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 January 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, 7,685,521 shares as of February
1, 2000
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1
<PAGE>
INDEX
PART 1. FINANCIAL INFORMATION (Unaudited) Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets - January 1, 2000
(unaudited) and October 2, 1999 3
Condensed Consolidated Statements of Operations - Three
Months Ended January 1, 2000 (unaudited) and January
2, 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended January 1, 2000 (unaudited) and January
2, 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements -
January 1, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II. OTHER INFORMATION 11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
SIGNATURES 13
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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) January October 2,
1, 2000 1999
(Unaudited) (See note below)
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $9,467 $1,654
Trade receivables, net 228 338
Inventories 293 339
Refundable income taxes 446 487
Other current assets 63 68
Net assets held for sale -- 7,282
- --------------------------------------------------------------------------------
Total current assets 10,497 10,168
Property, plant and equipment, net 288 423
Tradenames, patents and other, net 231 234
Other assets 137 137
- --------------------------------------------------------------------------------
Total assets $11,153 $10,962
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $627 $536
Accrued expenses and other liabilities 2,289 1,727
Notes payable -- 1,000
- --------------------------------------------------------------------------------
Total current liabilities 2,916 3,263
Stockholders' equity 8,237 7,699
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $11,153 $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)
Three Months Ended
----------------------------
(amounts in thousands except per share amounts) January January
1, 2000 2, 1999
- --------------------------------------------------------------------------------
Revenues $1,234 $2,164
Cost of revenues 824 1,308
- --------------------------------------------------------------------------------
Gross profit 410 856
Selling, general and administrative expenses 1,254 1,817
Research, development and related expenses 418 726
Gain on Asset Sale (1,913) --
- --------------------------------------------------------------------------------
(241) 2,543
- --------------------------------------------------------------------------------
Income (loss) from operations 651 (1,687)
Interest income 42 30
Interest expense (50) (4)
- --------------------------------------------------------------------------------
Income (loss) before income taxes and 643 (1,661)
extraordinary item
Income tax benefit -- (134)
- --------------------------------------------------------------------------------
Net income (loss) before extraordinary item 643 (1,527)
Extraordinary loss on extinguishment of debt (130) --
- --------------------------------------------------------------------------------
Net income (loss) $513 ($1,527)
================================================================================
Income (loss) per Common Share
Income (loss) before extraordinary loss per common
share
Basic $0.08 ($0.20)
================================================================================
Diluted $0.08 ($0.20)
================================================================================
Extraordinary loss on extinguishment of debt
Basic ($0.01) --
================================================================================
Diluted ($0.02) --
================================================================================
Net Income (loss) per common share
Basic $0.07 ($0.20)
================================================================================
Diluted $0.06 ($0.20)
================================================================================
Weighted average shares outstanding 7,596 7,479
================================================================================
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)
Three Months Ended
-------------------------
(dollars in thousands) January January
1, 2000 2, 1999
- --------------------------------------------------------------------------------
Net cash provided by operating activities $1,855 $948
Cash flows from investing activities:
Purchases of equipment -- (15)
Net proceeds from Asset Sale 6,958 --
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 6,958 (15)
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 provided by (used in) financing activities (1,000) (21)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,813 912
Cash and cash equivalents at beginning of period 1,654 3,504
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $9,467 $4,416
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
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5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 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
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
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) Estimated 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 associated with the Transition Agreement to be
provided to CSAC free of charge ($275,000).
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 statement of operations data has 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.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
Statement of Operations Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended January 1, 2000 Quarter Ended January 2, 1999
----------------------------- -----------------------------
Pro Forma Pro Forma Pro Forma Pro Forma as
Historical Adjustments as Adjusted Historical Adjustments Adjusted
---------- ----------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues ....................................... $1,234 $1,184(1) $50 $2,164 $2,083(1) $81
Cost of revenues ............................... 824 642(1) 182 1,308 1,048(1) 260
--------------------------------------------------------------------------------
Gross profit ................................... 410 542(1) (132)(3) 856 1,035(1) (179)(3)
Selling, general and administrative expenses
1,254 434(1) 820 1,817 948(1) 869
Research, development and related expenses
418 -- 418 726 -- 726
Gain on Asset Sale ............................. (1,913) (1,913) -- -- -- --
--------------------------------------------------------------------------------
(241) (1,479) 1,238 2,543 948 1,595
--------------------------------------------------------------------------------
Income (loss) from operations .................. 651 2,021 (1,370) (1,687) 87 (1,774)
Interest income ............................. 42 -- 42 30 -- 30
Interest expense ............................ (50) (50)(2) -- (4) -- (4)
--------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item .......................... 643 1,971 (1,328) (1,661) 87 (1,748)
Income tax benefit .......................... -- -- -- (134) -- (134)
--------------------------------------------------------------------------------
Income (loss) before extraordinary item ........ 643 1,971 (1,328) (1,527) 87 (1,614)
Extraordinary loss on extinguishment of debt (130) -- (130) -- -- --
--------------------------------------------------------------------------------
Net income (loss) $513 $1,971 ($1,458) ($1,527) $87 ($1,614)
--------------------------------------------------------------------------------
Income (loss) per Common Share:
Income (loss) before extraordinary loss per
common share
Basic $0.08 ($0.17) ($0.20) ($0.20)
--------------------------------------------------------------------------------
Diluted $0.08 ($0.17) ($0.20) ($0.20)
--------------------------------------------------------------------------------
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
Statement of Operations Data
(in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Extraordinary loss on extinguishment of debt
Basic ($0.01) ($0.02) -- --
================================================================================
Diluted ($0.02) ($0.02) -- --
================================================================================
Net income (loss) per common share
Basic $0.07 ($0.19) ($0.20) ($0.20)
================================================================================
Diluted $0.06 ($0.19) ($0.20) ($0.20)
================================================================================
Weighted average shares outstanding 7,596 7,596 7,479 7,479
================================================================================
</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 margins for the first quarter of fiscal 2000 and the
first quarter fiscal 1999 of $132,000 and $179,000, respectively, reflect
direct product costs for the HTA business of $49,000 and $50,000,
respectively, as well as pro forma allocations of $133,000 and $210,000,
respectively, of fixed manufacturing overhead costs, which are projected
to continue following the Asset Sale.
Note 2
Inventories
January 1, October 2,
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
Finished products $73 $87
Work in process 160 118
Materials 60 135
- --------------------------------------------------------------------------------
Inventories $293 $339
- --------------------------------------------------------------------------------
Note 3
Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per common share:
Three Months Ended
- --------------------------------------------------------------------------------
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
Statement of Operations Data
(in thousands, except per share amounts)
(amounts in thousands except per share amounts) January 1, January 2,
2000 1999
Numerator
---------
Income (loss) before extraordinary item $643 ($1,527)
Extraordinary loss on extinguishment of debt (130) --
------- -------
Net income (loss) available to common stockholders $513 ($1,527)
======= =======
Denominator
-----------
Denominator for basic and diluted earnings per share --
weighted average shares outstanding, net of nonvested
restricted shares at January 1, 2000 and January 2, 7,596 7,479
1999 -- 90,000 and 299,000, respectively.
Effect of dilutive securities:
Employee stock options 329 --
------- -------
Denominator for dilutive earnings per share - adjusted
weighted-average shares and assumed conversions 7,925 7,479
======= =======
Basic and diluted earnings (loss) per share
-------------------------------------------
Basic earnings (loss) per share $0.06 ($0.20)
======= =======
Dilutive earnings (loss) per share $0.07 ($0.20)
======= =======
As a result of the net loss for the three months ended January 2, 1999,
weighted average shares used in the calculation of basic and diluted loss per
share are the same. Common stock equivalents are excluded from the loss per
share for the three months ended January 2, 1999, 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") 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
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
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>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
BEI Medical Systems Company, Inc. and Subsidiaries
(Unaudited)
January 1, 2000
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.
The following table sets forth, for the fiscal periods indicated, the
percentage of revenues represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
Three Months Ended
-----------------------------
January 1, January 2,
2000 1999
- --------------------------------------------------------------------------------
Revenues 100.0% 100.0%
Cost of sales 66.8% 60.4%
- --------------------------------------------------------------------------------
Gross profit 33.2% 39.6%
Selling, general and administrative expenses 101.6% 84.0%
Research, development and related expenses 33.9% 33.5%
Gain on Asset Sale (155.0%) --
- --------------------------------------------------------------------------------
Income (loss) from operations 52.8% (78.0%)
Interest income 3.4% 1.4%
Interest expense (4.1%) (0.2%)
- --------------------------------------------------------------------------------
Income (loss) before income taxes and 52.1% (76.8%)
extraordinary item
Income tax benefit -- (6.2%)
- --------------------------------------------------------------------------------
Net income (loss) before extraordinary item 52.1% (70.6%)
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<PAGE>
Extraordinary loss on extinguishment of debt (10.5%) --
- --------------------------------------------------------------------------------
Net income (loss) 41.6% (70.6%)
================================================================================
Three Months Ended January 1, 2000 and January 2, 1999
Revenues for the three months ended January 1, 2000, were $1,234,000 a
decrease of $930,000 from the comparable three month period of fiscal 1999. The
lower revenue reflects the impact of the Asset Sale on December 8, 1999.
Approximately 95.9% of the Company's revenues for the quarter ended January 1,
2000 were derived from products that were included in the Base Business sold to
CSAC. As a result, the first quarter of fiscal year 2000 included revenues from
the Base Business for approximately nine weeks compared to thirteen weeks in the
comparable quarter of fiscal year 1999. International revenues from shipments to
distributors of the Company's Hydro ThermAblator ("HTA") system for endometrial
ablation declined to $50,000 in the first quarter of fiscal 2000 from $81,000 in
the comparable quarter of fiscal 1999.
Gross profit as a percentage of revenues declined to 33.2% in the first
quarter of fiscal 2000 compared to 39.6% for the comparable quarter 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 $563,000 to
$1,254,000 or 101.6% of revenues for the three months ended January 1, 2000
compared to $1,817,000 or 84.0% of revenues for the comparable period in fiscal
1999. The decline in expenses reflects lower sales and marketing costs
($515,000) resulting from the Asset Sale and the resulting reduction in revenues
from the Base Business, lower administrative expenses ($107,000) and lower
amortization of intangible assets ($79,000). These decreases were partially
offset by the write down of certain fixed assets and accounts receivable to
estimated carrying value following the Asset Sale ($139,000). The increase in
the selling, general and administrative expenses as a percentage of revenue for
the first quarter of fiscal year 2000 compared to the first quarter 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 $418,000 or 33.9% of
revenue in the first quarter of fiscal 2000 compared to $726,000 or 33.5% 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 Hydro ThermAblator, 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
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13
<PAGE>
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 $42,000 in the three month period ended
January 1, 2000 compared to $30,000 in the three month period ended January 2,
1999, as a result of higher average cash balances on hand during the quarter
that reflected the investment of cash received from the Asset Sale.
Interest expense increased to $50,000 or 4.1% in the first quarter of
fiscal 2000 compared to $4,000 or 0.2% for the comparable quarter of fiscal 1999
as a result of the borrowings under the term note 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 three month period
ended January 1, 2000 compared to $134,000 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 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 quarter of
fiscal 2000 that cannot be carried back against prior years' earnings are
approximately $4.8 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 with TBCC 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 statement 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 eighteen months, there can be no assurance that the Company will not
require
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14
<PAGE>
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 first quarter of fiscal year 2000, cash
used by operations was $1,855,000 due to the gain on the Asset Sale and the
resulting net income for the period of $513,000, non cash charges of $202,000
and decreases in working capital of $1,140,000.
Cash provided by investing activities during the first quarter of fiscal
2000 was $6,958,000 of proceeds from the Asset Sale.
Cash provided by financing activities consisted of $500,000 from the
Revolving Loan on November 1, 1999. Cash used in financing activities consisted
of $1,500,000 to repay both the Revolving Loan and Term loan.
TBCC provided the Company with the Revolving Loan 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. In addition to the Revolving Loan, TBCC provided the
Company with a Term Loan in the amount of $1,000,000 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. 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. For further information, see Note 3 to
Condensed Consolidated Financial Statements.
The Company had no material capital or other commitments as of January 1,
2000.
Year 2000 Compliance: Modification of Management Information Systems
Due to concerns over the impact of the Year 2000 on computerized products
and software, the Company conducted a project to determine its level of Year
2000 compliance and to upgrade systems as necessary. The Company and third
parties with which the Company does business rely on numerous computer programs
in their day-to-day operations. The Company's Year 2000 project was divided into
the following major sections: infrastructure and applications software commonly
referred to as "IT Systems", third party suppliers and customers commonly
referred to as "External Agents", process control and instrumentation and
Company products.
IT Systems: The Company completed its assessment of Year 2000 compliance
in fiscal year 1999. This analysis included such activities as order taking,
billing, purchasing/accounts payable, general ledger/financial, and inventory.
Extensive review of the Company's IT Systems resulted in some upgrading of
systems. This effort has been successfully concluded. The Company is currently
operating in calendar year 2000 and fiscal year 2000 and has not experienced any
date-related problems.
External Agents: The Company polled its External Agents to assess their
Year 2000 readiness and evaluate the scope of the Company's exposure. Based upon
the responses received, the Company is not aware of any External Agent with a
Year 2000 issue that would materially impact the Company's business.
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15
<PAGE>
Process Control and Instrumentation: This category includes such items as
telephone systems, security systems, HVAC, copiers, FAX machines, production
equipment, tools and other process systems. The Company has found no Year 2000
related issues and there has been no disruption in this area.
Company Products. The Company believes that none of its products are date
sensitive or required modification to be Year 2000 compliant.
Conclusion: The Company currently believes that it has effectively
identified and resolved all Year 2000 related issues. As noted above, the
Company is currently operating in calendar year 2000 and fiscal year 2000 and
has not experienced any date-related problems. However, if all of the Company's
potential Year 2000 problems were not properly identified or if adequate
assessment and realization are not timely effected with respect to Year 2000
problems, the Company's business could be harmed. Moreover, any Year 2000
problems facing the External Agents could also harm the Company's business.
Effects of Inflation
Management believes that, for the periods presented, inflation has not had
a material effect on the Company's operations.
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16
<PAGE>
PART II.
OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Index to Exhibits
1. Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(i) Registrant filed a Form 8-K Report dated October 1, 1999 which
consisted of Item 5, reporting on the Asset Purchase
Agreement.
(ii) Registrant filed a Form 8-K Report dated December 8, 1999
which consisted of Item 2, reporting on the Asset Sale. The
Report incorporated by reference pro forma financial
information from the Company's definitive proxy statement for
its Special Meeting of Stockholders held on December 7, 1999
(0000929624-001921).
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17
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- ------
27.1 Financial Data Schedule
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18
<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 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)
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19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JANUARY 1, 2000
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 9,467
<SECURITIES> 0
<RECEIVABLES> 305
<ALLOWANCES> (77)
<INVENTORY> 293
<CURRENT-ASSETS> 10,497
<PP&E> 609
<DEPRECIATION> (321)
<TOTAL-ASSETS> 11,153
<CURRENT-LIABILITIES> 2,916
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 8,237
<TOTAL-LIABILITY-AND-EQUITY> 11,153
<SALES> 1,234
<TOTAL-REVENUES> 1,284
<CGS> 824
<TOTAL-COSTS> 824
<OTHER-EXPENSES> (241)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (50)
<INCOME-PRETAX> 643
<INCOME-TAX> 0
<INCOME-CONTINUING> 643
<DISCONTINUED> 0
<EXTRAORDINARY> (130)
<CHANGES> 0
<NET-INCOME> 513
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
