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 July 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
August 1, 2000
<PAGE>
INDEX
PART 1. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- July 1,
2000 (unaudited) and October 2, 1999 3
Condensed Consolidated Statements of Operations --
Quarter and Nine months Ended July 1, 2000
(unaudited) and July 3, 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows --
Nine months Ended July 1, 2000 (unaudited) and
July 3, 1999 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements -- July 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 15
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES 17
2
<PAGE>
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
BEI Medical Systems Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(dollars in thousands) July 1, October 2,
2000 1999
(Unaudited) (See note below)
---------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $5,960 $1,654
Trade receivables, net 43 338
Inventories 460 339
Refundable income taxes 86 487
Other current assets 108 68
Net assets held for sale -- 7,282
---------------------------------------------------------------------------------------------------------------
Total current assets 6,657 10,168
Property, plant and equipment, net 179 423
Tradenames, patents and other, net 183 234
Other assets 114 137
---------------------------------------------------------------------------------------------------------------
Total assets $7,133 $10,962
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $470 $536
Accrued expenses and other liabilities 1,131 1,727
Notes payable -- 1,000
---------------------------------------------------------------------------------------------------------------
Total current liabilities 1,601 3,263
Stockholders' equity 5,532 7,699
---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $7,133 $10,962
===============================================================================================================
</TABLE>
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.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine months Ended
------------------------------- ------------------------------
(amounts in thousands except per July 1, July 3, July 1, July 3,
share amounts) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $43 $2,347 $1,313 $6,512
Cost of revenues 226 1,389 1,274 3,878
----------------------------------------------------------------------------------------------------------------------------
Gross profit (loss) (183) 958 39 2,634
Selling, general and administrative expenses 951 1,869 3,238 5,414
Research, development and related expenses 553 902 1,280 2,485
Gain on Asset Sale -- -- (1,913) --
----------------------------------------------------------------------------------------------------------------------------
1,504 2,771 2,605 7,899
----------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,687) (1,813) (2,566) (5,265)
Interest income 87 25 227 88
Interest expense -- (29) (50) (29)
----------------------------------------------------------------------------------------------------------------------------
Loss before income taxes and extraordinary item (1,600) (1,817) (2,389) (5,206)
Income tax benefit (299) (107) (299) (315)
----------------------------------------------------------------------------------------------------------------------------
Net loss before extraordinary item (1,301) (1,710) (2,090) (4,891)
Extraordinary loss on extinguishment of debt -- -- (130) --
----------------------------------------------------------------------------------------------------------------------------
Net loss ($1,301) ($1,710) ($2,220) ($4,891)
============================================================================================================================
Loss per Common Share
Loss before extraordinary loss per common share, basic
and diluted ($0.17) ($0.23) ($0.27) ($0.65)
Extraordinary loss on extinguishment of debt, basic and
diluted -- -- ($0.02) --
----------------------------------------------------------------------------------------------------------------------------
Net loss per common share, basic and diluted ($0.17) ($0.23) ($0.29) ($0.65)
============================================================================================================================
Weighted average shares outstanding 7,622 7,540 7,611 7,497
============================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended
-----------------------------------------
(dollars in thousands) July 1, 2000 July 3, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash used in operating activities ($3,549) ($2,042)
Cash flows from investing activities:
Purchases of equipment (16) (12)
Net proceeds from Asset Sale 8,871 --
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 8,855 (12)
Cash flows from financing activities:
Proceeds from revolving credit note 500 --
Proceeds from long-term borrowings -- 1,000
Payments on long-term debt and revolving credit note (1,500) (21)
------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,000) 979
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,306 (1,075)
Cash and cash equivalents at beginning of period 1,654 3,504
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $5,960 $2,429
==================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
July 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. 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.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
July 1, 2000
(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.
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:
<TABLE>
<CAPTION>
dollars in thousands December 8, 1999 October 2, 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===================================================================================================================
</TABLE>
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 July 1, 2000 Quarter Ended July 3, 1999
-------------------------- --------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Historical Adjustments(4) as Adjusted Historical Adjustments as Adjusted
---------- -------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $43 -- $43 $2,347 $2,232(1) $115
Cost of revenues........................... 226 -- 226 1,389 1,133(1) 256
-------------------------------------------------------------------------
Gross profit............................... (183) -- (183) 958 1,099(1) (141)(3)
Selling, general and administrative expenses 951 -- 951 1,869 806(1) 1,063
Research, development and related
expenses................................. 553 -- 553 902 -- 902
-------------------------------------------------------------------------
1,504 -- 1,504 2,771 806 1,965
-------------------------------------------------------------------------
Loss from operations....................... (1,687) -- (1,687) (1,813) 293 (2,106)
</TABLE>
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
July 1, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Interest income............................ 87 -- 87 25 -- 25
Interest expense........................... -- -- -- (29) (29)(2) --
-------------------------------------------------------------------------
Loss before income taxes and extraordinary
item..................................... (1,600) -- (1,600) (1,817) 264 (2,081)
Income tax benefit......................... (299) (299) (107) -- (107)
-------------------------------------------------------------------------
Net loss .................................. ($1,301) -- ($1,301) ($1,710) $264 ($1,974)
=========================================================================
Loss per Common Share:
Net loss per common share, basic and diluted ($0.17) ($0.17) ($0.23) ($0.26)
=========================================================================
Weighted average shares outstanding........ 7,622 7,622 7,540 7,540
=========================================================================
</TABLE>
------------
(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 third quarter of fiscal 1999 of $141,000
reflects direct product costs for the HTA business of $83,000 as well as
pro forma allocations of $173,000 of fixed manufacturing overhead costs,
which were projected to continue following the Asset Sale.
(4) The Asset Sale was completed on December 8, 1999, therefore no proforma
adjustments are required for the quarter ended July 1, 2000.
<TABLE>
<CAPTION>
Nine months Ended July 1, 2000 Nine months Ended July 3, 1999
---------------------------------- -----------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Historical Adjustments as Adjusted Historical Adjustments as Adjusted
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $1,313 $1,184(1) $129 $6,512 $6,252(1) $260
Cost of revenues........................... 1,274 642(1) 632 3,878 3,129(1) 749
-------------------------------------------------------------------------
Gross profit............................... 39 542(1) (503)(3) 2,634 3,123(1) (489)(3)
Selling, general and administrative expenses 3,238 434(1) 2,804 5,414 2,585(1) 2,829
Research, development and related
expenses................................. 1,280 -- 1,280 2,485 -- 2,485
</TABLE>
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
July 1, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Gain on Asset Sale......................... (1,913) (1,913) -- -- -- --
-------------------------------------------------------------------------
2,605 (1,479) 4,084 7,899 2,585 5,314
-------------------------------------------------------------------------
Loss from operations....................... (2,566) 2,021 (4,587) (5,265) 538 (5,803)
Interest income......................... 227 -- 227 88 88
Interest expense........................ (50) (50)(2) -- (29) (29)(2) --
-------------------------------------------------------------------------
Loss before income taxes and extraordinary
item..................................... (2,389) 1,971 (4,360) (5,206) 509 (5,715)
Income tax benefit...................... (299) -- (299) (315) -- (315)
-------------------------------------------------------------------------
Loss before extraordinary item............. (2,090) 1,971 (4,061) (4,891) 509 (5,400)
Extraordinary loss on extinguishment of
debt..................................... (130) -- (130) -- -- --
-------------------------------------------------------------------------
Net loss .................................. ($2,220) $1,971 ($4,191) ($4,891) $509 ($5,400)
=========================================================================
Loss per Common Share:
Loss before extraordinary loss per common share,
basic and diluted....................... ($0.27) ($0.53) ($0.65) ($0.72)
Extraordinary loss on extinguishment of debt,
basic and diluted....................... ($0.02) ($0.02) -- --
-------------------------------------------------------------------------
Net loss per common share, basic and
diluted.................................. ($0.29) ($0.55) ($0.65) ($0.72)
=========================================================================
Weighted average shares outstanding........ 7,611 7,611 7,497 7,497
=========================================================================
</TABLE>
------------
(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 nine month period ended July 1, 2000,
of $503,000, reflects direct product costs and fixed manufacturing
costs for the HTA business of $330,000, as well as pro forma allocation
of $302,000 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 nine month period ended July 3, 1999, of $489,000,
reflects direct product costs for the HTA business of $194,000, as well
as pro forma allocation of $555,000 of fixed manufacturing overhead
costs, which were
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
July 1, 2000
projected to continue following the Asset Sale.
Note 2
Inventories
July 1, October 2,
(dollars in thousands) 2000 1999
--------------------------------------------------------------------------------
Finished products $195 $87
Work in process 196 118
Materials 69 134
--------------------------------------------------------------------------------
Inventories $460 $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 64,000 and
151,000 shares at July 1, 2000, and July 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 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.
10
<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 July 1, 2000 and July 3, 1999
Revenues for the three months ended July 1, 2000, were $43,000, a decrease
of $2,304,000 from the comparable three month period of fiscal 1999. The lower
revenue reflects the impact of the Asset Sale on December 8, 1999. Approximately
95.1% of the Company's revenues for the quarter ended July 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 $43,000 in the third quarter of
fiscal 2000 from $115,000 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, while shipments in fiscal 2000
were primarily disposable kits which are used each time the procedure is
performed.
Gross profit was negative $183,000 for the three months ended July 1, 2000,
reflecting the absorption of fixed manufacturing overhead expenditures combined
with the lower revenue. The decline in gross profit compared to the third
quarter of fiscal 1999 reflects the impact of the Asset Sale.
Selling, general and administrative expenses declined $918,000 to $951,000
for the three months ended July 1, 2000 compared to $1,869,000 for the
comparable period in fiscal 1999. The decline in expenses reflects lower sales
and marketing costs of $643,000, representing a 66% decline, due to reductions
in personnel and related employee benefit costs, lower sales commissions and
reduced marketing expenditures following the Asset Sale; lower administrative
expenses of $189,000, representing a 25% decline, due primarily to reduced
spending on legal fees and other outside services and lower charges for the
amortization of intangible assets of $69,000, representing a 60% decline,
following the transfer of intangible assets to CSAC as part of the Asset Sale.
Research, development and related expenses were $553,000, a decline of
$349,000 from the comparable period of fiscal 1999. The reduced spending
resulted from the completion
11
<PAGE>
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 $87,000 in the three month period ended July
1, 2000 compared to $25,000 in the three month period ended July 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 an income tax benefit of $299,000 for the three
month period ended July 1, 2000 compared to $107,000 recognized in the
comparable quarter of fiscal 1999. The income tax benefit in fiscal 2000
resulted from the favorable settlement of a disputed tax item related to the
spin-off of BEI Technologies, Inc. in September of 1997. 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 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.
Nine Months Ended July 1, 2000 and July 3, 1999
Revenues for the nine month period ended July 1, 2000, were $1,313,000, a
decrease of $5,199,000 from the comparable nine month period of fiscal 1999. The
lower revenue reflects the impact of the Asset Sale on December 8, 1999.
Approximately 96.0% of the Company's revenues for the period ended July 3, 1999
were derived from products that were included in the Base Business sold to CSAC.
The nine month period of fiscal year 2000 included revenues from the Base
Business for approximately nine weeks compared to thirty-nine weeks in the
comparable period of fiscal year 1999. International revenues from shipments to
distributors of the Company's HTA products for endometrial ablation declined to
$129,000 in the first nine months of fiscal 2000 from $260,000 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, while shipments in fiscal 2000 were primarily disposable kits which are
used each time the procedure is preformed.
Gross profit as a percentage of revenues declined to 3.0% in the first nine
months of fiscal 2000 compared to 40.5% for the comparable period in fiscal
1999. The decline reflects the impact of the Asset Sale and the resulting
absorption of fixed manufacturing overhead expenditures over a lower revenue
base.
Selling, general and administrative expenses declined $2,176,000 to
$3,238,000 for the nine month period ended July 1, 2000 compared to $5,414,000
for the comparable period in fiscal 1999. The decline in expenses reflects lower
sales and marketing costs of $1,758,000, representing a 61% decline, 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 of $260,000, representing a 12% decline, and lower
amortization of intangible assets of $253,000, representing a 69% decline.
These decreases were partially offset by the write down
12
<PAGE>
of the carrying value certain fixed assets and accounts receivable to their
estimated net realizable value following the Asset Sale of $139,000. The
increase in the selling, general and administrative expenses as a percentage of
revenue for the first nine months of fiscal year 2000 compared to the first nine
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 $1,280,000 in the first
nine months of fiscal 2000 compared to $2,485,000 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.
Interest income increased to $227,000 in the nine month period ended July
1, 2000 compared to $88,000 in the nine month period ended July 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 $29,000
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 an income tax benefit of $299,000 for the nine month
period ended July 1, 2000 compared to $315,000 recognized in the comparable
period of fiscal 1999. The income tax benefit in fiscal 2000 resulted from the
favorable settlement of a disputed tax item related to the spin-off of BEI
Technologies, Inc. in September of 1997. 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 nine months
of fiscal 2000 that cannot be carried back against prior years' earnings are
approximately $9.1 million. The Company projects losses to continue in fiscal
year 2000. These losses would 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.
13
<PAGE>
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 of
the expected 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. 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 twelve
months. The Company is considering options to secure additional financing at
this time. There can be no assurance that the Company will not require
additional financing sooner than twelve months from now or that additional
financing 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 nine months of
fiscal year 2000, cash used by operations was $3,549,000 due to the net loss for
the period of $2,220,000 plus the gain on the Asset Sale of $1,913,000 partially
offset by noncash charges of $420,000 and decreases in working capital of
$164,000.
Cash provided by investing activities during the first nine months of
fiscal 2000 was $8,855,000, reflecting $8,871,000 of proceeds from the Asset
Sale partially offset by purchases of plant and equipment of $16,000.
Cash provided by financing activities during the first nine 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 4 to Condensed Consolidated Financial Statements.
The Company had no material capital or other commitments as of July 1,
2000.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had
a material effect on the Company's operations.
14
<PAGE>
PART II.
OTHER INFORMATION
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 July 1, 2000.
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 August 15, 2000.
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
