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 29, 1998
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.)
147 Keystone Drive
Montgomeryville, PA 18936
-----------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 619-3600
-------------------------------------------
(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 1, 1998 the registrant had outstanding 9,889,323 shares
of Common Stock, $.0l par value.
Page 1
Exhibit Index is on Page 9
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION: PAGE
----
ITEM 1. Financial Statements:
a. Condensed Consolidated Balance Sheets, 3
March 29, 1998 (unaudited) and December 28, 1997
b. Condensed Consolidated Statements of Operations
(unaudited) for the quarters ended
March 29, 1998 and March 30, 1997 4
c. Condensed Consolidated Statements of Cash Flows
(unaudited) for the quarters ended
March 29, 1998 and March 30, 1997 5
d. Notes to Condensed Consolidated
Financial Statements (unaudited) 6-7
ITEM 2. Management's Discussion and Analysis of 7-9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBITS:
EXHIBIT 27.1 - Financial Data Schedule, March 29, 1998 11
EXHIBIT 27.2 - Amended Financial Data Schedule, March 30, 1997 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
March 29, 1998 Dec. 28, 1997
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents (including restricted amount of $100) $ 1,363 $ 1,555
Short-term investments 5,308 4,994
Accounts receivable, net of allowance for doubtful accounts of $152 and $155 1,661 1,925
Inventories 2,935 2,986
Other 401 445
-------- --------
Total current assets 11,668 11,905
Property and equipment, net 1,845 1,998
Property held for sale, net 4,818 4,869
Patents and licensed technology, net 557 576
Other assets 631 648
-------- --------
Total Assets $ 19,519 $ 19,996
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 516 $ 504
Accounts payable 713 512
Accrued liabilities 1,381 1,481
-------- --------
Total current liabilities 2,610 2,497
-------- --------
Long-term debt 6,001 6,142
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares
authorized, 9,889 shares and
9,887 shares issued and outstanding 99 99
Additional paid-in capital 33,195 33,144
Accumulated deficit (22,347) (21,886)
Deferred compensation (39) --
-------- --------
Total stockholders' equity 10,908 11,357
-------- --------
Total Liabilities and Stockholders' Equity $ 19,519 $ 19,996
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial 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:
March 29, 1998 March 30, 1997
<S> <C> <C>
Net sales $ 2,367 $ 3,073
Cost of sales 1,041 1,345
------- -------
Gross profit 1,326 1,728
------- -------
Operating expenses:
Selling, general and administrative 1,535 1,720
Product development 278 231
------- -------
1,813 1,951
------- -------
Operating loss (487) (223)
Interest expense 154 172
Interest income (85) (125)
Other income (98) (73)
------- -------
Loss before income taxes (458) (197)
Provision for income taxes 3 --
------- -------
Net loss ($ 461) ($ 197)
======= =======
Basic and diluted loss per share ($ 0.05) ($ 0.02)
======= =======
Shares used in calculating basic
and diluted loss per share 9,889 9,882
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
For the Quarter Ended:
March 29, 1998 March 30, 1997
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ($ 461) ($ 197)
Adjustments to reconcile net loss to net
cash provided by operating
activities:
Depreciation and amortization 265 277
Imputed interest (7) (6)
(Increase) decrease in assets:
Accounts receivable 264 246
Inventories 61 416
Other current assets 44 (35)
Other assets 45 (20)
Increase (decrease) in liabilities:
Accounts payable 201 (123)
Accrued liabilities (63) (258)
------- -------
Net cash provided by operating activities 349 300
------- -------
Cash Flows From Investing Activities:
Purchases of short-term investments (314) (11)
Additions to property and equipment (34) (40)
Patent costs (42) 38
Purchase of marketing agreement (30) --
------- -------
Net cash used in investing activities (420) (13)
------- -------
Cash Flows From Financing Activities:
Payments on long-term debt (121) (97)
------- -------
Net cash used in financing activities (121) (97)
------- -------
Net increase (decrease) in cash and cash equivalents (192) 190
Cash and Cash Equivalents, Beginning of Period 1,555 2,795
======= =======
Cash and Cash Equivalents, End of Period $ 1,363 $ 2,985
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial 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 29, 1998 and the
results of operations and cash flows for the quarters ended March 29, 1998 and
March 30, 1997.
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 28, 1997, as filed with the Securities
and Exchange Commission. Interim results for the quarter ended March 29, 1998
are not necessarily indicative of the results to be expected for the full year.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which requires that
all items that are required to be recognized under accounting standards or
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
became effective for fiscal years beginning after December 15, 1997, with
initial application as of the beginning of the Company's 1998 fiscal year. SFAS
No. 130 requires comparative financial statements provided for earlier periods
to be reclassified to reflect application of the provisions of this new
standard.
The Company has reviewed SFAS No. 130 and has determined that for the quarter
ended March 29, 1998 and for the year ended December 28, 1997, no items meeting
the definition of comprehensive income as specified in SFAS No. 130 existed in
the financial statements. As a result, no disclosure is necessary to comply with
SFAS No. 130.
2. Supplemental Cash Flow Information:
There were no income taxes paid for the quarters ended March 29, 1998 and
March 30, 1997. Interest paid for the quarters ended March 29, 1998 and March
30, 1997 was $154,000 and $172,000, respectively.
The following noncash investing and financing activities took place:
For the quarters ended March 29, 1998 and March 30, 1997, $7,000 and $4,000,
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. Basic and Diluted Loss Per Share:
Basic and diluted loss per share have been computed under the guidelines of
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). Due to the Company's net loss for the quarters ended
6
<PAGE>
March 29, 1998 and March 30, 1997, the inclusion of common share
equivalents had an anti-dilutive effect when calculating diluted earnings per
share under SFAS No. 128 and, as a result, diluted earnings per share was
equivalent to basic earnings per share for those periods.
4. Bank Borrowings:
At March 29, 1998, the Company had a $2,535,000 million line of credit agreement
with a bank, which included a $535,000 sub-line for letters of credit. Under its
sub-line, the Company issued a letter of credit in the amount of $453,000 which
replaced the letter of credit issued in 1996 of $515,000 in favor of the
Montgomery County Industrial Development Corporation ("MCIDC") under the terms
of the Mortgage and Security Agreement for the Company's property in Oaks,
Pennsylvania. Additionally, in 1996, the Company issued a letter of credit for
$17,510 to its lessor in compliance with the lease agreement for the
Montgomeryville, Pennsylvania facility. Other than for these letters of credit
there were no borrowings under the line during the quarter ended or at March 29,
1998. 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 May 31, 1998. The Company's line of credit agreement prohibits the
declaration or payment of any dividends or distributions on any of its capital
stock without the prior written consent of the bank at any time there are
outstanding obligations to the bank. The line is subject to the Company
maintaining certain financial covenants, as defined, with which the Company was
in compliance at March 29, 1998.
5. Income Taxes:
The tax provision for the quarter ended March 29, 1998 was for state income
taxes. No income tax provision was made for the quarter ended March 30, 1997 due
to the net loss incurred.
6. Segment and Geographic Data:
The Company is engaged in primarily one business segment: the design,
development, manufacture, sale and rental of proprietary laser systems and
delivery systems for both contact and non-contact surgery. The Company's
customers are primarily hospitals and medical centers. Foreign sales represented
19% of net sales in the first quarter of 1998, as compared to 26% in the same
period in 1997.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- -------------------------------------------------------------------
Results of Operations
Historically the Company has generated its net sales from positioning its
technology and products across a wide range of surgical specialties. In an
effort to attain more significant growth in sales, the Company redefined its
strategy for growth during 1997 to include a specific focus in the surgical
specialties of Otolaryngology and Head and Neck ("ENT") surgery. In conjunction
with this focused strategy, the Company has and will continue to seek to enter
into relationships with other companies to expand the use of the Company's
products in surgical specialties other than ENT, and has and will continue to
seek to utilize its strengths in supplying other companies with products that
draw on the Company's expertise and competencies. While refocusing its strategy
in ENT, the Company will take these other actions in an effort to enhance sales
and to promote continued utilization of its products and services in those other
surgical specialties.
The Company is also taking actions intended to improve its international
customer relationships, consistent with a focus on a more specific surgical
segment. Additionally, as part of this transition, the Company is exploring
opportunities to expand the utilization of its proprietary technologies by
entering into private label relationships with other companies which will market
products encompassing the Company's core competencies under their product
labeling.
7
<PAGE>
Net sales for the quarter ended March 29, 1998 of $2,367,000 decreased $706,000
or 23% from the comparable period in 1997. Net sales of Nd:YAG laser systems
decreased 74% in the first quarter of 1998 from the first quarter of 1997. Net
sales of all products and services other than Nd:YAG laser systems were 5% lower
in the first quarter of 1998 as compared to the prior year period. The decrease
in laser system sales was attributable to both domestic hospital budget
constraints and to the effect on capital purchases of the Asian economic
situation.
Gross profits of $1,326,000 for the quarter ended March 29,1998 decreased
$402,000 or 23% from the first quarter of 1997, principally due to the decreased
volume of sales. As a percentage of net sales, gross profit was 56% for the
quarters ended March 29, 1998 and March 30, 1997.
Operating expenses for the first quarter of 1998 of $1,813,000 decreased by
$138,000 or 7% from the first quarter of 1997. This decrease was due primarily
to a reduction in legal fees as a result of legal settlements reached during
1997.
Selling, general and administrative expenses of $1,535,000 in the first quarter
of 1998 decreased $185,000 or 11% from the comparable prior year period.
Reductions in legal fees during the first quarter of 1998 accounted for the
majority of the reduced spending level.
Product development expenses of $278,000 in the first quarter of 1998 were
$47,000, or 20% higher than the same period in 1997. The higher level of
spending was principally due to an increase in internal product development
activities consistent with the Company's strategies and specific focus on the
development of products for ENT surgery.
Other income for the first quarter of 1998 of $98,000 increased $25,000 or 34%
from the comparable prior year period. The increase was primarily attributable
to the inclusion in the first quarter of 1997 of certain facility related
charges which did not reoccur in the comparable 1998 period.
Net interest expense for the first quarter of 1998 of $69,000 increased $22,000
from the comparable period in 1997. The increase was primarily attributable to
lower interest income earned on short-term investments in the first quarter of
1998 as compared to the first quarter of 1997.
Liquidity and Capital Resources
The Company had cash, cash equivalents and short-term investments of $6,671,000
at March 29, 1998, of which $100,000 was restricted. In addition, the Company
currently has a $2,535,000 credit facility with a bank. The facility includes a
sub-line for letters of credit of $535,000. Other than for the letter of credit
issued in the amount of $453,000 in favor of the Montgomery County Industrial
Development Corporation ("MCIDC") as a condition of the Mortgage and Security
Agreement for the Company's property in Oaks, Pennsylvania, and one other minor
letter of credit, there were no 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, with which the Company was in compliance at March 29,
1998. This facility expires on May 31, 1998.
Net cash provided by operating activities was $349,000 in the first quarter of
1998 compared to cash provided by operating activities of $300,000 in the
comparable period in 1997. The comparable increase in the net loss and a lower
level of current assets were more than offset by a comparably higher level of
current liabilities in the 1998 first quarter.
Net cash used in investing activities was $420,000 in the first quarter of 1998
compared to cash used in investing activities of $13,000 in the first quarter of
1997. The comparable increase in cash used in investing activities was due
principally to the purchase of short-term investments of $314,000 in the first
quarter of 1998.
Net cash used in financing activities was $121,000 and $97,000 in the first
quarter of 1998 and 1997, respectively.
8
<PAGE>
Management believes the Company's current cash position and available line of
credit will be sufficient to fund operations and meet commitments for long-term
debt, other commitments and contingencies and capital expenditures.
Management believes that inflation has not had a material effect on operations
for the periods presented.
The Company has analyzed its management information systems for the "Year 2000"
compliance issues. The Company has purchased the latest version of a software
package which has eliminated the "Year 2000" issue. The cost of conversion to
the new version of the software package has not been material.
Risk Factors
For information regarding certain risk factors that could cause actual results
to differ materially from those suggested in forward-looking statements
contained herein or otherwise made from time to time by the Company, reference
is made to the Company's Form 10-K, Item 7, "Risk Factors," for the fiscal year
ended December 28, 1997, which is incorporated herein by reference. The risk
factors described in such report continue to be applicable at March 29, 1998.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits: Exhibit 27.1 - Financial Data Schedule, March 29, 1998
Exhibit 27.2 - Amended Financial Data Schedule, March 30, 1997
b. Reports on Form 8-K: none
9
<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 5, 1998 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.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 29, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE QUARTER ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE (UNAUDITED)
(In thousands, except per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> MAR-29-1998
<CASH> $1,363
<SECURITIES> 5,308
<RECEIVABLES> 1,813
<ALLOWANCES> (152)
<INVENTORY> 2,935
<CURRENT-ASSETS> 11,668
<PP&E> 14,265
<DEPRECIATION> (7,602)
<TOTAL-ASSETS> 19,519
<CURRENT-LIABILITIES> 2,610
<BONDS> 6,517
0
0
<COMMON> 99
<OTHER-SE> 10,809
<TOTAL-LIABILITY-AND-EQUITY> 19,519
<SALES> 2,367
<TOTAL-REVENUES> 2,367
<CGS> 1,041
<TOTAL-COSTS> 1,041
<OTHER-EXPENSES> 1,802
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (458)
<INCOME-TAX> 3
<INCOME-CONTINUING> (461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (461)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.2
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 30, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE QUARTER ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
SURGICAL LASER TECHNOLOGIES, INC.
AND SUBSIDIARIES
AMENDED FINANCIAL DATA SCHEDULE (UNAUDITED)
(In thousands, except per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> $2,985
<SECURITIES> 3,337
<RECEIVABLES> 2,769
<ALLOWANCES> (116)
<INVENTORY> 3,138
<CURRENT-ASSETS> 12,282 <F1>
<PP&E> 14,666
<DEPRECIATION> (6,948)
<TOTAL-ASSETS> 20,809
<CURRENT-LIABILITIES> 3,176
<BONDS> 6,998 <F2>
0
0
<COMMON> 99
<OTHER-SE> 11,016
<TOTAL-LIABILITY-AND-EQUITY> 20,809
<SALES> 3,073
<TOTAL-REVENUES> 3,073
<CGS> 1,345
<TOTAL-COSTS> 1,345
<OTHER-EXPENSES> 1,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47 <F3>
<INCOME-PRETAX> (197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (197)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
(1) Restated from $169 to $12,282.
(2) Restated to include $6,998 of long term debt.
(3) Restated to include $125 of interest income.
</FN>
</TABLE>
