized portion of the
deferred financing fees for the debt of $45,000, have been reflected as an
extraordinary loss in the accompanying condensed consolidated statement of
operations.
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<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 October 2, 1999.
The following discussion and analysis of the financial condition and
results of operations reflect historical results both prior to and subsequent to
the Asset Sale. The Asset Sale has had a significant impact upon the financial
condition and results of operations of the Company, as both revenues and revenue
generating assets have been significantly reduced (see Note 1 to Condensed
Consolidated Financial Statements). The Company's product focus has become
narrowed and dependent upon the successful completion of the FDA Phase III
clinical trials involving the HTA and commercialization of the HTA technology.
The cash proceeds of the Asset Sale have been and will be utilized by BEI: (i)
to pay expenses associated with the Asset Sale in the approximate amount of
$1,293,000; (ii) to repay the amounts outstanding to TBCC including interest and
cancellation fees; (iii) as working capital to finance completion of the FDA
Phase III clinical trials and initiate commercialization of the HTA product in
the United States; and (iv) to fund BEI's ongoing operating expenses.
Three Months Ended April 1, 2000 and April 3, 1999
Revenues for the three months ended April 1, 2000, were $36,000, a
decrease of $1,965,000 from the comparable three month period of fiscal 1999.
The lower revenue reflects the impact of the Asset Sale on December 8, 1999.
Approximately 96.8% of the Company's revenues for the quarter ended April 3,
1999, were derived from products that were included in the Base Business sold to
CSAC. International revenues from shipments to distributors of the Company's HTA
system for endometrial ablation declined to $36,000 in the second quarter of
fiscal 2000 from $64,000 in the comparable quarter of fiscal 1999. The higher
revenue in fiscal 1999 reflects shipments to international distributors of
instrumentation primarily for use in clinical demonstrations and symposia and
represents limited commercial shipments to private health care services and
end-users that were not repeated in fiscal 2000.
Gross profit was negative $188,000 for the three months ended April 1,
2000, reflecting the absorption of fixed manufacturing overhead expenditures
combined with the lower revenue. The decline in gross profit compared to the
second quarter of fiscal 1999 reflects the impact of the Asset Sale.
Selling, general and administrative expenses declined $695,000 to
$1,033,000 for the three months ended April 1, 2000 compared to $1,728,000 for
the comparable period in fiscal 1999. The decline in expenses reflects lower
sales and marketing costs of $600,000 due to reductions in personnel and related
employee benefit costs, lower sales commissions plus reduced marketing
expenditures following the Asset Sale and lower charges for the amortization of
intangible assets of $105,000 following the transfer of intangible assets to
CSAC as part of the Asset Sale.
Research, development and related expenses were $309,000, a decline of
$548,000 from the comparable period of fiscal 1999. The reduced spending
resulted from the completion of the patient treatment portion of the HTA Phase
III clinical trials in the United States in early August 1999, so the rate of
spending required to support the clinical trials in fiscal 2000 has declined
from the levels that were required during the patient treatment phase in fiscal
1999.
Interest income increased to $98,000 in the three month period ended April
1, 2000 compared to $37,000 in the three month period ended April 3, 1999, as a
result of higher average cash balances on hand during the quarter which
reflected the investment of cash received from the Asset Sale.
The Company recognized no income tax benefit for the three month period
ended April 1, 2000 compared to $74,000 recognized in the comparable quarter of
fiscal 1999. The income tax benefit in fiscal 1999 reflected the Company's
ability to carryback losses and collect a refund against prior years' taxes
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11
<PAGE>
paid on the earnings of previously discontinued operations. The amount of
carryback available to the Company was limited to the taxes paid on earnings of
the previous two fiscal years.
There is no remaining carryback available to the Company after fiscal year
1999. The Company projects losses to continue in fiscal year 2000. These losses
remain available to the Company on a carryforward basis to offset any future
earnings, but they have been fully offset by a valuation allowance in the
financial statements, as their future realization is uncertain.
Six Months Ended April 1, 2000 and April 3, 1999
Revenues for the six month period ended April 1, 2000, were $1,270,000, a
decrease of $2,895,000 from the comparable six month period of fiscal 1999. The
lower revenue reflects the impact of the Asset Sale on December 8, 1999.
Approximately 96.5% of the Company's revenues for the period ended April 3, 1999
were derived from products that were included in the Base Business sold to CSAC.
The six month period of fiscal year 2000 included revenues from the Base
Business for approximately nine weeks compared to twenty-six weeks in the
comparable period of fiscal year 1999. International revenues from shipments to
distributors of the Company's HTA system for endometrial ablation declined to
$86,000 in the first six months of fiscal 2000 from $145,000 in the comparable
period of fiscal 1999. The higher revenue in fiscal 1999 reflects shipments to
international distributors of instrumentation primarily for use in clinical
demonstrations and symposia and represents limited commercial shipments to
private health care services and end-users that were not repeated in fiscal
2000.
Gross profit as a percentage of revenues declined to 17.5% in the first
six months of fiscal 2000 compared to 40.2% for the comparable period in fiscal
1999. The decline reflects the impact of the Asset Sale and the lower revenue,
resulting in reduced absorption of fixed manufacturing overhead expenditures.
Selling, general and administrative expenses declined $1,258,000 to
$2,287,000 for the six month period ended April 1, 2000 compared to $3,545,000
for the comparable period in fiscal 1999. The decline in expenses reflects lower
sales and marketing costs ($1,115,000) resulting from the Asset Sale and the
resulting reduction in revenue related expenditures for personnel, employee
benefits, commissions and other marketing costs, lower administrative expenses
($98,000) and lower amortization of intangible assets ($184,000). These
decreases were partially offset by the write down of the carrying value certain
fixed assets and accounts receivable to their estimated net realizable value
following the Asset Sale ($139,000). The increase in the selling, general and
administrative expenses as a percentage of revenue for the first six months of
fiscal year 2000 compared to the first six months of fiscal year 1999 reflects
the impact of the Asset Sale and the lower revenue on the fixed portion of
selling, general and administrative expenditures.
Research, development and related expenses were $727,000 in the first six
months of fiscal 2000 compared to $1,583,000 for the same period of fiscal 1999.
The reduced spending resulted from the completion of the patient treatment
portion of the HTA Phase III clinical trials in the United States in early
August 1999, so the rate of spending required to support the clinical trials in
fiscal 2000 has declined from the levels that were required during the patient
treatment phase in fiscal 1999.
The gain on asset sale reflects the closing of the Asset Sale on December
8, 1999. The Company is now focusing exclusively on developing its new
therapeutic system, the HTA, for treatment of excessive uterine bleeding. The
cash consideration received at the closing of the Asset Sale was approximately
$10,538,000, subject to certain net post-closing adjustments estimated to be
approximately $374,000 payable by the Company to CSAC reflecting lower than
estimated amounts of accounts receivable and inventory as of the closing date.
The consideration received by the Company also included the assumption of
$331,000 of specified liabilities, the assumption of liabilities under certain
contracts of the Company, and the forgiveness of royalty payments that may in
the future have been owed by the Company to an affiliate of CSAC in an amount of
up to $100,000. In addition, as a condition to the consummation of the Asset
Sale, the Company entered into a noncompetition agreement with CSAC for a period
of five years. See Note 1 to Condensed Consolidated Financial Statements for
further information on the Asset Sale.
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12
<PAGE>
Interest income increased to $140,000 in the six month period ended April
1, 2000 compared to $63,000 in the six month period ended April 3, 1999, as a
result of higher average cash balances on hand during the period which reflected
the investment of cash received from the Asset Sale.
Interest expense increased to $50,000 in fiscal 2000 compared to zero for
the comparable period of fiscal 1999 as a result of the borrowings under the
Revolving Loan and the Term Loan and related credit facility with TBCC, which
the Company repaid in full on December 8, 1999, utilizing a portion of the
proceeds of the Asset Sale.
The Company recognized no income tax benefit for the six month period
ended April 1, 2000 compared to $208,000 recognized in the comparable period of
fiscal 1999. The income tax benefit in fiscal 1999 reflected the Company's
ability to carryback losses and collect a refund against prior years' taxes paid
on the earnings of previously discontinued operations. The amount of carryback
available to the Company was limited to the taxes paid on earnings of the
previous two fiscal years.
There is no remaining carryback available to the Company after fiscal year
1999. The net operating losses from fiscal year 1999 and the first six months of
fiscal 2000 that cannot be carried back against prior years' earnings are
approximately $7.5 million. The Company projects losses to continue in fiscal
year 2000. These losses remain available to the Company on a carryforward basis
to offset any future earnings, but they have been fully offset by a valuation
allowance in the financial statements, as their future realization is uncertain.
The extraordinary loss on extinguishment of debt reflects that as a result
of the Asset Sale, both the Term Loan and the Revolving Loan were repaid in full
on December 8, 1999 (see Note 3 to Condensed Consolidated Financial Statements).
Cancellation fees aggregating $85,000 were incurred in connection with such
termination. Such fees, as well as the unamortized portion of the deferred
financing fees for the debt of $45,000, have been reflected as an extraordinary
loss in the accompanying condensed consolidated statements of operations.
Liquidity and Capital Resources
The Company's capital requirements to complete the development and
commercialization of the HTA depend on numerous factors including the timing and
receipt of regulatory clearances and approvals, the resources required to
initiate commercialization of the HTA in the United States and the extent the
HTA gains market acceptance and sales. The timing and amount of such capital
requirements cannot be predicted accurately. Consequently, although the Company
believes that the net proceeds from the Asset Sale plus existing cash balances
will provide adequate funding to meet the Company's capital requirements for the
next fifteen months, there can be no assurance that the Company will not require
additional financing or that such additional financing, if needed, will be
available on terms attractive to the Company, or at all. Any additional equity
financing may be dilutive to stockholders and debt financing, if available, may
involve restrictive covenants. During the first six months of fiscal year 2000,
cash used by operations was $2,310,000 due to the net loss for the period of
$919,000 plus the gain on the Asset Sale of $1,913,000 partially offset by
noncash charges of $267,000 and decreases in working capital of $255,000.
Cash provided by investing activities during the first six months of
fiscal 2000 was $8,862,000, reflecting $8,871,000 of proceeds from the Asset
Sale partially offset by purchases of plant and equipment of $9,000.
Cash provided by financing activities during the first six months of
fiscal year 2000 consisted of $500,000 from the Revolving Loan on November 1,
1999. Cash used in financing activities for this period consisted of $1,500,000
to repay both the Revolving Loan and Term Loan. For further information, see
Note 3 to Condensed Consolidated Financial Statements.
The Company had no material capital or other commitments as of April 1,
2000.
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13
<PAGE>
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
1. The Annual Meeting of Stockholders of the Company (the "Meeting")
was held on March 21, 2000. At the meeting, Richard W. Turner and
Gary D. Wrench were elected as directors of the Company for a
three-year term expiring at the Company's 2003 Annual Meeting. They
were elected by a vote of 7,336,789 votes in favor and 7,513 votes
withheld for Richard W. Turner and 7,340,063 votes in favor and
4,239 votes withheld for Gary D. Wrench.
In addition, the following directors continued in office: Lawrence
A. Wan (until the Company's 2001 Annual Meeting), Charles Crocker
and Ralph M. Richart (until the Company's 2002 Annual Meeting).
2. The other matters presented at the Meeting and the votes of the
stockholders with respect thereto are as follows:
The selection of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending September 30, 2000 was
ratified with 7,337,197 votes in favor, 1,538 against and 5,567
abstentions.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Index to Exhibits
Exhibits
(a) 27.1 Financial Data Schedule
(b) Report on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended April 1, 2000.
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15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
27.1 Financial Data Schedule
--------
16
<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 May 16, 1999.
BEI Medical Systems Company, Inc.
By: /s/ Thomas W. Fry
---------------------------------------------
Thomas W. Fry
Vice President of Finance and Administration,
Secretary and Treasurer
(Chief Financial Officer)
--------
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED APRIL 1, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> APR-01-2000
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<ALLOWANCES> (86)
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0
0
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