FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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: 0-17919
SURGICAL LASER TECHNOLOGIES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1093148 .
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Cresson Boulevard, P.O. Box 880
Oaks, PA 19456 .
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(610) 650-0700 .
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No _____
On May 10, 1996, the registrant had outstanding 9,854,007 shares of Common
Stock, $.01 par value.
Page 1 of 13 Pages
Index is on Page 2
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I. FINANCIAL INFORMATION:
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ITEM 1. Financial Statements:
a. Condensed Consolidated Balance Sheets,
March 31, 1996 (unaudited) and December 31, 1995 3
b. Condensed Consolidated Statements of Operations
(unaudited) for the quarters ended March 31, 1996
and April 2, 1995 4
c. Condensed Consolidated Statements of Cash Flows
(unaudited) for the quarters ended March 31, 1996
and April 2, 1995 5
d. Notes to Condensed Consolidated Financial
Statements (unaudited) 6-7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION:
- ----------------------------
ITEM 1. Legal Proceedings 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBITS:
EXHIBIT 11 - Computation of Earnings Per Share 12
EXHIBIT 27 - Financial Data Schedule 13
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, excect par value)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $6,145 $4,903
(including restricted amounts of $100)
Short-term investments 1,980 3,244
Accounts receivable, net of allowance for doubtful
accounts of $118 2,873 3,225
Inventories 3,555 3,866
Other 312 194
------- -------
Total current assets 14,865 15,432
Property and equipment, net 8,056 8,250
Other assets 1,102 1,139
------- -------
Total Assets $24,023 $24,821
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $214 $212
Accounts payable 607 467
Accrued liabilities 2,097 2,163
------- -------
Total current liabilities 2,918 2,842
------- -------
Long-term debt 6,233 6,289
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares authorized,
9,854 shares and 9,854 shares issued and outstanding 99 99
Additional paid-in capital 32,589 32,588
Accumulated deficit (17,816) (16,997)
------- -------
Total stockholders' equity 14,872 15,690
------- -------
Total Liabilities and Stockholders' Equity $24,023 $24,821
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended:
Mar. 31, Apr. 2,
1996 1995
---- ----
<S> <C> <C>
Net sales $2,765 $4,167
Cost of sales 1,050 1,664
----- -------
Gross profit 1,715 2,503
----- -------
Operating expenses:
Selling, general and administrative 2,018 2,965
Product development 436 683
----- -------
2,454 3,648
----- -------
Operating (loss) (739) (1,145)
Interest expense 144 161
Interest income (106) (38)
Equity in loss (earnings) of joint venture 43 (7)
----- -------
Net (loss) ($820) ($1,261)
===== =======
Net (loss) per share ($0.08) ($0.13)
====== ======
Shares used in calculating net (loss) per share 9,854 9,846
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended:
---------------------------
Mar 31, Apr. 2,
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) ($820) ($1,261)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Equity in loss (earnings) of joint venture 44 (7)
Depreciation and amortization 240 463
Imputed interest (4) 5
Decrease (increase) in assets:
Accounts receivable 352 311
Inventories 314 (377)
Other current assets (118) (198)
Other assets 6 1
Increase (decrease) in liabilities:
Accounts payable 140 555
Accrued liabilities (62) 2
------ ------
Net cash provided by (used in) operating activities 92 (506)
------ ------
Cash Flows From Investing Activities:
Sale of short-term investments 1,264 -
Additions to property and equipment (43) (143)
Patent costs (18) (7)
------ ------
Net cash provided by(used in) investing activities 1,203 (150)
------ ------
Cash Flows From Financing Activities:
Payments on long-term debt (53) (60)
------ ------
Net cash used in financing activities (53) (60)
Net increase (decrease) in cash and cash equivalents 1,242 (716)
Cash and Cash Equivalents, Beginning of Period 4,903 4,143
------ ------
Cash and Cash Equivalents, End of Period $6,145 $3,427
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
- 5 -
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Summary Financial Information and Results of Operations:
In the opinion of Surgical Laser Technologies, Inc. and Subsidiaries (the
"Company"), the accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and with the regulations of the Securities and Exchange Commission
and contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1996 and the
results of operations and cash flows for the quarters ended March 31, 1996 and
April 2, 1995.
Interim Financial Information:
While the Company believes that the disclosures presented are adequate to
prevent misleading information, it is suggested that the unaudited condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes included in the Company's Form 10-K
report for the fiscal year ended December 31, 1995, as filed with the Securities
and Exchange Commission. Interim results for the quarter ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
2. Supplemental Cash Flow Information:
Income taxes paid for the quarter ended March 31, 1996 were $15,200, primarily
representing federal alternative minimum taxes. There were no income taxes paid
for the quarter ended April 2, 1995. Interest paid for the quarters ended March
31, 1996 and April 2, 1995 was $146,000 and $156,000, respectively.
The following noncash investing and financing activities took place:
During the first quarter of 1995, the Company issued additional notes of
$299,000 in conjunction with the financing of certain patent litigation. Theses
notes, like others issued later in the year, were completely repaid following
the settlement in December 1995 of the patent litigation with Sharplan Lasers,
Inc. and its parent, Laser Industries Ltd. For the quarters ended March 31, 1996
and April 2, 1995, $1,000 and $42,000, respectively, of the 8% convertible
subordinated notes were converted at the request of the noteholders into common
stock at a conversion price of $4.50 per share.
3. Net Loss Per Share:
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<PAGE>
Net loss per share has been computed using the weighted average number of common
shares outstanding during each period. Common share equivalents have not been
considered as they are anti-dilutive.
4. Bank Borrowings:
At March 31, 1996, the Company had a $2.75 million line of credit agreement with
a bank, which included a $750,000 sub-line for letters of credit. Under its
sub-line, the Company issued a letter of credit in the amount of $576,000 in
favor of the Montgomery County Industrial Development Corporation (MCIDC) under
the terms of the Mortgage and Security Agreement. There were no other borrowings
under the line at March 31, 1996. Borrowings on the line are secured by the
Company's accounts receivable and inventories and bear interest at the bank's
prime rate plus 1/2%. The line expires on June 30, 1996. The Company's line of
credit agreement prohibits the declaration or payment of any dividends or
distributions on any of its capital stock at any time there are outstanding
obligations to the bank without the prior written consent of the bank. The line
is subject to the Company maintaining certain financial covenants, as defined.
The Company expects that its bank will renew its line of credit facility,
including the sub-line for letters of credit.
5. Income Taxes:
No income tax provision was made for the quarter ended March 31, 1996 or for the
comparable quarter of 1995 due to the losses incurred.
6. Segment and Geographic Data:
The Company is engaged in one business segment: the design, development,
manufacture and marketing of laser products for medical applications. The
Company's customers are primarily hospitals and medical centers. Foreign sales
represented 27% of net sales in the first quarter of 1996, as compared to 24% in
the same period in 1995. Sales to the Company's joint venture (see Note 7) were
3% and 13% of net sales in the first quarter of 1996 and 1995, respectively.
7. Investment in MEDIQ PRN/SLT:
The Company is a 50% owner of MEDIQ PRN/SLT, a joint venture formed in the third
quarter of 1993 to provide rentals of lasers and related equipment to hospitals
and other health care providers. The investment in MEDIQ PRN/SLT is accounted
for using the equity method and is included in other assets. Sales to MEDIQ
PRN/SLT are recorded at an arms-length price. Under the equity method, 50% of
the gross profit from the sales to the joint venture is deferred and amortized
to income as the related asset is used by the joint venture. The Company's sales
to the joint venture were $73,000 and $548,000 for the quarters ended March 31,
1996 and April 2, 1995, respectively. Accounts receivable from sales to MEDIQ
PRN/SLT at March 31, 1996 were $216,000.
- 7 -
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended March 31, 1996 of $2,765,000 decreased
$1,402,000 or 34% from the comparable period in 1995. Net sales of laser units
of the Contact Laser Systems decreased 47% in the first quarter of 1996 from the
first quarter of 1995, while net sales of delivery systems declined by 30% over
the same period.
The market for capital purchases by hospitals continued to be weak in the
first quarter of 1996 as expected. In addition, delivery system sales volumes
were negatively affected by the lower capital sales as well as by drug and
electrosurgical alternatives in the urologic market. The Company has recently
introduced, in an effort to reverse the decline in delivery system sales, a new
urologic probe called the VaporMax(TM) and a new delivery system line of
products called SLT Select (TM) for use on other manufacturers' laser systems.
Both of these offerings were formally introduced to the urologic community at
the May 1996 American Urological Association meeting.
Gross profits for the quarter ended March 31,1996 of $1,715,000 decreased
$788,000 or 31% from the first quarter of 1995, principally due to the lower
volume of sales. As a percentage of net sales, gross profit increased to 62%
from 60% in the comparable period of 1995, due primarily to cost reduction
measures taken in the second half of 1995 to reduce manufacturing overhead.
Due to the lower level of sales that have continued into 1996, the Company
has taken action to bring its expenditure levels more in line with sales levels
being experienced. As part of this cost reduction plan, the Company is in the
process of subletting its office and research/training facility. The sublet is
expected to be completed in the third quarter of 1996 and will result in
significantly reducing the Company's facility costs, resulting in a cash savings
of approximately $700,000 annually. The Company expects also to have begun to
move its operations into a smaller, lower-cost facility in the third quarter of
1996.
Primarily as a result of this cost reduction program, operating expenses
for the first quarter of 1996 of $2,454,000 decreased by $1,194,000 or 33% from
the first quarter of 1995.
Product development expenses of $436,000 decreased by $247,000 or 36% from
the same period in 1995. The decrease is due to lower consulting costs resulting
from the expiration in June 1995 of the one-year consulting arrangement with the
principals of Advanced Laser Systems Technology as well as due to lower
personnel-related charges.
Selling, general and administrative expenses of $2,018,000 in the first
quarter of 1996 decreased $947,000 or 32% from the comparable prior year period.
Reductions related to a significant workforce reduction at the end of the second
quarter of 1995 account for the majority of the reduced spending level. In
addition, the 1995 first quarter included $200,000 in charges incurred in
connection with a proposed business combination transaction that was not
consummated.
Net interest expense for the first quarter of 1996 of $38,000 decreased
$85,000 from the comparable period in 1995. The reduction is primarily
attributable to higher interest income earned in the 1996 period due to the
substantially higher cash position.
- 8 -
<PAGE>
Liquidity and Capital Resources
The Company had cash, cash equivalents and short-term investments of
$8,126,000 at March 31, 1996, of which $100,000 was restricted. In addition, the
Company currently has a $2.75 million credit facility with its bank. The
facility includes a sub-line for letters of credit of $750,000. Other than for
the letter of credit issued in the amount of $576,000 in favor of the Montgomery
County Industrial Development Corporation("MCIDC") as a condition of the
Mortgage and Security Agreement with MCIDC, there were no other borrowings
outstanding under the line of credit. Borrowings under the line are secured by
the Company's accounts receivable and inventories . The line is subject to the
Company maintaining certain financial covenants, as defined. This line of credit
facility expires on June 30, 1996. The Company expects that its bank will renew
the line of credit facility, including the sub-line for letters of credit.
Net cash provided from operating activities was $93,000 in the first
quarter of 1996 compared to cash used in operating activities of $506,000 in the
comparable period in 1995. The comparable increase in cash provided by operating
activities was due mainly to the reduction in the net loss incurred, coupled
with a reduction in inventories.
Net cash provided by investing activities was $1,203,000 in the first
quarter of 1996 compared to cash used in investing activities of $150,000 in the
first quarter of 1995. The increase was due principally to the maturity of
certain short-term investments amounting to $1,264,000.
Net cash used in financing activities was $53,000 and $60,000 in the first
quarter of 1996 and 1995, respectively.
Management anticipates capital expenditures of approximately $500,000 in
1996, of which $43,000 was spent in the first quarter. The capital expenditures
are primarily for manufacturing and research and development needs and sales
demonstration lasers. The Company is not contractually committed to spend the
balance of its estimated capital expenditures. Management believes that its
current cash position and cash provided by operations will be sufficient for
these expenditures.
Management believes that inflation has not had a material effect on
operations.
- 9 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
- -------------------------
For information regarding certain pending lawsuits, reference is made to the
Company's Form 10-K, Item 3, for the fiscal year ended December 31, 1995, as
filed with the Securities and Exchange Commission, which is incorporated herein
by reference.
Bard. On April 5, 1996, the United States District Court for the Eastern
District of Pennsylvania granted Trimedyne, Inc.'s Motion to Dismiss Trimedyne
from this action for want of personal jurisdiction. The Company has not appealed
that dismissal.
Trimedyne. On April 29, 1996, the Company filed a Motion for Partial Summary
Judgment that its products do not infringe Trimedyne, Inc.'s U.S. Patent No.
5,380,317. The motion was filed in the United States District Court for the
Central District of California. The Company anticipates that the Court will rule
around the end of June 1996. If it should be necessary, the Company may also
file a motion for summary judgment that the `317 patent is invalid. No
assurance, however, can be given that the Company's motions for Partial Summary
Judgment will be granted.
On May 6, 1996, that Court held a hearing on the Company's Motion for Partial
Summary Judgment that its products do not infringe Trimedyne's U.S. Patent No.
4,773,413. The Court granted the Company's motion on May 10, 1996. The ruling
holds that SLT's Contact Laser (TM) probes do not infringe the `413 patent,
either literally or under the doctrine of equivalents.
Daikuzono. On April 30, 1996, the United States District Court for the Eastern
District of Pennsylvania denied Daikuzono's Motion to Impose a Constructive
Trust on the settlement proceeds received by the Company in the Sharplan suit.
On May 3, 1996, the Company filed a Motion for Partial Summary Judgment with the
Court, seeking, among other things, to have the count for unpaid salary
dismissed under the applicable statute of limitations and to have Daikuzono's
claim for royalties on certain SLT products sold prior to February 1991
dismissed on the same grounds. No assurance can be given that the Court will
grant the Company's motion, in whole or in part.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits: Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Disclosure
b. Reports on Form 8-K: none
- 10 -
<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.
SURGICAL LASER TECHNOLOGIES, INC.
Date: May 15, 1996 By /s/ Michael R. Stewart
----------------------
Michael R. Stewart
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the registrant
and as principal financial officer
- 11 -
<PAGE>
EXHIBIT 11
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended:
Mar. 31, Apr. 2,
1996 1995
---- ----
<S> <C> <C>
Primary Earnings (Loss) Per
Common Share:
Net income (loss) ($820) ($1,261)
------ ------
Weighted average number of shares
of Common Stock outstanding during
the period 9,854 9,846
Additional shares assuming excercise
of stock options and warrants
utilizing the treasury stock method - -
------ ------
Weighted average Common Stock and Common
Stock equivalents outstanding 9,854 9,846
------ ------
Primary earnings (loss) per share ($0.08) ($0.13)
====== ======
Fully Diluted Earnings (Loss) Per
Common Share:
Net income (loss) ($820) ($1,261)
------ ------
Weighted average number of shares
of Common Stock outstanding during
the period 9,854 9,846
Additional shares assuming excercise
of stock options and warrants
utilizing the treasury stock method - -
Additional shares assuming conversion
of convertible subordinated notes - -
------ ------
Weighted average Common Stock and Common
Stock equivalents outstanding 9,854 9,846
------ ------
Fully diluted earnings (loss) per share ($0.08) ($0.13)
====== ======
</TABLE>
-12-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $6,145
<SECURITIES> 1,980
<RECEIVABLES> 2,991
<ALLOWANCES> (118)
<INVENTORY> 3,555
<CURRENT-ASSETS> 14,865
<PP&E> 14,626
<DEPRECIATION> (6,570)
<TOTAL-ASSETS> 24,023
<CURRENT-LIABILITIES> 2,918
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 14,773
<TOTAL-LIABILITY-AND-EQUITY> 24,023
<SALES> 2,765
<TOTAL-REVENUES> 2,765
<CGS> 1,050
<TOTAL-COSTS> 6,137
<OTHER-EXPENSES> 2,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> (820)
<INCOME-TAX> 0
<INCOME-CONTINUING> (820)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (820)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
